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This book is the first stocktaking of what the decarbonization of the world economy means for fossil fuel–dependent countries. These countries are the most exposed to the impacts of global climate policies and, at the same time, are often unprepared to manage them. They depend on the export of oil, gas, or coal; the use of carbon-intensive infrastructure (for example, refineries, petrochemicals, and coal power plants); or both. Fossil fuel–dependent countries face financial, fiscal, and macro-structural risks from the transition of the global economy away from carbon-intensive fuels and the value chains based on them. This book focuses on managing these transition risks and harnessing related opportunities. Diversification and Cooperation in a Decarbonizing World identifies multiple strategies that fossil fuel–dependent countries can pursue to navigate the turbulent waters of a low-carbon transition. The policy and investment choices to be made in the next decade will determine these countries’ degree of exposure and overall resilience. Abandoning their comfort zones and developing completely new skills and capabilities in a time frame consistent with the Paris Agreement on climate change is a daunting challenge and requires long-term revenue visibility and consistent policy leadership. This book proposes a constructive framework for climate strategies for fossil fuel–dependent countries based on new approaches to diversification and international climate cooperation. Climate policy leaders share responsibility for creating room for all countries to contribute to the goals of the Paris Agreement, taking into account the specific vulnerabilities and opportunities each country faces.

This is the first of two ‘policy insight’ papers that offer an outline of strategies and policies for an innovative, sustainable and low-carbon approach to China’s development. They are intended to inform decision-making for China’s 14th Five-Year Plan (2021–2025).

China is entering a new phase of growth. This paper examines the role of investment in physical, human, natural and social capital in this new phase. The second in a series, it provides the beginnings of an analytical framework for key elements of this new growth story, examining how a focus on the four types of capital can help deliver prosperity through China’s 14th Five-Year Plan (2021–2025) and Belt and Road Initiative.

A diverse range of approaches, including contributions based on national interest and local benefits of climate action, is needed to meet the goals of the Paris Agreement. Now, research considers how equitable approaches may play a role.

Submission made to the Task Force on Climate-Related Financial Disclosures, which was set up in December 2015 by the Financial Stability Board to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders”. The Task Force is chaired by Michael Bloomberg, and published its initial findings in March 2016. It is due to publish its final report by the end of 2016. The submission states: “[There is a] gap between what politicians have signed up to in Paris and what markets and fossil fuel companies are assuming. This gap should alarm policy-makers and central bankers: it suggests either asymmetric information or a lack of credibility in policies” The authors argue that companies should not only disclose the “carbon exposure” of their past activities, but they should also undertake an assessment of forward-looking business risks. They call for companies to carry out ‘stress tests’ for the risks associated with climate change, including business risks from new policies to reduce greenhouse gas emissions, and to disclose to investors their findings, as well as their strategies for dealing with those risks.

This analysis uses the Input-Output tables from the UK National Accounts for 2011 to simulate the full multiplied impact of a uniform £20 per tonne carbon price on fuels and production costs across all 106 industries that comprise the UK economy, as well as whole economy production costs and final consumer prices. The carbon price is imposed on top of any carbon cost that was already present in 2011. Full cost pass-through is assumed along the value chain. The paper finds that only a small number of industries – including the oil refinement, coal, iron and cement sectors – that account for around 2 per cent of UK GDP, are likely to face production cost increases that put them under pressure from competition abroad. It states that “carbon policies will provide incentives to increase energy efficiency and resource productivity which could afford UK producers a competitive advantage in the long term, in a world where fossil fuel prices could rise and carbon reduction policies are likely to become more widespread and ambitious.” The paper concludes that policies are needed to help sectors that emit high levels of greenhouse gases and are exposed the international trade – such as the cement, mining and petroleum refinement industries – adapt to changing economic conditions resulting from a uniform carbon tax.

Those who deny the importance of strong and urgent action on climate change essentially offer one of, or a combination of, the following arguments. First, there are those who deny the scientific link between human activities and global warming; most people, and the vast majority of scientists, would find that untenable given the weight of evidence. Second, there are those who, while accepting the science of anthropogenic climate change, argue that the human species is very adaptable and can make itself comfortable whatever the climatic consequences; given the scale of the outcomes that we now have to regard as possible or likely under business-as-usual (BAU), this must be regarded as reckless. Finally, there are those who accept the science of climate change and the likelihood that it will inflict heavy costs, but simply do not care much for what happens in the future beyond the next few decades; most would regard this as unethical. This paper deals primarily with the latter two arguments. An appendix addresses confusions and misconceptions about The Stern Review and responds to points made by critics in previous issues of this journal and elsewhere.

