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This paper examines a broad range of ethical perspectives and principles relevant to the analysis of issues raised by the science of climate change and explores their implications. A second and companion paper extends this analysis to the contribution of ethics, economics and politics in understanding policy towards climate change. These tasks must start with the science which tells us that this is a problem of risk management on an immense scale. Risks on this scale take us far outside the familiar policy questions and standard, largely marginal, techniques commonly used by economists; this is a subject that requires the full breadth and depth of what economics has to offer and a much more thoughtful view of ethics than economists usually bring to bear. Different philosophical approaches bring different perspectives on understanding and policy, yet they generally point to the case for strong action to manage climate change.

KEY MESSAGES Climate change poses a real threat to the developing world. Unchecked it will become a major obstacle to continued poverty reduction. Developing countries are especially vulnerable to climate change because of their geographic exposure, low incomes, and greater reliance on climate sensitive sectors such as agriculture . Ethiopia, for example, already has far greater hydrological variability than North America but less than 1% of the artificial water storage capacity per capita. Together these mean that impacts on developing countries are proportionally greater and the ability to adapt smaller. Many developing countries are already struggling to cope with their current climate. For low-income countries, major natural disasters today can cost an average of 5% of GDP. For example: Health and agricultural incomes will be under particular threat from climate change. Falling farm incomes will increase poverty and reduce the ability of households to invest in a better future and force them to use up meagre savings just to survive. Millions of people will potentially be at risk of climate-driven heat stress, flooding, malnutrition and water related and vector borne diseases. For example, dengue transmission in South America may increase by 2 to 5 fold by the 2050s. The cost of climate change in India and South East Asia could be as high as a 9–13% loss in GDP by 2100 compared with what could have been achieved in a world without climate change. […]

Ethical frameworks for climate change The ‘consequentialist’ and ‘welfarist’ approach – the assessment of a policy in terms of its consequences for individual welfare – that is embodied in standard welfare economics is highly relevant to the ethics of climate change. In Section 2.3, we described the standard approach to ethics in welfare economics i.e. the evaluation of actions in terms of their consequences for consumption by individuals of goods and services. We emphasised that ‘goods and services’ in consumption were multi-dimensional and should be interpreted broadly. In this appendix we examine that approach in a little more detail and compare it with different ethical perspectives of relevance to the economics of climate change. For many applications of the standard theory, the community is defined as the nation-state and the decision-maker is interpreted as the government. Indeed this is often seen as sufficiently obvious as to go unstated. This is not, of course, intended to deny the complexities and pressures of political systems: the results of this approach should be seen as an ethical benchmark rather than a descriptive model of how political decisions are actually taken. Nevertheless, questions such as ‘what do individuals value’, ‘what should be their relation to decisions and decision-making’, ‘what is the decision-making process’ and ‘who are the decision-makers’ arise immediately and strongly in the ethical analysis of climate change. These questions take us immediately to different perspectives on ethics. Economics, together with the other social sciences, has in fact embraced a much broader perspective on the objectives of policy than that of standard welfare-economic analysis.

KEY MESSAGES The transition to a low-emissions global economy will open many new opportunities across a wide range of industries and services. Markets for low carbon energy products are likely to be worth at least $500 bn per year by 2050, and perhaps much more. Individual companies and countries should position themselves to take advantage of these opportunities. Financial markets also face big opportunities to develop new trading and financial instruments across a broad range including carbon trading, financing clean energy, greater energy efficiency, and insurance. Climate change policy can help to root out existing inefficiencies. At the company level, implementing climate policies can draw attention to money-saving opportunities. At the economy-wide level, climate change policy can be a lever for reforming inefficient energy systems and removing distorting energy subsidies on which governments spend around $250 bn a year. Policies on climate change can also help to achieve other objectives, including enhanced energy security and environmental protection. These co-benefits can significantly reduce the overall cost to the economy of reducing greenhouse gas emissions. There may be tensions between climate change mitigation and other objectives, which need to be handled carefully, but as long as policies are well designed, the co-benefits will be more significant than the conflicts. Introduction Climate change policies will lead to structural shifts in energy production and use, and in other emissions-intensive activities. Whilst the previous chapters focused on the resource costs and competitiveness implications of this change, this chapter considers the opportunities that this shift will create.

KEY MESSAGES Demand for energy and transportation is growing rapidly in many developing countries. The investment that takes place in the next 10–20 years could lock in very high emissions for the next half-century, or present an opportunity to move the world onto a more sustainable path. Investment in energy efficiency can reduce demand growth, and low-carbon technologies can further reduce the impact on climate change. The transfer of technologies to developing countries by the private sector can be accelerated through national action and international co-operation. Energy price and taxation reform will play an important role in improving the conditions for investment in more efficient and low-carbon technologies , as they can support other development priorities and encourage co-benefits from mitigation policies, including energy security and improved air quality. Carbon pricing is essential to influence investment decisions in low-carbon technologies , including renewable energy and carbon capture and storage. The Clean Development Mechanism is currently the main formal channel for supporting low-carbon investment in developing countries, but in its existing form it has significant limitations. The incremental costs of low-carbon investments in developing countries are likely to be at least $20–30 billion per year. A transformation in the scale of and incentives for international carbon finance flows is required to support cost-effective reductions. This will require mechanisms that link carbon finance to policies and programmes rather than to individual projects, working within a context of national, regional or sectoral objectives for emissions reductions.

