The Economics of Climate Change

Government ReportIntegrated Assessment Model

7 Jan

By Nicholas Stern (2007)

A report commissioned by the UK government and led by economist Lord Nicholas Stern, published in 2007 and is free to download, ‘The Stern Review’ was a landmark report that used the same cost-benefit (IAM) analysis framework developed by William Nordhaus, but concluded that immediate and decisive action on climate change is the best economic pathway.

Stern estimated climate change damages of at least 5% of today’s GDP now and forever, rising by a further 2-3% if you include tipping points, another 6% to include non-market damages (value of life and the environment), and another third higher if you adjust for regional inequality. A worst case 20% of GDP.

The report highlights “given the state of knowledge, alternate technologies do not appear, on balance, to have the inherent advantages over fossil fuel technologies (eg in costs energy density or suitability in transport), necessary if decarbonisation were to be brought about purely by private commercial decisions. Strong policy will therefore need to provide the incentives”. Stern advocates for cap and trade programs and command and control policy. He saw carbon capture and biofuels as extremely important technology options.

The report is now over a decade old but the majority of content is still relevant and the report makes for an excellent introduction on many aspects of climate change. At 700 pages its not a light read but it is clearly written, not too heavy on acronyms and equations, and walks the reader through a very logical narrative. For a newcomer I would recommend reading ‘The Stern Report’ before the 5,000 pages of IPCC reports which require a far greater starting knowledge base.

Some established climate economists such as William Nordhaus were openly critical of the report’s conclusions, the low discount rate used to bring future damages into the equivalent of today’s money, and accused Stern of inflating damage estimates. Many others praised the comprehensive report and actionable conclusions. I think ‘The Stern Review’ sparked a much needed debate on the economics of climate change and with hindsight seems very prescient. Since the report was written Stern has proved overly pessimistic on technology costs given the huge decline in the price of wind and solar but, for me, this goes to show how important endogenous (respond to the model not fixed) technology assumptions are for economic-climate models - the reason why I integrate technology experience curves into my path to net-zero.

Book Blog

Long-Term Energy Storage in a Net-Zero Future

The technologies which enable long-term energy storage - from heat, to pumping water to manufacturing hydrogen. How will long term storage work and what will it cost?

Short-Term Energy Storage in a Net-Zero Future

Why Lithium-ion batteries and pumped hydro are the leading candidates for short duration grid energy storage. And why renewables electricity generation plus storage will be cheaper than fossil fuel electricity in a Net-Zero future.

Net-Zero and the role of Energy Storage

From short-term energy storage to seasonal energy storage - how do we balance supply and demand in a Net-Zero future. Pumped Hydro, Batteries, Compressed Air, Gravity, Demand Response, Hydrogen and e-Fuels: the technology ready to take on the energy storage challenge.

Climate Engineering & Negative Emissions Technology

Tree Planting, Rock Weathering, Ocean Nutrition, Direct Air Capture, and Biomass with Carbon Capture - the pros and cons of sucking CO2 from the air. Why Negative Emissions Technology is useful for slowing Global Warming and offsetting hard-to-abate emissions, but will likely be limited to 10-30% of the solution.

Water Supply, Climate Change, & Net-Zero

Climate change will reduce the availability of fresh water due to rising heat, dry soils, more extreme downpours and flooding. Continue burning fossil fuels and we risk running dry this century. Switch to Net-Zero and the World can better manage natural resources.

The Nuts and Bolts of Climate Modelling

How climate scientists use General Circulation Models to calculate future CO2-led temperature increases and amplifying feedback mechanisms. And why the next generation of Earth System Models may find further temperature amplifying effects and dangerous tipping points.

Air Pollution, Climate Change, and Co-Benefits

Fossil fuel combustion is responsible for more than 90% of all air pollutants. It generates invisible particulate matter which heightens the risk of respiratory disease and heart failure, leading to the premature deaths of 4-9 million people each year (15% of all deaths). Shift the global energy system to NET-ZERO and we can eliminate most air pollution issues.

Climate Change Damages - Heat, Fire, and Drought

The regions of the world most vulnerable to searing summer temperatures. The increasing frequency and intensity of extreme heat-related events in a warmer world. How deliberate human-induced forest burning is down, but wildfires are up. And why fewer winter deaths will be overwhelmed by increasing heat-deaths.

Climate Change Damages - Rising Seas, Storms, and Flooding

The countries and cities around the World most at risk from rising seas and more frequent and/or more intense extreme wet weather.

Climate Engineering & Solar Radiation Management

Mirrors in space, manipulating clouds, or painting the Earth white to slow or halt global warming. Why solar radiation management techniques appear a cheap and quick fix, but don’t offer a complete solution to climate change and run a seriously high risk of going badly wrong.

