UK Scrutinizes Climate Change Economics; Calls for Comments

Published January 1, 2006

In a major move away from global warming orthodoxy, the United Kingdom is currently in the process of studying the economic challenges of addressing climate change. Sir Nicholas Stern, a fellow of the British Academy, is leading a major review of the economics of climate change to understand more fully the nature of the economic challenges and how they can be met both in the UK and globally.

Climate change is a complex and costly problem to address, with dollar estimates for stabilizing of greenhouse gases in the atmosphere ranging from trillions to many tens of trillions of dollars. This has numerous nations, including the United Kingdom, worried about the potential for large-scale global economic disruption.

The Stern Review issued a global invitation to interested stakeholders–including academic, private sector, scientific, non-government organization (NGO), and other experts–to submit evidence on all areas relevant to the posted Terms of Reference (the issues that will be reviewed). The deadline for submissions of evidence was December 9, 2005.

Economic Review Commissioned

The UK Cabinet Office and Her Majesty’s Treasury plan to report results of the Stern Review to the prime minister and chancellor by autumn 2006.

The announcement of the review by the UK government attaches further importance to the climate change issue, following its decision to make climate change a priority for the UK presidencies of the G8 and EU. Britain assumed the presidency of the G8 earlier this year. Prior to assuming the presidency, Blair promised to make climate change a focus of his leadership.

In addition to his appointment by the prime minister as advisor to the government on the economics of climate change and development, Sir Nicholas Stern is second permanent secretary at Her Majesty’s Treasury and head of the Government Economic Service. The chancellor of Her Majesty’s Treasury had announced Stern’s appointment on July 19.

Many Topics on Agenda

The Terms of Reference call for examining evidence on how future economic growth in developed and developing nations relates to energy demand and emissions; the consequences of climate change in developed and developing countries, taking into account increased climate volatility risks, possible irreversible impacts, climatic interaction with other air pollutants, and possible actions and costs of adapting to a changing climate; the costs and benefits of actions taken to reduce greenhouse gas emissions from energy use and other sources; and the impact and effectiveness of national and international policies aimed at reducing emissions.

Following consideration of available evidence, the review will provide an assessment of the choices of policies and institutions, economics, and time needed to move to a low-carbon global economy, as well as an assessment of the potential of various approaches for adapting to climate change.

Economic Pain Predicted

If current cost estimates are correct, there is real cause for concern. Although the Kyoto Protocol will have virtually no impact on growing emissions of greenhouse gases, it is already causing economic pain. In addition, the International Council for Capital Formation reported this November that achieving agreed-upon Kyoto Protocol targets would lead to Britain, Germany, and Italy each losing 200,000 jobs. In Spain, more than 600,000 jobs would be lost.

In an October 7, 2005 article in the Wall Street Journal, Italian Defense Minister Antonio Martino remarked, “Kyoto will severely penalize the European economy. … Compliance with the Kyoto Protocol will punish even the existing energy-producing capacity by capping emissions. The cost of energy in Italy, already higher than the European average, let alone that in the U.S., will go up even more. Given the country’s lack of competitiveness, that can only be described as a self-inflicted wound.”

Martino further observed, “that the [EU] would still insist on implementing the protocol must be seen as an institutional form of collective self-flagellation. Kyoto will severely penalize the European economy without bringing any real progress toward the noble aims proclaimed by the EU.”

“I think reality is setting in,” said Marlo Lewis, senior fellow at the Competitive Enterprise Institute. “The most recent data show that most of the EU is not going to meet its Kyoto obligations. An economic report unanimously adopted by the British House of Lords this summer says Kyoto is a dead end and that the way to go forward is a technology-based plan. You need more R&D for future technologies before you can start mandating large-scale carbon reductions.

“Blair himself has recognized, and said more than once now, that countries will not sacrifice their economic future for Kyoto goals,” said Lewis. “Countries will not commit economic suicide. Interestingly, the House of Lords report also says more attention must be paid to adaptation to climate change rather than avoidance. This approach may well prove to be the best solution.”

William L. Kovacs ([email protected]) is vice president of the U.S. Chamber of Commerce’s Environment, Technology, and Regulatory Affairs Division.

For more information …

The Stern Review on the Economics of Climate Change has a Web site. Point your Web browser to, click on the Independent Reviews link, and select the Stern Review.

The International Council for Capital Formation’s work on climate change is available online at