**Written Testimony to the Committee on Energy and Natural Resources**

**Sir Nicholas Stern**

There is still time to avoid the worst impacts of climate change, if we
take strong action now.

The scientific evidence is now overwhelming: climate change is a serious
global threat, and it demands an urgent global response.

The recent report by the UN's expert panel of climate scientists
confirms that global average temperatures have already risen 0.7 degrees
C from pre-industrial levels. If emissions continue to rise, the panel's
central estimate of further warming for the end of this century is 4
degrees C. This would also give a greater than 50% probability of
increases over 5 degrees C in the next century beyond 2100 -- exactly in
line with the analysis presented in the Stern Review last year.

The Stern Review assessed a wide range of evidence on the impacts of
climate change and on the economic costs, and has used a number of
different techniques to assess costs and risks. From all of these
perspectives, the evidence gathered leads to a simple conclusion: the
benefits of strong and early action far outweigh the economic costs of
not acting.

Warming on the scale implied by allowing emissions to grow on
business-as-usual basis is associated with widespread and serious
impacts --on the availability of water, on human health, on food
production, and the environment. The impacts in the US are likely to be
substantial -- an increase in the intensity of hurricanes in the Gulf of
Mexico, still greater water stress in California, sea level rise in
Florida, an increased risk of storm surges in New York.

We have already seen how long-term shifts in weather patterns interact
with other factors to generate movements of people and the conditions
for conflict -- for example in Darfur. Abrupt regional shocks become
more likely as average temperatures rise -- including the risk of sudden
changes to monsoon rains in densely populated regions of South Asia, or
significant reductions in water flow in the River Nile affecting 10
countries in North and East Africa.

To reduce these risks to manageable proportions, we would have to keep
the atmospheric concentration of greenhouse gases below around 550 ppm
C02 equivalent. Even at this level there are serious risks: indeed,
there is only a 50% chance that the eventual temperature rise would
[not]{.underline} exceed 3 degrees C.

In contrast, the costs of action -- reducing greenhouse gas emissions to
avoid the worst impacts of climate change -- can be limited to around 1%
of global GDP each year. The models give a range of +/-3% -- but higher
estimates embody pessimistic assumptions about progress in technologies
and other issues. A cost of 1% is not trivial -- but it is similar to a
one-off increase in the price index, the kind of cost that we
accommodate all the time, for example, through changes in exchange
rates. It will not slow growth. It is failing to act that will damage
growth. The message from the economics of climate change is clear: we
must act strongly and we must act now.

The investment that takes place in the next 10-20 years will have a
profound effect on the climate in the second half of this century and in
the next. Our actions now and over the coming decades could create risks
of major disruption to economic and social activity, on a scale similar
to those associated with the great wars and the economic depression of
the first half of the 20^th^ century. And it will be difficult or
impossible to reverse these changes.

So prompt and strong action is clearly warranted. Because climate change
is a global problem, the response to it must be international. It must
be based on a shared vision of long-term goals and mutual understanding
that will accelerate action over the next decade. It must build on
mutually reinforcing approaches at national, regional and international
level.

Climate change could have very serious impacts on growth and
development.

If no action is taken to reduce emissions, the concentration of
greenhouse gases in the atmosphere could reach double its pre-industrial
level as early as 2035, virtually committing us to a global average
temperature rise of over 2°C. In the longer term, there would be more
than a 50% chance that the temperature rise would exceed 5°C. This rise
would be very dangerous indeed; it is equivalent to the change in
average temperatures from the last Ice Age to today. Such a radical
change in the physical geography of the world must lead to major changes
in the human geography -- where people live and how they live their
lives.

Even at more moderate levels of warming, all the evidence -- from
detailed studies of regional and sectoral impacts of changing weather
patterns through to economic models of the global effects -- shows that
climate change will have serious impacts on world output, on human life
and on the environment.

[]{.mark}

All countries will be affected. The most vulnerable -- the poorest
countries and populations -- will suffer earliest and most, even though
they have contributed least to the causes of climate change. The costs
of extreme weather, including floods, droughts and storms, are already
rising, including for rich countries.

Adaptation to climate change -- that is, taking steps to build
resilience and reduce the costs of impacts -- is essential. It is no
longer possible to prevent the climate change that will take place over
the next two to three decades, but it is still possible to protect our
societies and economies from its impacts to some extent -- for example,
by providing better information, improved planning and more
climate-resilient infrastructure and crops. Adaptation will cost tens of
billions of dollars a year in developing countries alone, and will put
still further pressure on already scarce resources. Adaptation efforts,
particularly in developing countries, should be accelerated.

The costs of stabilising the climate are significant but manageable;
delay would be dangerous and much more costly.

The risks of the worst impacts of climate change can be substantially
reduced if greenhouse gas levels in the atmosphere can be stabilised
between 450 and 550ppm CO~2~ equivalent (CO~2~e). The current level is
430ppm CO~2~e today, and it is rising at more than 2ppm each year.
Stabilisation in this range would require emissions to be at least 25%
below current levels by 2050, and perhaps much more.

Ultimately, stabilisation -- at whatever level -- requires that annual
emissions be brought down to more than 80% below current levels.

This is a major challenge, but sustained long-term action can achieve it
at costs that are low in comparison to the risks of inaction. Central
estimates of the annual costs of achieving stabilisation between 500 and
550ppm CO~2~e are around 1% of global GDP, if we start to take strong
action now and follow sound and economically efficient policies

Costs could be even lower than that if there are major gains in
efficiency, or if the strong co-benefits, for example from reduced air
pollution, are measured. Costs will be higher if innovation in
low-carbon technologies is slower than expected, or if policy-makers
fail to make the most of economic instruments that allow emissions to be
reduced whenever, wherever and however it is cheapest to do so.

It would already be very difficult and costly to aim to stabilise at
450ppm CO~2~e. If we delay, the opportunity to stabilise at 500-550ppm
CO~2~e may slip away. Business as usual emissions for the next 30 years
would already take us well over 500ppm CO2e.

### Action on climate change is required across all countries, and it need not cap the aspirations for growth of rich or poor countries.

The costs of taking action are not evenly distributed across sectors or
around the world. Even if the rich world takes on responsibility for
absolute cuts in emissions of 60-80% by 2050, developing countries must
take significant action too. But developing countries should not be
required to bear the full costs of this action alone, and they will not
have to. Carbon markets in rich countries are already beginning to
deliver flows of finance to support low-carbon development, including
through the Clean Development Mechanism. A transformation of these flows
is now required to support action on the scale required.

Action on climate change will also create significant business
opportunities, as new markets are created in low-carbon energy
technologies and other low-carbon goods and services. These markets
could grow to be worth hundreds of billions of dollars each year, and
employment in these sectors will expand accordingly.

The world does not need to choose between averting climate change and
promoting growth and development. Changes in energy technologies and in
the structure of economies have created opportunities to decouple growth
from greenhouse gas emissions. Indeed, ignoring climate change will
eventually damage economic growth.

Tackling climate change is the pro-growth strategy for the longer term,
and it can be done in a way that does not cap the aspirations for growth
of rich or poor countries.

### A range of options exists to cut emissions; strong, deliberate policy action is required to motivate their take-up.

Emissions can be cut through increased energy efficiency, changes in
demand, and through adoption of clean power, heat and transport
technologies. The power sector around the world would need to be at
least 60% decarbonised by 2050 for atmospheric concentrations to
stabilise at or below 550ppm CO~2~e, and deep emissions cuts will also
be required in the transport sector.

Even with very strong expansion of the use of renewable energy and other
low-carbon energy sources, fossil fuels would still probably make up
over half of global energy supply in 2050. Natural resources dictate
that coal will continue to be important in the energy mix around the
world, including in fast-growing economies. If it proves a viable
technology as expected, extensive carbon capture and storage will be
required to allow the continued use of fossil fuels without damage to
the atmosphere.

Cuts in non-energy emissions, such as those resulting from deforestation
and from agricultural and industrial processes, are also essential.

### 

With strong, deliberate policy choices, it is possible to reduce
emissions in both developed and developing economies on the scale
necessary for stabilisation in the required range while continuing to
grow.

Climate change is the greatest market failure the world has ever seen,
and it interacts with other market imperfections. Three elements of
policy are required for an effective global response. The first is the
pricing of carbon, implemented through tax, trading or regulation. The
second is policy to support innovation and the deployment of low-carbon
technologies. And the third is action to remove barriers to energy
efficiency, and to inform, educate and persuade individuals about what
they can do to respond to climate change.

# *Climate change demands an international response, based on a shared understanding of long-term goals and agreement on frameworks for action.*

Many countries and regions are taking action already: the EU, California
and China are among those with the most ambitious policies that will
reduce greenhouse gas emissions. The UN Framework Convention on Climate
Change and the Kyoto Protocol provide a basis for international
co-operation, along with a range of partnerships and other approaches.
But more ambitious action is now required around the world.

Countries facing diverse circumstances will use different approaches to
make their contribution to tackling climate change, and will use
different combinations of policy tools. As far as possible, a common
carbon price across different sectors and countries will ensure that
reductions are made in the most efficient way around the world. It is
essential to create a shared international vision of long-term goals to
provide the context for domestic policy, and to build the international
frameworks that will help each country to play its part in meeting these
common goals.

