forward, electric vehicles mounted with high-capacity laminate lithium ion batteries are also set to be commercialized. Thus, rechargeable batteries have become an element indispensable for the development of next-generation environment-friendly products.

Measures to cope with global warming will reduce lighting and heating expenses at households. As an example of usage of energy from sunlight, solar heat utilization systems such as water heaters have a high energy efficiency of 40-60% and are also relatively cheap. Solar heat utilization systems are rapidly spreading in Europe and China, etc., and Japan is trying to develop a mechanism under which such systems can be used without safety concerns by spreading them mainly under lease contracts, which helps eliminate maintenance troubles (Figure 2-2-1).

Furthermore, when photovoltaic power generation, high-performance insulation and high-efficiency water heaters are introduced to single-family houses and at the same time electric appliances are replaced with energy-saving ones, for example, despite the costs of introducing these systems and new electric appliances, reductions in heating and lighting expenses can be expected. High-performance insulation of houses will also produce the secondary effect of creating a comfortable and healthy living space that is cool in summer and warm in winter.

## Column The Stern Review

The “Stern Review: The Economics of Climate Change” is the report on economic impacts of the climate change problem the British government commissioned to the former World Bank Senior Vice President Nicholas Stern following the Group of Eight Summit in July 2005, which was released in October 2006. The Stern Review analyzed the economic costs of the impacts of climate change, and the costs and benefits of action to reduce the emissions of greenhouse gases using the following three different ways.

(i) Approach to considering individual factors

This is the approach of analysis to consider the physical impacts of climate change on the economy, on human life and on the environment using disaggregated techniques, and examine the resource costs of different technologies and strategies to reduce greenhouse gas emissions.

The Stern Review first made an analysis using integrated assessment models to estimate the overall impact of climate change in monetary units. The Stern Review also used models that makes it possible to examine the risks of most uncertain impacts using probabilities, and it estimated that “the monetary impacts of climate change are now expected to be more serious than many earlier studies suggested.”

The Review estimated “the total cost over the next two centuries of climate change associated under BAU (business as usual) emissions involves impacts and risks that are equivalent to an average reduction in global per-capita consumption of at least 5%.” Further, including direct impacts on the environment and human health (so called “non-market” impact) and weighting appropriately the disproportionate share of the climate-change burden falling on poor regions of the world, it is estimated that the total cost of BAU climate change would be increased to “the equivalent of around a 20% reduction in consumption per head, now and into the future.”

(ii) Approach to using economic models

This is the approach of analysis that uses economic models, including integrated assessment models that estimate the economic impacts of climate change, and macroeconomic models that represent the costs and effects of the transition to low-carbon energy systems for the economy as a whole.

Assuming the following four ways to reduce greenhouse gas emissions:

• Reducing demand for emissions-intensive goods and services

• Increased efficiency, which can save both money and emissions

• Action on non-energy emissions, such as avoiding deforestation

• Switching to lower-carbon technologies for power, heat and transport,

the Review estimated the costs of stabilizing greenhouse gases at levels of 500-550ppm $ CO_{2e} $ in two ways: One is to provide an upper bound on costs by looking at the resource costs of measures in comparison with the costs of the BAU alternative, and the second is to use macroeconomic models to explore the economic system-wide effects of the transition to a low-carbon energy economy. As a result, on the basis of these two methods, it is concluded that “stabilization of greenhouse gases at levels of 500-550ppm $ CO_{2e} $ will cost, on average, around 1% of annual global GDP by 2050.” A broad range of macro-economic model estimates led to an important corollary that “there is a high price to delay.” The Stern Review also issued a warning: “Weak action in the next 10-20 years would put stabilization even at 550ppm $ CO_{2e} $ beyond reach – and this level is already associated with significant risks.”

(iii) Approach to comparing costs

This is the approach of analysis to compare the estimated costs of mitigation with the estimated costs of climate change without action, and to compare the marginal cost of carbon abatement with the “social cost of carbon.”

Introducing the latest knowledge about risks and assuming we remain on a BAU trajectory, the Stern Review estimated that “the social cost of carbon today … is of the order of 85 per tonne of $ CO_{2} $ .” This number is well above marginal abatement costs in many sectors. Comparing the social costs of carbon