KEY MESSAGES Greenhouse-gas concentrations in the atmosphere now stand at around 430 ppm CO 2 equivalent, compared with only 280 ppm before the Industrial Revolution. The stock is rising, driven by increasing emissions from human activities, including energy generation and land-use change. Emissions have been driven by economic development. CO 2 emissions per head have been strongly correlated with GDP per head across time and countries. North America and Europe have produced around 70% of CO 2 emissions from energy production since 1850, while developing countries – non-Annex 1 parties under the Kyoto Protocol – account for less than one quarter of cumulative emissions. Annual emissions are still rising. Emissions of carbon dioxide, which accounts for the largest share of greenhouse gases, grew at an average annual rate of around 2½% between 1950 and 2000. In 2000, emissions of all greenhouse gases were around 42GtCO 2 e, increasing concentrations at a rate of about 2.7 ppm CO 2 e per year. Without action to combat climate change, atmospheric concentrations of greenhouse gases will continue to rise. In a plausible ‘business as usual’ scenario, they will reach 550 ppm CO 2 e by 2035, then increasing at 4½ppm per year and still accelerating. Most future emissions growth will come from today's developing countries, because of more rapid population and GDP growth than developed countries, and an increasing share of energy-intensive industries. The non-Annex 1 parties are likely to account for over three quarters of the increase in energy-related CO 2 emissions between 2004 and 2030, according to the International Energy Agency, with China alone accounting for over one third of the increase.

KEY MESSAGES Slowly reducing emissions of greenhouse gasses that cause climate change is likely to entail some costs. Costs include the expense of developing and deploying low-emission and high-efficiency technologies and the cost to consumers of switching spending from emissions-intensive to low-emission goods and services. Fossil fuel emissions can be cut in several ways: reducing demand for carbon-intensive products, increasing energy efficiency, and switching to low-carbon technologies. Non-fossil fuel emissions are also an important source of emission savings. Costs will differ considerably depending on which methods and techniques are used where. Reducing demand for emissions-intensive goods and services is part of the solution. If prices start to reflect the full costs of production, including the greenhouse gas externality, consumers and firms will react by shifting to relatively cheaper low-carbon products. Increasing awareness of climate change is also likely to influence demand. But demand-side factors alone are unlikely to achieve all the emissions reductions required. Efficiency gains offer opportunities both to save money and to reduce emissions , but require the removal of barriers to the uptake of more efficient technologies and methods. A range of low-carbon technologies is already available, although many are currently more expensive than fossil-fuel equivalents. Cleaner and more efficient power, heat and transport technologies are needed to make radical emission cuts in the medium to long term. Their future costs are uncertain, but experience with other technologies has helped to develop an understanding of the key risks. […]

KEY MESSAGES The monetary cost of climate change is now expected to be higher than many earlier studies suggested , because these studies tended not to include some of the most uncertain but potentially most damaging impacts. Modelling the overall impact of climate change is a formidable challenge, involving forecasting over a century or more as the effects appear with long lags and are very longlived. The limitations to our ability to model over such a time scale demand caution in interpreting results, but projections can illustrate the risks involved – and policy here is about the economics of risk and uncertainty. Most formal modelling has used as a starting point 2–3°C warming. In this temperature range, the cost of climate change could be equivalent to around a 0–3% loss in global GDP from what could have been achieved in a world without climate change. Poor countries will suffer higher costs. However, ‘business as usual’ (BAU) temperature increases may exceed 2–3°C by the end of this century. This increases the likelihood of a wider range of impacts than previously considered, more difficult to quantify, such as abrupt and large-scale climate change. With 5–6°C warming, models that include the risk of abrupt and large-scale climate change estimate a 5–10% loss in global GDP, with poor countries suffering costs in excess of 10%. The risks, however, cover a very broad range and involve the possibility of much higher losses. This underlines the importance of revisiting past estimates.

KEY MESSAGES Broader behavioural modelling exercises suggest a wide range of costs of climate-change mitigation and abatement, mostly lying in the range −2 to +5% of annual GDP by 2050 for a variety of stabilisation paths. These capture a range of factors, including the shift away from carbon-intensive goods and services throughout economies as carbon prices rise, but differ widely in their assumptions about technologies and costs. Overall, the expected annual cost of achieving emissions reductions, consistent with an emissions trajectory leading to stabilisation at around 500–550ppm CO 2 e, is likely to be around 1% of GDP by 2050, with a range of +/−3% , reflecting uncertainties over the scale of mitigation required, the pace of technological innovation and the degree of policy flexibility. Costs are likely to rise significantly as mitigation efforts become more ambitious or sudden, suggesting that efforts to reduce emissions rapidly are likely to be very costly. The models arriving at the higher cost estimates for a given stabilisation path make assumptions about technological progress that are pessimistic by historical standards and improbable given the cost reductions in low-emissions technologies likely to take place as their use is scaled up. Flexibility over the sector, technology, location, timing and type of emissions reductions is important in keeping costs down. By focusing mainly on energy and mainly on CO 2 , many of the model exercises overlook some low-cost abatement opportunities and are likely to over-estimate costs.

KEY MESSAGES Reducing the expected adverse impacts of climate change is both highly desirable and feasible. The need for strong action can be demonstrated in three ways: by comparing disaggregated estimates of the damages from climate change with the costs of specific mitigation strategies, by using models that take some account of interactions in the climate system and the global economy, and by comparing the marginal costs of abatement with the social cost of carbon. The science and economics both suggest that a shared international understanding of the desired goals of climate-change policy would be a valuable foundation for action. Among these goals, aiming for a particular target range for the ultimate concentration of greenhouse gases (GHGs) in the atmosphere would provide an understandable and useful guide to policy-makers. It would also help policy-makers and interested parties at all levels to monitor the effectiveness of action and, crucially, anchor a global price for carbon. Any long-term goal would need to be kept under review and adjusted as scientific and economic understanding developed. However, the first key decision, to be taken as soon as possible, is that strong action is indeed necessary and urgent. This does not require immediate agreement on a precise stabilisation goal. But it does require agreement on the importance of starting to take steps in the right direction while the shared understanding is being developed. Measuring and comparing the expected benefits and costs over time of different potential policy goals can provide guidance to help decide how much to do and how quickly. Given the nature of current uncertainties explored in this Review, and the ethical issues involved, analysis can only suggest a range for action.

Part V of the Review analyses adaptation as a response to climate change. Climate is a pervasive factor in social and economic development – one so universally present and so deeply ingrained that it is barely noticed until things go wrong. People are adapted to the distinct climate of the place where they live. This is most obvious in productive sectors such as agriculture, where the choice of crops and the mode of cultivation have been finely tailored over decades, even centuries, to the prevailing climate. But the same is true for other economic sectors that are obviously weather-dependent, such as forestry, water resources, and recreation. It is also evident in how people live their daily lives, for instance in working practices. Adaptation will be crucial in reducing vulnerability to climate change and is the only way to cope with the impacts that are inevitable over the next few decades. In regions that may benefit from small amounts of warming, adaptation will help to reap the rewards. It provides an impetus to adjust economic activity in vulnerable sectors and to support sustainable development, especially in developing countries. But it is not an easy option, and it can only reduce, not remove, the impacts. There will be some residual cost – either the impacts themselves or the cost of adapting. Without early and strong mitigation, the costs of adaptation rise sharply.

KEY MESSAGES Adaptation efforts in developing countries must be accelerated. Adaptation is essential to manage the impacts of climate change that have already been locked into the climate system. The poorest developing countries will be hit earliest and hardest by climate change, even though they have contributed little to causing the problem. The international community should support them in adapting to climate change. Without such support there are serious risks that development progress will be undermined. Transfers to developing-country governments and civil society will be necessary to support adaptation. Additional costs to developing countries of adapting to climate change could run into tens of billions of dollars. Donors and multilateral development institutions should mainstream and support adaptation across their assistance to developing countries. Public-private partnerships for climate-related insurance can help to support adaptation. At the household level, remittances are likely to have an important role in supporting autonomous adaptation. The international community should also support adaptation through investment in global public goods, including: Improved monitoring and prediction of climate change; The development and deployment of drought- and flood-resistant crops; Methods to combat land degradation; Better modelling of impacts. In addition, efforts should be increased to improve mechanisms for improving risk management and preparedness, disaster response and refugee resettlement. The scale of the challenge makes it more urgent than ever for developed countries to honour their existing commitments – made in Monterrey 2002, and strengthened at the EU in June 2005 and at the G8 Gleneagles meeting in July 2005 – to double aid flows by 2010. Strong growth and development will enhance countries' ability to adapt.

There is now clear scientific evidence that emissions from economic activity, particularly the burning of fossil fuels for energy, are causing changes to the Earth´s climate. A sound understanding of the economics of climate change is needed in order to underpin an effective global response to this challenge. The Stern Review is an independent, rigourous and comprehensive analysis of the economic aspects of this crucial issue. It has been conducted by Sir Nicholas Stern, Head of the UK Government Economic Service, and a former Chief Economist of the World Bank. The Economics of Climate Change will be invaluable for all students of the economics and policy implications of climate change, and economists, scientists and policy makers involved in all aspects of climate change.