Key elements of future international frameworks should include:

-   *Emissions trading:* Expanding and linking the growing number of
    emissions trading schemes around the world is a powerful way to
    promote cost-effective reductions in emissions and to bring forward
    action in developing countries: strong targets in rich countries
    could drive flows amounting to tens of billions of dollars each year
    to support the transition to low-carbon development paths.

-   *Technology cooperation:* Informal co-ordination as well as formal
    agreements can boost the effectiveness of investments in innovation
    around the world. Globally, support for energy R&D should at least
    double, and support for the deployment of new low-carbon
    technologies should increase up to five-fold. International
    co-operation on product standards is a powerful way to boost energy
    efficiency.

-   *Action to reduce deforestation:* The loss of natural forests around
    the world contributes more to global emissions each year than the
    transport sector. Curbing deforestation is a highly cost-effective
    way to reduce emissions; large-scale international pilot programmes
    to explore the best ways to do this could get underway very quickly.

-   *Adaptation:* The poorest countries are most vulnerable to climate
    change. It is essential that climate change be fully integrated into
    development policy, and that rich countries honour their pledges to
    increase support through overseas development assistance.
    International funding should also support improved regional
    information on climate change impacts, and research into new crop
    varieties that will be more resilient to drought and flood.

#### Responses to the Stern Review 

Since publication, the Review team have travelled widely, presenting the
results of the Review and listening to the reactions of policymakers,
academics and business leaders, in particular in the EU, China, India,
Japan, Africa and the US.

In the academic literature, many people have supported the approach
taken in the Review, but some have raised questions about particular
technical aspects of the analysis -- often based on misconceptions of
the approach undertaken in review. We are publishing a detailed paper
responding to the critiques this week. In summary, the economic analysis
in the Review remains robust. The costs of inaction on climate change
are much greater than the likely costs of early action to reduce the
risks.

***The analysis is built on the existing literature, but the estimates
of the cost of damages were higher for three reasons***

First, crucial advances of the science in the past few years have
allowed estimates to be made of the probabilities of temperature rises
associated with increases in the quantity of greenhouse gases in the
atmosphere. These estimates point to significant risks of temperature
increases above 5°C under a business-as-usual scenario by the early part
of the next century. Previous studies have mainly focused on 2-3°C
temperature rises and our results for these temperatures are consistent
with existing studies.

Second, we have taken account of the impact on wellbeing across the full
range of possible outcomes, including worst- and best-case scenarios,
and have explicitly built in aversion to risk. Risks and uncertainties
are the heart climate change modelling, and risk aversion entails giving
more weight to the worse outcomes, as people routinely do in their daily
lives, for example, in buying insurance. That, together with the risks
of higher temperatures, and an ethically supportable approach to valuing
future lives, is what drives our results. These results are supported by
a detailed analysis of the economic impacts of climate change at the
regional and country level.

The review examines the application of discounting to the particular
characteristics of climate change and the ethical issues involved. With
higher discount factors, it becomes easy to see why climate change -
which results in significant impacts in the future - gets a relatively
low ethical weight. For example, a discount rate of 3% would give
individuals existing at the end of this century roughly one tenth of the
ethical weight of the current generation and only a 1% weight by 2200.
Because we know that future generations will exist and that their
consumption and welfare will be affected by the climate that they
experience, we adopt a low pure time discount rate that gives future
generations equal ethical weight. But this is only one element of the
discount rate. How much we discount the future depends also on how much
richer we expect to be. Risks and uncertainties surrounding climate
change imply that strongly divergent paths for future growth are
possible, so the use of a single discount rate is inappropriate. The
discount rates used in the Review do include the appropriate rate of
economic growth for each model run.

Discounting has been the subject of much attention since publication of
the Review, and rightly so, since it does drive the results to some
extent. We welcome the legitimate debate on the values chosen given the
ethical implications of different choices. But the discount rate is not
the only factor driving the case for climate change. Our sensitivity
analysis demonstrates that the treatment of risk and uncertainty and the
extent to which projections of impacts reflect progress in the
scientific literature are of roughly equal importance.

Given that the assumptions underlying our model can be shown to be
plausible and unbiased, the question is often asked why our results show
a higher valuation of the impacts of climate change under business as
usual when compared with previous studies? The answer should by this
stage be clear:

1.  Our study takes on the published findings of the latest science
    including a probabilistic assessment of high climate change impacts.