This policy paper was submitted to HM Treasury on 9th November 2015 in response to their consultation on Reforming the business energy efficiency tax landscape. The consultation document can be found here. The paper states that “the instrument of choice to achieve the Government’s policy objectives should be a price on the carbon content of energy, rather than on the amount of energy consumed, in order to address the greenhouse gas externality.”

Outlines the main energy and climate change challenges in the UK over the next five-year term. Identifies five key issues, in light of the evidence from the most recent economic and policy analysis: the need for policy certainty; increased investment in low carbon innovation; reform of environmental taxation; support to the EU ETS reform; stronger focus on energy efficiency.

This is a submission by the ESRC Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science and the Grantham Institute at Imperial College London. It focuses in particular on the implications of fracking for the UK’s targets for reducing greenhouse gas emissions. This submission builds on the evidence collected in the course of the study ‘A UK ‘dash’ for smart gas’ (Bassi et al., 2013). The main points of this submission: Shifting from coal to natural gas – either from conventional or unconventional domestic sources, or from imports – for electricity generation could help the UK power sector to decarbonise in the near term. Gas-fired power plants could also play an important back-up role as the share of renewable electricity in generation increases. In the longer term, gas-fired power plants will have to be either replaced by low-carbon alternatives or fitted with carbon capture and storage (CCS) if the UK is to comply with its emission reduction targets. A lower risk option would be a ‘dash’ for smart gas, where natural gas, including domestic shale gas, is used judiciously in those areas where it offers the greatest value in decarbonising the power sector, preventing the undesirable lock in of infrastructure for fossil fuels.

Headline issue: Countries are now seeking to reach a new international agreement on climate change, to be signed in Paris in December 2015. A key element of the international negotiations since the Kyoto Protocol, has been equity, but discussions have focused on narrow and unsatisfactory approaches based on ‘burden-sharing’ and ‘atmospheric rights’. These approaches mainly revolve around the assignment of the ‘right to emit’ or, as it is alternatively framed, the ‘costs and burdens’ of climate change action. Various proposals have been put forward that differ in terms of the principles and formulas applied in determining how the costs and burdens should be shared between countries. These range from historical cumulative emissions to relative capabilities based on GDP levels. Much of this debate, however, has proven divisive and often resulted in the search for a minimum acceptable level of individual action. Key findings: Negotiations about a new international climate change agreement are focusing too much on trying to share the burden of cuts in greenhouse gas emissions. Six of the seven different burden-sharing approaches to determining national pledges for reducing greenhouse gas emissions largely produce the same outcomes for individual countries, but they are likely to be divisive and lead to a lack of ambition. Countries should recognise that measures to cut greenhouse gas emissions have multiple benefits, including the reduction of local air pollution and traffic congestion. Countries should recognise that national pledges should be based on realising opportunities instead of ‘burden-sharing’. New approaches to ‘intended nationally determined contributions’ would be based on the principle of ‘equitable access to sustainable development’, rather than on the ‘right to emit’.

Four authors of the Stern Review on the Economics of Climate Change, and Dennis Anderson who provided advice and background papers for the Review, make a final rejoinder on the debate about the Review that has occupied recent issues of this journal. They respond to comments in the present issue by Carter et al., by Henderson, and by Tol and Yohe. Carter et al. continue to argue against a growing body of scientific evidence and a growing consensus on that same evidence. The source of their critique is, first, a distinctly partisan, and increasingly untenable, position on the broad range of available scientific evidence and, second, a mistrust of the international consensus-building exercise centred on the Intergovernmental Panel on Climate Change. Henderson is also largely preoccupied with the latter, procedural issues. Tol and Yohe focus on economic arguments. Their critique is rather narrower in focus and concerns the way in which abatement costs were calculated in the supporting work carried out by Dennis Anderson. It rests on basic confusions and misconceptions, many of which were explained in previous contributions. However, readers of World Economics might be more interested in a broader reflection: how would the Stern team, following the debate of the last eight months, assess the approach, policies and arguments set out in the Review? Their view is that their analyses and policy proposals, and the arguments in support, are sound and have stood up well to scrutiny. In other words, they were right and for the right reasons. Central to many critiques of the Review is a fundamental misunderstanding of the role of formal, highly aggregated economic modelling. Nevertheless, the Stern team have argued strongly and in their view convincingly that, even within the confines of formal economic modelling, the concerns raised by a small group of commentators do not overturn their basic conclusion that the cost of action is much less than the cost of inaction. The critics here fall short by failing to simultaneously afford the necessary importance to issues of risk and ethics.