Climate change a market failure

Climate change a market failure

In 2003, when he was appointed permanent secretary to the uk government's treasury, Nicholas Stern was the World Bank's chief economist.In July 2005, the uk government gave him the job of studying climate change from an economics perspective. The resultant Stern Review was released on October 30, 2006 -- just before the 12^th conference of parties to the un climate convention, where it was a hot topic of conversation. It is an examination of the evidence of the economic impacts of climate change. But Stern's brief wasn't restricted to studying the problem. He was also to economically assess the options of stabilising greenhouse gases in the atmosphere.

The review makes for some sobering politico-economic reading; doesn't matter if the uk government refuses to use it in domestic policies, but only to leverage developing countries.

"The scientific evidence is now overwhelming climate change presents very serious global risks, and it demands an urgent global response," is how the review opens. "Climate change presents a unique challenge for economics it is the greatest and widest-ranging market failure ever seen. The economic analysis must therefore be global, deal with long time horizons, have the economics of risk and uncertainty at centre stage, and examine the possibility of major, non-marginal change," the review states. While a lot of economists have dismissed Stern's economics as flawed, the larger point is not lost. Climate change has now entered mainstream economics.

It estimates the overall costs and risks of climate change in the region of at least 5 per cent of the global gdp each year if no action is taken. The damage estimate increases to 20 per cent of the global gdp if a wider range of risks is accounted for. Stern has warned of risks on a scale similar to those associated with the great wars and the economic depression of the first half of the 20^th century.

"Warming will have many severe impacts, often mediated through water Melting glaciers will initially increase flood risk and then strongly reduce water supplies, eventually threatening one-sixth of the world's population, predominantly in the Indian sub-continent, parts of China, and the Andes in South America," the review projects.

It talks of decreasing crop yields in Africa, leaving hundreds of millions without the ability to produce or purchase sufficient food. "Ecosystems will be particularly vulnerable to climate change, with around 15-40 per cent of species potentially facing extinction after only 2c of warming. And ocean acidification, a direct result of rising carbon dioxide levels, will have major effects on marine ecosystems, with possible adverse consequences on fish stocks."

His conclusion is quite unambiguous "The benefits of strong, early action on climate change outweigh the costs."

India in the storm's eye
The Stern Review estimates an increase of 20 per cent in India's average summer rainfall and its intensity; this will most likely affect agriculture and, therefore, its economy. It estimates India's economic losses due to climate change in the region of 0.67 per cent of the gdp each year. It also details the regional variations. Northern India will be warmer. All states will experience increased rainfall, except Punjab, Rajasthan, Tamil Nadu, where it will decrease. Incidents of extreme rainfall will increase, particularly along the western coast and west central India, affecting agriculture in Gujarat, Maharashtra and Karnataka.

Given that India has long been marked out as one of the countries likely to be badly hit -- and the fact that signs of climate change are already becoming apparent -- it is imperative that substantial investments are made in understanding its science. Besides increasing temperatures (which is acknowledged universally), there are two crucial indicators of this a change in monsoon rainfall and melting of Himalayan glaciers. Both are critical to availability of freshwater. There is evidence from within the scientific establishment that both these things are happening. The monsoon and glaciers hold the key to what we know about climate change in India.

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