2.  We have explicitly accounted for the economics of risk, which has
    hitherto been mostly ignored.

3.  We have taken an ethical judgement about the way we value future
    generations that is time-consistent and allows the Review to be
    objective with conclusions that do not discriminate on the basis of
    birth dates.

Having assessed the model properties and characteristics and compared
the results with the disaggregated impacts associated with a business as
usual emissions path, we remain confident that our estimates are very
much in the centre of any plausible range of model projections.

### Since the publication of the Review, momentum in national and international policy-making has increased

The messages in the Review have been well received by policymakers and
business, and momentum has continued to build towards more effective
domestic policies and more effective international links between them.

The development of policy in the EU has accelerated significantly in the
last few months. The European Commission rejected several of the draft
National Allocation Plans for Phase II of the EU ETS, asking for
allocations to be reduced in a number of countries -- a move that will
increase the credibility of the market for 2008-2012. This has sent a
strong signal on the role of carbon markets at the centre of the EU's
strategy to deliver deeper emissions cuts. The EU's Strategic Energy
Review, published in January 2007, recommends a target for the EU to
reduce greenhouse gases by up to 30% by 2020, and proposes other
mandatory targets on energy efficiency, renewables and biofuels.

In China and in India, policymakers are also demonstrating a strong
interest in moving towards more secure and sustainable energy use. In
China, we heard about the wide range of measures that China is beginning
to implement towards its domestic target to improve energy intensity by
20% by 2010: energy efficiency audits and major investment projects for
manufacturing industry, and tariffs on the export of energy-intensive
products including for cement, iron and steel and aluminium. In India,
we saw how the Integrated Energy Policy under the 11^th^ Five Year Plan
is being taken forward -- including changes to energy subsidies, plans
for more efficient coal-fired power plant and further development of
innovative new technologies for renewable energy.

In Japan, debates between government, industry and civil society on the
challenges of designing further domestic and international action are
intensifying. There was encouraging news of rapid technological progress
-- confidence on the role of plug-in hybrid vehicles and imminent
breakthroughs in solar technology. There was increasing recognition of
the role of trading and investment strategies in creating stronger
co-operation with China and India, and interest in sectoral approaches
that could mitigate concerns about competitiveness.

In Africa, climate change has risen sharply up the agenda. The decision
by the African Union to make climate change one of the key themes for
its Summit in January 2007 has drawn the attention of African leaders to
the vulnerability of their countries, and to the opportunities for
adaptation, sustainable land management and low-carbon development.

The US has shown how regulation and standards can build markets, for
example in energy efficient domestic appliances, and in tackling other
environmental problems such as lead in gasoline. Leadership in the
world's largest markets sets the pace elsewhere -- even the Sudan now
uses lead-free gasoline. In the 2007 State of the Union President Bush
outlined further plans to improve efficiency, reduce emissions and
improve energy security particularly in the transport sector.

In the light of these developments, there are clear opportunities to
build momentum towards effective international collective action on
climate change.

###### Conclusion

Our analysis suggests that uncontrolled climate change constitutes a
risk that we cannot afford to take. Three main reasons have been put
forward to reject this conclusion. They are all profoundly mistaken. The
first is that the science is incorrect. This is not borne out by the
conclusions of the recent UN panel on the science, which reported so
clearly and strongly only ten days ago. The second is that we can adapt
as a human race to rising temperatures. That is reckless; it ignores the
risk of very high temperature increases. Business-as-usual growth in
emissions over the next hundred years would be likely to take us to a
world that would be 5 or 6 degrees hotter than today - a change which is
equivalent to the difference between now and in the last Ice Age. It
would transform the physical geography of the world and that would, in
turn, transform the human geography. It would involve massive
dislocation and in all probability conflict. The final reason for
refusing to act is that such risks and their impacts will happen a long
way into the future, and we have little interest in what happens in the
future. Many would find this argument ethically untenable.

We have an understanding of the case for action, of the scale of action
necessary, and of the economic policies to deliver this action. However,
the scale of the response will have to increase dramatically in the
coming decades. A shared vision of the goals for long-term climate
polices will provide an essential reference point for the development of
international and national policy.

If we are to stabilise at 550ppm CO2e or below, reducing the risks of
very high temperature increases, global emissions must peak in the next
10-20 years. Now is the time to act: urgently, strongly and
internationally. Strong leadership from the US is of the utmost
importance in this endeavour.

##### 

*The full report of the Stern Review on the Economics of Climate Change
is published by Cambridge University press and is available to download
for free, along with supporting material and more recent papers, at
[www.sternreview.org.uk](http://www.sternreview.org.uk/)*

*Also available from this site is the 30 page executive summary,
frequently asked questions, papers published since the launch and
supporting commissioned research.*