W HY A RE W E W AITING ? T HE LOGIC, URGENCY, AND PROMISE OF TACKLING CLIMATE CHANGE Nicholas Stern Chair of the Grantham Research Institute on Climate Change and the Environment, Chair of the Centre for Climate Change Economics and Policy, IG Patel Professor of Economics & Government, London School of Economics and Political Science President of the British Academy March 2016

2 The Challenges for the World The two defining challenges of our century: Managing climate change and overcoming poverty.  If we fail to manage climate change: we will create an environment so hostile that lives and livelihoods will be destroyed.  If we try to manage climate change in ways which put barriers to overcoming poverty: we will not have the coalition we need to manage climate change. If we fail on one, we fail on the other.

3 Structure of “Why Are We Waiting?” Parts 1 and 2 Part I: A Planet between Peril and Prosperity 1. The science: How it shapes the economics, ethics, politics and the possible prognoses. 2. Building a new energy-industrial revolution. Part II: The Principles and Logic of Policy for Change: Economics and Ethics 3. Policies for dynamic change and transition: lessons from economic history and economic theory. 4. How some economic analyses have distorted the issues. 5. The ethics of intertemporal values and valuations. 6. Broad approaches to moral and political philosophy: Converging perspectives.

4 Structure of “Why Are We Waiting?” Part 3 Part III: Action around the world: Progress, Collaboration, Equity 7.Developments in climate action around the world. 8. Building national and international actions. 9. Equity across peoples and nations. 10.Conclusion: How ideas change over time.

5 Structure of talk 1.Logic: climate science and the need to act 2.Urgency: the scale of change, risks, and dangers of delay 3.Promise: attraction of transition to low-carbon path 4.Action: the Paris Agreement and the way forward

6 Climate change starts and ends with humans Understanding the relevant causal links: – Human activity to emissions of greenhouse gases (GHGs); – Emissions (‘flows’) lead to increased concentrations (‘stocks’). Ratchet effect because CO 2 long-lived and difficult to extract; – Increased concentrations to increased temperatures and climate change; – Climate change to human impacts. All links in the chain subject to uncertainty.

7 The science shapes economics and politics Climate science is built on two centuries of theory and evidence. The structure of the science embodies four major difficulties for public understanding: – Immense scale; – Large risk/uncertainty; – Long lags; – ‘Publicness’ of the causes and effects. Key implications for policy analysis: about management of immense risk.

8 GHG concentrations rising rapidly CO 2 e concentrations now around 450ppm (Kyoto gases). Adding CO 2 e at a rate of over 2.5ppm per year (likely to accelerate with little or weak action). This is up from 0.5ppm per year , 1ppm and 2ppm Inaction could take us to 750ppm CO 2 e over a century: strong possibility of eventual temperature increase of more than 4°C or 5°C.

9 Structure 1.Logic: climate science and the need to act 2.Urgency: the scale of change, risks, and dangers of delay 3.Promise: attraction of transition to low-carbon path 4.Action: the Paris Agreement and the way forward

10 The risks are unprecedented for humankind Damage from climate change intensifies as the world gets warmer:  Already 1°C at edge of experience of Holocene and civilisation;  Seeing strong effects now; yet small relative to what we risk;  Beyond 2°C is “dangerous” – risk of tipping points. Temperature increase of 4 or 5°C or more not seen for tens of millions of years (homo sapiens, 250,000 years):  Likely be enormously destructive;  The reasons we live where we do, would be redrawn (too much or too little water);  Potentially causing severe and sustained conflict with migration of hundreds of millions, perhaps billions of people.

11 Scale of Change  COP21 in Paris, December 2015 set a target of “well below 2 o C”.  Paths to achieve this likely to require: -zero emissions from electricity around mid-century; -zero total emissions by the end of century; -Possibly net negative emissions in major sectors well before end of century.  To meet global carbon budget and targets, approximately 80% of proven fossil fuels could be unusable (without abatement).

12 Dangers of delay Uncertainty and ‘publicness’ of the causes might suggest delay to learn more. That would be a profound mistake because: –The “ratchet effect” from flows of GHGs to concentrations (CO 2 hard to remove); –“Lock-in” of long-lived high-carbon capital/infrastructure involves either commitment to high emissions or early scrapping of capital/infrastructure; –The later the action the less the likelihood of holding to 2 o C and the more costly to achieve it.

13 Structure 1.Logic: climate science and the need to act 2.Urgency: the scale of change, risks, and dangers of delay 3.Promise: attraction of transition to low-carbon path 4.Action: the Paris Agreement and the way forward

14 Attraction of the Transition The transition to low-carbon growth represents a very attractive path: –Potential to stimulate dynamic, innovative and creative growth leading to a new energy-industrial revolution; –Great opportunities from most rapid technological change the world has seen: digital, materials, biotech… Investments now, can lead to: –more efficient, less polluting, less congested cities; –protecting forests, land, ecosystems and biodiversity. Much or most of the necessary action, country-by-country, is in the vital self-interest of the country itself.

