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Climate change costs - look at both sides of the balance sheet

By Fiona Wain - posted Wednesday, 6 December 2006

Economists are now joining scientists saying that action to combat climate change needs to be fast-tracked if the world is to avoid falling into an unprecedented recession.

The Stern Review reveals that the longer we wait to act, the more likely economic catastrophe is to ensue. Figures of A$9 trillion and upwards have been mentioned as the cost of climate change. This is more than the cost of both world wars and the great recession put together. And, that cost will continue to rise if we don't manage to curb greenhouse gas emissions to the atmosphere where they remain for over 80 years.

Even with immediate action there is "committed climate change", which has serious implications especially for developing countries and for Australia - already in the grips of the most severe drought and prone to soil erosion and dryland salinity.


The obvious and automatic question therefore is: "what is the cost of tackling climate change?" According to the report released by Sir Nicholas Stern, former chief economist at the World Bank, the cost is approximately one per cent of global GDP - about A$500 billion. But it could rise 20-fold if we wait before serious steps are put in place.

The 700-page Stern Review was commissioned by the UK Parliament and part of its objective was to suggest ways that China and India could be encouraged to take giant strides towards decarbonising their growing economies.

The risks of climate change are no longer measured in environmental terms. They include security concerns caused by millions of people migrating if their food and water supplies disappear, or if their homes are inundated by rising sea levels. Even minor sea level rises could play havoc with agricultural productivity as storm surges push salt water further inland, contaminating groundwater.

In addition, global warming will worsen soil moisture loss adding to the creep of desertification across many countries. Exacerbating the crisis will be changes to watercourses as glacier-fed rivers dry up; this will threaten one-sixth of the world's population, mainly in India, China and the South American Andes.

Solutions therefore cannot be based solely on environmental regulations. A complete overhaul of economies is required. The private sector can bring innovation in technology, innovation and finance but governments' powerful tools and levers are required to drive systemic change. Taxation, regulation, market instruments lsuch as emissions trading, procurement and investment policies need to change radically and communities need to be empowered to carry out the changes required.

Britain's Foreign Secretary Margaret Becket has said that only the world's biggest PPP (public private partnership) could tackle the enormity of the challenge ahead. No form of energy delivery - coal, gas, nuclear, geothermal, solar, wind, or wave has ever been developed in a fully open market. All have had some sort of subsidy, often amounting to billions of dollars, over many years. Clean energy, in its many forms, must now be catalysed in the same way.


It is time to use all the options at our disposal to commercialise and deploy renewable energy, as well as technologies that can store and transmit energy more proficiently. Increasing the efficiency of energy at all stages (and this includes a structural overhaul of demand side management) is low hanging fruit with very early returns.

We cannot afford to be squeamish about nuclear energy and we cannot continue the naive cry that renewables cost too much. It is time to measure both sides of the national and international balance sheet, positive GDP is no longer an adequate measuring stick - the collateral damage of negative externalities are eating away at the fabric of our economy and our way of life.

Renewable energy sources may carry high R&D and early market penetration costs, but with the scope and scale of the Asian market at our doorstep they could rapidly be brought down their natural cost curve.

Change must be led by those best positioned to help shape a new future, and Australia should take both the responsibility for early action as well as seeking ways to build its next competitive edge from a new way of doing business. Developing countries will thank us and so will most Australians.

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About the Author

Fiona Wain is the CEO of Environment Business Australia.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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