A Short History of Climate Models

The Swedish chemist who first pieced together the maths of global warming, the British Engineer who first warned of climate change, and how even the earliest climate models have proven highly accurate.

The Human Epoch: How we are destabilising the Earth

Why CO2 is accumulating in the atmosphere and has already warmed the Earth by over 1⁰C and how we are emitting CO2 ten times faster than the fastest warming event in 60 million years of Earth’s history.

Understanding Greenhouse Gases

The major greenhouse gases and where they come from. Why different greenhouse gases have different warming impacts on the planet. How each greenhouse gas has contributed to warming so far and why CO2 is centre stage.

A Brief History of Climate Progress

Over 100 years of climate science and predictions. Global frameworks for climate action and what they mean, how the Paris Accord and NDCs work, and why we are still heading for 3 degrees warming.

The Carbon Cycle and Ice Ages

The carbon cycle, Milankovitch cycles, and human emissions - how planet Earth has gone from Icebox to Greenhouse.

The Limits of Carbon Capture for Energy

Why carbon capture technology could prove useful in reaching net-zero but limitations on distribution, storage, and costs mean that it will likely be limited to less than 10% of emissions and should be reserved for hard-to-abate areas of the economy like cement, chemicals, and fertilisers.

Energy Supply Options for a Net-Zero Future

From fossil fuels, to nuclear, to renewables - how do we choose the energy mix for a sustainable future with safe, reliable, low-cost, and zero-carbon energy?

Understanding Energy

Why the sun provides enough energy to power the economy 7,000 times over. And how burning coal, oil, and gas over the last 200 years has provided the surplus energy, knowledge, and innovation required to unleash the net-zero technologies for a sustainable future.

How much will zero carbon energy cost?

Net-Zero is about technology not geology. Learning curves describe the rate at which the cost of modular technologies decline with scale (not time) and point to wind and solar becoming by far the cheapest form of electricity generation once fully scaled.

Net-Zero Industry

The economics of shifting steel, cement, and chemicals to zero carbon. And how sustainable wood products & the fourth industrial revolution could help us reach net-zero.

Industrial Emissions

The quantity of greenhouse gases released during the industrial production of the stuff we all consume. And why production (rather than consumption) estimates flatter developed countries’ carbon footprints.

Mitigation and the Kaya identity

Mitigating greenhouse gas emissions and why population controls are ineffective, curbing consumption is useful but culturally challenging, efficiency improvements are great but only slow change, and why net-zero technologies are needed for a complete solution.

The Two Ten-Percents

For each person earning over $16,000 per year in the richest top 10% of the world there is someone stuck in the bottom 10% earning less than $1,000 per year. As everyone rightfully strives for a top 10% lifestyle emissions could double to over 100 billion tonnes per year and lock-in unknowable damage unless we rapidly transition to a net-zero system.

Credit Crunch versus Climate Crunch

What does the 2008 financial crisis have in common with climate change risks? Underestimating fat-tails, sub-system collapse, and systemic breakdown - why the carbon crunch could be ten times worse than the credit crunch.

Attribution, Participation, and Collective Action

Understanding and attributing the impacts of climate change to support collective action and a least cost solution. The iterative prisoner’s dilemma and how the world is overcoming self-interest.

Energy Supply and Remaining Resources

A brief history of shale gas, fracking, and the quest for ever greater quantities of cheap energy. Calculating the remaining resources of oil, gas, coal, and uranium. And the abundant materials available to build solar panels and wind turbines for a sustainable energy future.

Inequality and Climate Justice

The richest 10% of countries emit 30% of CO2 and take home 50% of global income today. They are also responsible for over 50% of all past emissions and hold 80% of the world’s accumulated wealth. Climate Justice is about how we balance the responsibility for past, present, and future emissions whilst driving a rapid transition to net-zero.

Energy Supply and Lifecycle Emissions

Why the total lifecycle greenhouse gas emissions of wind, solar, hydro, nuclear, and geothermal are at least ten times lower than fossil fuels. How natural gas emissions can be just as bad as coal. And why biofuels are not as low-carbon as you might assume.

The Tragedy of the Commons

Externalities, hyperbolic discounting, lack of information, status quo bias, lock-in, and the renter-tenant dilemma. Just some of the market failures slowing progress towards net-zero.

Energy Supply, Power Density, and Land Use

Comparing the power density of fossil fuel, nuclear, and renewable energy generation. Why wind and solar could power the planet using just 1% of Earth’s dryland.

Nicholas SternThe Economics of Climate ChangeThe Stern ReviewIntegrated Assessment Model

Mathew Hampshire-Waugh

The Economics of Climate Change

By Nicholas Stern (2007)

The Climate Casino

Pricing the Planet’s Future

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