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.

Responding to the ‘Dual Critique’, and the Tol and Yohe paper in the previous issue of World Economics, Professor Anderson counters a number of assertions made in those papers including the claims that the Stern Review is ‘alarmist’ or scaremongering, biased in its estimates and was not reviewed by peers. He points to a number of areas where the authors either got it wrong or seriously misrepresented the Review.

The paper reviews analyses of the costs of mitigating climate change and discusses the implications for policy. The estimated effects of reducing carbon emissions by 40%–60% over the next half century range from –1.0% to 4.5% of world product, averaging 2½%. This would be small in relation to the growth of economic output over the period, which is likely to be several hundred percent higher than it is today. The main reason why the estimated effect is small is innovation: a large number of carbon-neutral technologies and practices is available or emerging that are capable of significant further development. An initiative focussed on encouraging innovation and the diffusion of new energy technologies and practices across countries would provide a new direction for international cooperation based on already significant national policies in many countries.

The case is argued for a larger and more explicit role for technology policies in responding to climate change. Policies and institutions set up during the Cold War arms race could be reformed and redirected towards the goal of making renewable energy a viable competitor to carbon-emitting fuels. Putting more resources into such projects would not only reduce their cost through economies of scale and scope, but could raise the possibility of a technological shock which meant that the cost of transition to “non-net-carbon-emitting” technology could actually be negative. Anderson argues that in any case the transition costs would probably be small, and that the process would be to the advantage of developing countries, who typically have a five to one cost advantage over the developed world in non-carbon-emitting energy production.

China’s 12th five-year plan represents a radical change in strategy. China now sees its future growth within this strategy and accordingly as driven by: a rising share of consumption; moving to a low-carbon economy; and innovation. Two indicators are examined – capital efficiency and the relationship between greenhouse gas emissions and output. These help us to understand the scale of the challenges and possibilities in China over the coming decades. The power of China’s example will be immense in influencing the world’s transition to a low-carbon economy and thus how successful the world will be in managing the huge risks of climate change. The 12th plan is very likely to establish China as a leader in the new energy-industrial revolution and demonstrate to the world the potential of this revolution. The implications for the rich countries from such radical change are profound and they should be discussing now how they will handle and respond to such massive change.

This paper highlights the basic economic principles behind the policy recommendations in the Stern Review and takes forward the analysis and proposals of the Review. It is written in the light of developments since the Review was published, reflecting on interaction with policy makers and analysts around the world and other commentators on the Review. Its authors argue that across the world, progress of understanding and developing the necessary policy response to climate change has been especially rapid in the last few months. Building on these developments and the Review team’s initial analysis, they outline a policy programme going forward for international collective action to tackle climate change.

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.

A major review of the economics of climate change under the leadership of Professor Sir Nicholas Stern was announced at the end of July 2005, reporting to the United Kingdom’s Chancellor of the Exchequer and to the Prime Minister. The Stern Review on the Economics of Climate Change is due to report in autumn 2006. This article sets out some of the issues the review is considering.

This paper highlights the basic economic principles behind the policy recommendations in the Stern Review and takes forward the analysis and proposals of the Review. It is written in the light of developments since the Review was published, reflecting on interaction with policy makers and analysts around the world and other commentators on the Review. Its authors argue that across the world, progress of understanding and developing the necessary policy response to climate change has been especially rapid in the last few months. Building on these developments and the Review team’s initial analysis, they outline a policy programme going forward for international collective action to tackle climate change.

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.