15 What is required? Structural transformation of global economy : –3.5bn people in cities now, 6.5bn in 2050; growth led by developing world creates great opportunities for transformational investment; –Over next years, investment of US$ trillion will be needed for infrastructure; –US$ 2 trillion per year in high-income countries, between US$ trillion per year in low- and middle-income countries. Support and investment for R&D to drive the new “wave of innovation”.

16 Policies to foster infrastrucuture investment Strong policies to abolish fossil-fuel subsidies and tax/regulate pollution and carbon. Promotion of R and D. More compact, efficient and clean city design. Rehabilitation of land; protection of forests and reforestation. Crucial that policies are credible, clear, and predictable: policy risk can severely discourage investment.

17 Waves of innovation 1 ST WAVE Industrial ( ) 2 ND WAVE Steam & Railways ( ) 3 RD WAVE Steel, Electricity & Heavy Engineering ( ) 4 TH WAVE Oil, Automobiles & Mass Production ( ) 5 TH WAVE Information & Telecom (1971-) INNOVATION Cleantech & Biotech (2009-) 6 TH WAVE Source: DONG Energy (2009); diagram based on Merrill Lynch (2008) drawing on Perez (2002) (schematic not precise quantitative vertical axis).

18 Can it be done? Next two decades will be a very special period in history. Decisions will shape rest of century and beyond. Can use opportunity or lose it. Progress is being made: –Renewable energy (particularly solar and wind) is becoming more competitive and prevalent. –Seeing signs of structural change in large, fossil-fuel intensive economies (e.g. China). –Development of new technologies is progressing (e.g. battery storage, transport). Boosts demand in short run; fosters innovation, discovery, growth in medium term; is the only long-term growth path available.

19 The ethics: it is the right thing to do Are future lives and livelihoods important? –Why discriminate by date of birth? –Climate change can create immense poverty. –If people are poorer, extra resources to them matter more. “Equitable access to sustainable development”, Cancun Inclusive, dynamic, cohesive.

20 Structure 1.Logic: climate science and the need to act 2.Urgency: the scale of change, risks, and dangers of delay 3.Promise: attraction of transition to low-carbon path 4.Action: the Paris Agreement and the way forward

21 The Paris Agreement It agrees action to keep warming “well below 2 o C” and “pursue efforts for 1.5 o C”. Paris Agreement is a turning point to put the world on a low- carbon climate-resilient path. Forms the basis of new, international, cooperative, long-term action on climate change. Provides a clear direction for international climate policy, and should provide the confidence to invest in low-carbon, climate- resilient growth. Remarkable that 195 countries agreed. Foundation of agreement in understanding of i) scale of risks ii) attractiveness of alternative path as sustainable route to lasting development and overcoming poverty (no horse-race between development and climate responsibility).

22 A Way Forward The Paris Agreement is a good start but strong efforts needed to keep momentum and ramp up ambition: Current pledges are around GtCO 2 e per annum in 2030, an improvement on BAU (ca GtCO 2 e per annum ); A 2°C path would require GHG emissions around GtCO 2 e per annum by The Paris Agreement recognises this gap exists and that peaking of emissions must happen “as soon as possible”. Will require inputs, collaboration and commitment from all parties (countries, cities, private sector etc.); It agreed conventions on measurement and to meet every five years to look at progress towards meeting NDCs with a view to enhancing levels of ambition.

23 The 17 Sustainable Development Goals agreed in UN in September 2015; designed to eliminate poverty on its various dimensions and promote sustainable development around the world. Of the 17, 12 explicitly mention climate change, environment or infrastructure. Current concern in G20 over faltering world growth. Infrastructure investment central to all these goals and concerns. Must be clean across the board from now on. For Paris and SDGs, global infrastructure investment must average $4-6 trillion p.a. in next 20 years and must nearly all be clean/green from now. Requires both clear and predictable policies and major expansion of development finance, particularly from multilateral and national development banks. The context of the SDGs and the importance of infrastructure and its finance

24 Scale and nature of response must be rapid, strong, across the world, and equitable: rewards potentially immense Requires strong action in all regions of world, in all economic sectors. Richer countries should take lead in cutting emissions, and promoting technology and finance. Can yield “equitable access to sustainable development”, in language of COP16 in Cancun, Can boost growth in short run; unleash innovation and growth for medium term; and provide the only growth story possible for the longer run. Through a strong response we can rise to the two defining challenges of our century – overcoming poverty and managing climate change.

25 References Bhattacharya, A., Oppenheim, J. and Stern, N Driving Sustainable Development through Better Infrastructure: Key Elements of A Transformation Program. Global Economy and Development at Brookings, Working Paper 91. New Climate Economy Better Growth, Better Climate. Available: Stern, N Why Are We Waiting? The Logic, Urgency, and Promise of Tackling Climate Change. United States of America: MIT Press; Stern,N Understanding climate finance for the Paris summit in December 2015 in the context of financing for sustainable development for the Addis Ababa conference in July Grantham Research Institute on Climate Change and the Environment, Policy Paper. New Climate Economy: Grantham Research Institute on Climate Change and the Environment: