Climate change – our approach (página 2)

Partes: 1, 2, 3, 4

, the rate of sea level rise
could more than double, committing the world to an eventual sea level rise of 5 – 12 m over
several centuries.

The body of evidence and the growing quantitative assessment of risks are now sufficient to
give clear and strong guidance to economists and policy-makers in shaping a response.
1.1
Introduction
Understanding the scientific evidence for the human influence on climate is an essential starting point for
the economics, both for establishing that there is indeed a problem to be tackled and for comprehending
its risk and scale. It is the science that dictates the type of economics and where the analyses should
focus, for example, on the economics of risk, the nature of public goods or how to deal with externalities,
growth and development and intra- and inter-generational equity. The relevance of these concepts, and
others, is discussed in Chapter 2.
STERN REVIEW: The Economics of Climate Change
2

Part I: Climate Change – Our Approach

This chapter begins by describing the changes observed in the Earth’s system, examining briefly the
debate over the attribution of these changes to human activities. It is a debate that, after more than a
decade of research and discussion, has reached the conclusion there is no other plausible explanation for
the observed warming for at least the past 50 years. The question of precisely how much the world will
warm in the future is still an area of active research. The Third Assessment Report (TAR) of the
Intergovernmental Panel on Climate Change (IPCC)1 in 2001 was the last comprehensive assessment of
the state of the science. This chapter uses the 2001 report as a base and builds on it with more recent
studies that embody a more explicit treatment of risk. These studies support the broad conclusions of that
report, but demonstrate a sizeable probability that the sensitivity of the climate to greenhouse gases is
greater than previously thought. Scientists have also begun to quantify the effects of feedbacks with the
natural carbon cycle, for example, exploring how warming may affect the rate of absorption of carbon
dioxide by forests and soils. These types of feedbacks are predicted to further amplify warming, but are
not typically included in climate models to date. The final section of this chapter provides a starting point
for Part II, by exploring what basic science reveals about how warming will affect people around the world.
1.2
The Earth’s climate is changing
An overwhelming body of scientific evidence indicates that the Earth’s climate is rapidly changing,
predominantly as a result of increases in greenhouse gases caused by human activities.

Human activities are changing the composition of the atmosphere and its properties. Since pre-industrial
times (around 1750), carbon dioxide concentrations have increased by just over one third from 280 parts
per million (ppm) to 380 ppm today (Figure 1.1), predominantly as a result of burning fossil fuels,
deforestation, and other changes in land-use.2 This has been accompanied by rising concentrations of
other greenhouse gases, particularly methane and nitrous oxide.

There is compelling evidence that the rising levels of greenhouse gases will have a warming effect on the
climate through increasing the amount of infrared radiation (heat energy) trapped by the atmosphere: “the
greenhouse effect” (Figure 1.2). In total, the warming effect due to all (Kyoto) greenhouse gases emitted
by human activities is now equivalent to around 430 ppm of carbon dioxide (hereafter, CO2 equivalent or
CO2e)3 (Figure 1.1) and rising at around 2.3 ppm per year4. Current levels of greenhouse gases are
higher now than at any time in at least the past 650,000 years.5
1
2
The fourth assessment is due in 2007. The scientific advances since the TAR are discussed in Schellnhuber et al. (2006)
The human origin of the accumulation of carbon dioxide in the atmosphere is demonstrated through, for example, the isotope
composition and hemispheric gradient of atmospheric carbon dioxide (IPCC 2001a).
3
dioxide and will include the six Kyoto greenhouse gases. It will not include other human influences on the radiation budget of the
atmosphere, such as ozone, land properties (i.e. albedo), aerosols or the non-greenhouse gas effects of aircraft unless otherwise
stated, because the radiative forcing of these substances is less certain, their effects have a shorter timescale and they are unlikely
to form a substantial component of the radiative forcing at equilibrium (they will be substantially decreasing over the timescale of
stabilisation). The definition excludes greenhouse gases controlled under the Montreal Protocol (e.g. CFCs). Note however, that
such effects are included in future temperature projections. The CO2 equivalence here measures only the instantaneous radiative
effect of greenhouse gases in the atmosphere and ignores the lifetimes of the gases in the atmosphere (i.e. their future effect).
4
5
conference of the European Geosciences Union, which suggest that carbon dioxide levels are unprecedented for 800,000 years.
STERN REVIEW: The Economics of Climate Change
3

Radiative Forcing in
Equivalent Concentration of Carbon Dioxide (ppmv)
430

410

390

370

350

330

310

290

270
Part I: Climate Change – Our Approach

Figure 1.1 Rising levels of greenhouse gases

The figure shows the warming effect of greenhouse gases (the ‘radiative forcing’) in terms of the
equivalent concentration of carbon dioxide (a quantity known as the CO2 equivalent). The blue line
shows the value for carbon dioxide only. The red line is the value for the six Kyoto greenhouse
gases (carbon dioxide, methane, nitrous oxide, PFCs, HFCs and SF6)6 and the grey line includes
CFCs (regulated under the Montreal Protocol). The uncertainty on each of these is up to 10%7.
The rate of annual increase in greenhouse gas levels is variable year-on-year, but is increasing.

450
1850
1870
1890
1910
1930
1950
1970
1990
Carbon Dioxide

Kyoto Gases

Kyoto Gases + CFCs
Source: Dr L Gohar and Prof K Shine, Dept. of Meteorology, University of Reading

Figure 1.2 The Greenhouse Effect
6
7
Source: Based on DEFRA (2005)

Kyoto greenhouse gases are the six main greenhouse gases covered by the targets set out in the Kyoto Protocol.
Based on the error on the radiative forcing (in CO2 equivalent) of all long-lived greenhouse gases from Figure 6.6, IPCC (2001b)
STERN REVIEW: The Economics of Climate Change
4

Part I: Climate Change – Our Approach

As anticipated by scientists, global mean surface temperatures have risen over the past century. The
Earth has warmed by 0.7°C since around 1900 (Figure 1.3). Global mean temperature is referred to
throughout the Review and is used as a rough index of the scale of climate change. This measure is an
average over both space (globally across the land-surface air, up to about 1.5 m above the ground, and
sea-surface temperature to around 1 m depth) and time (an annual mean over a defined time period). All
temperatures are given relative to pre-industrial, unless otherwise stated. As discussed later in this
chapter, this warming does not occur evenly across the planet.

Over the past 30 years, global temperatures have risen rapidly and continuously at around 0.2°C per
decade, bringing the global mean temperature to what is probably at or near the warmest level reached in
the current interglacial period, which began around 12,000 years ago8. All of the ten warmest years on
record have occurred since 1990. The first signs of changes can be seen in many physical and biological
systems, for example many species have been moving poleward by 6 km on average each decade for the
past 30 – 40 years. Another sign is changing seasonal events, such as flowering and egg laying, which
have been occurring 2 – 3 days earlier each decade in many Northern Hemisphere temperate regions.9

Figure 1.3 The Earth has warmed 0.7°C since around 1900.

The figure below shows the change in global average near-surface temperature from 1850 to 2005. The
individual annual averages are shown as red bars and the blue line is the smoothed trend. The
temperatures are shown relative to the average over 1861 – 1900.
Source: Brohan et al. (2006)

The IPCC concluded in 2001 that there is new and stronger evidence that most of the warming
observed over at least the past 50 years is attributable to human activities.10 Their confidence is
based on several decades of active debate and effort to scrutinise the detail of the evidence and to
investigate a broad range of hypotheses.

Over the past few decades, there has been considerable debate over whether the trend in global mean
temperatures can be attributed to human activities. Attributing trends to a single influence is difficult to
establish unequivocally because the climate system can often respond in unexpected ways to external
8
9
Hansen et al. (2006)
Parmesan and Yohe (2003) and Root et al. (2005) have correlated a shift in timing and distribution of 130 different plant and animal
species with observed climate change.
10
the US Climate Change Science Programme (2006).
STERN REVIEW: The Economics of Climate Change
5

Part I: Climate Change – Our Approach

influences and has a strong natural variability. For example, Box 1.1 briefly describes the debate over
whether the observed increase in temperatures over the last century is beyond that expected from natural
variability alone throughout the last Millennium.
Box 1.1
The “Hockey Stick” Debate.
Much discussion has focused on whether the current trend in rising global temperatures is
unprecedented or within the range expected from natural variations. This is commonly referred to as
the “Hockey Stick” debate as it discusses the validity of figures that show sustained temperatures for
around 1000 years and then a sharp increase since around 1800 (for example, Mann et al. 1999,
shown as a purple line in the figure below).

Some have interpreted the “Hockey Stick” as definitive proof of the human influence on climate.
However, others have suggested that the data and methodologies used to produce this type of figure
are questionable (e.g. von Storch et al. 2004), because widespread, accurate temperature records are
only available for the past 150 years. Much of the temperature record is recreated from a range of
‘proxy’ sources such as tree rings, historical records, ice cores, lake sediments and corals.

Climate change arguments do not rest on “proving” that the warming trend is unprecedented over the
past Millennium. Whether or not this debate is now settled, this is only one in a number of lines of
evidence for human induced climate change. The key conclusion, that the build-up of greenhouse
gases in the atmosphere will lead to several degrees of warming, rests on the laws of physics and
chemistry and a broad range of evidence beyond one particular graph.

Reconstruction of annual temperature changes in the Northern Hemisphere for the past millennium using a
range of proxy indicators by several authors. The figure suggests that the sharp increase in global temperatures
since around 1850 has been unprecedented over the past millennium. Source: IDAG (2005)
Recent research, for example from the Ad hoc detection and attribution group (IDAG), uses a wider
range of proxy data to support the broad conclusion that the rate and scale of 20th century warming is
greater than in the past 1000 years (at least for the Northern Hemisphere). Based on this kind of
analysis, the US National Research Council (2006)11 concluded that there is a high level of confidence
that the global mean surface temperature during the past few decades is higher than at any time over
the preceding four centuries. But there is less confidence beyond this. However, they state that in some
regions the warming is unambiguously shown to be unprecedented over the past millennium.

Much of the debate over the attribution of climate change has now been settled as new evidence has
emerged to reconcile outstanding issues. It is now clear that, while natural factors, such as changes in
solar intensity and volcanic eruptions, can explain much of the trend in global temperatures in the early
nineteenth century, the rising levels of greenhouse gases provide the only plausible explanation for the
observed trend for at least the past 50 years. Over this period, the sustained globally averaged warming
11
National Research Council (2006) – a report requested by the US Congress
STERN REVIEW: The Economics of Climate Change
6

Part I: Climate Change – Our Approach

contrasts strongly with the slight cooling expected from natural factors alone. Recent modelling by the
Hadley Centre and other research institutes supports this. These models show that the observed trends in
temperatures at the surface and in the oceans12, as well as the spatial distribution of warming13, cannot
be replicated without the inclusion of both human and natural effects.

Taking into account the rising levels of aerosols, which cool the atmosphere,14 and the observed heat
uptake by the oceans, the calculated warming effect of greenhouse gases is more than enough to explain
the observed temperature rise.
1.3
Linking Greenhouse Gases and Temperature
The causal link between greenhouse gases concentrations and global temperatures is well
established, founded on principles established by scientists in the nineteenth century.

The greenhouse effect is a natural process that keeps the Earth’s surface around 30°C warmer than it
would be otherwise. Without this effect, the Earth would be too cold to support life. Current understanding
of the greenhouse effect has its roots in the simple calculations laid out in the nineteenth century by
scientists such as Fourier, Tyndall and Arrhenius15. Fourier realised in the 1820s that the atmosphere
was more permeable to incoming solar radiation than outgoing infrared radiation and therefore trapped
heat. Thirty years later, Tyndall identified the types of molecules (known as greenhouse gases), chiefly
carbon dioxide and water vapour, which create the heat-trapping effect. Arrhenius took this a step further
showing that doubling the concentration of carbon dioxide in the atmosphere would lead to significant
changes in surface temperatures.

Since Fourier, Tyndall and Arrhenius made their first estimates, scientists have improved their
understanding of how greenhouse gases absorb radiation, allowing them to make more accurate
calculations of the links between greenhouse gas concentrations and temperatures. For example, it is now
well established that the warming effect of carbon dioxide rises approximately logarithmically with its
concentration in the atmosphere16. From simple energy-balance calculations, the direct warming effect of
a doubling of carbon dioxide concentrations would lead to an average surface warming of around 1°C.

But the atmosphere is much more complicated than these simple models suggest. The resulting warming
will in fact be much greater than 1°C because of the interaction between feedbacks in the atmosphere that
act to amplify or dampen the direct warming (Figure 1.4). The main positive feedback comes from water
vapour, a very powerful greenhouse gas itself. Evidence shows that, as expected from basic physics, a
warmer atmosphere holds more water vapour and traps more heat, amplifying the initial warming.17

Using climate models that follow basic physical laws, scientists can now assess the likely range of
warming for a given level of greenhouse gases in the atmosphere.

It is currently impossible to pinpoint the exact change in temperature that will be associated with a level of
greenhouse gases. Nevertheless, increasingly sophisticated climate models are able to capture some of
the chaotic nature of the climate, allowing scientists to develop a greater understanding of the many
12
13
14
Barnett et al. (2005a)
For example, Ad hoc detection and attribution group (2005)
Aerosols are tiny particles in the atmosphere also created by human activities (e.g. sulphate aerosol emitted by many industrial
processes). They have several effects on the atmosphere, one of which is to reflect solar radiation and therefore, cool the surface.
This effect is thought to have offset some of the warming effect of greenhouse gases, but the exact amount is uncertain.
15
16
the initial increase when concentrations reach around 600ppm, a quarter at 1200ppm and an eighth at 2400ppm. Note that other
greenhouse gases, such as methane and nitrous oxide, have a linear relationship.
17
would dry out as it warms (Lindzen 2005). Re-analysis of satellite measurements published last year indicated that in fact the
opposite is happening (Soden et al. 2005). Over the past two decades, the air in the upper troposphere has become wetter, not
drier, countering Lindzen’s theory and confirming that water vapour is having a positive feedback effect on global warming. This
positive feedback is a major driver of the indirect warming effects from greenhouse gases.
STERN REVIEW: The Economics of Climate Change
7

Land use change
Rising
Atmospheric
Greenhouse
Gas
Concentration
(measured in
CO2 equivalent)
Radiative Forcing
(Change in energy
balance)
Physical Changes
in Climate
Rising Global Mean
Surface Temperatures
(GMT)
Rising Sea Levels
Changes in rainfall
variability and
seasonality
Changing Patterns of
Natural Climate
Variability
Impacts
on
physical,
biological
and
human
systems
Part I: Climate Change – Our Approach

complex interactions within the system and estimate how changing greenhouse gas levels will affect the
climate. Climate models use the laws of nature to simulate the radiative balance and flows of energy and
materials. These models are vastly different from those generally used in economic analyses, which rely
predominantly on curve fitting. Climate models cover multiple dimensions, from temperature at different
heights in the atmosphere, to wind speeds and snow cover. Also, climate models are tested for their ability
to reproduce past climate variations across several dimensions, and to simulate aspects of present
climate that they have not been specifically tuned to fit.

Figure 1.4 The link between greenhouse gases and climate change.

Local and global feedbacks, for example:
changes in the clouds, the water content
of the atmosphere and the amount of
sunlight reflected by sea ice (albedo)
Rising
Atmospheric
Temperatures
Rising Ocean
Temperatures
(Lagged)
Emissions
Melting of, Ice Sheets,
Sea-ice and Land
Glaciers
Feedbacks including a possible reduction in
the efficiency of the land and oceans to
absorb carbon dioxide emissions and
increased natural releases of methane

The accuracy of climate predictions is limited by computing power. This, for example, restricts the scale of
detail of models, meaning that small-scale processes must be included through highly simplified
calculations. It is important to continue the active research and development of more powerful climate
models to reduce the remaining uncertainties in climate projections.

The sensitivity of mean surface temperatures to greenhouse gas levels is benchmarked against the
warming expected for a doubling of carbon dioxide levels from pre-industrial (roughly equivalent to 550
ppm CO2e). This is called the “climate sensitivity” and is an important quantity in accessing the economics
of climate change. By comparing predictions of different state-of-the-art climate models, the IPCC TAR
concluded that the likely range of climate sensitivity is 1.5° – 4.5°C. This range is much larger than the
1°C direct warming effect expected from a doubling of carbon dioxide concentrations, thus emphasising
the importance of feedbacks within the atmosphere. For illustration, using this range of sensitivities, if
greenhouse gas levels could be stabilised at today’s levels (430 ppm CO2e), global mean temperatures
would eventually rise to around 1° – 3°C above pre-industrial (up to 2°C more than today)18. This is not the
same as the “warming commitment” today from past emissions, which includes the current levels of
aerosols in the atmosphere (discussed later in this chapter).

Results from new risk based assessments suggest there is a significant chance that the climate
system is more sensitive than was originally thought.

Since 2001, a number of studies have used both observations and modelling to explore the full range of
climate sensitivities that appear realistic given current knowledge (Box 1.2). This new evidence is
important in two ways: firstly, the conclusions are broadly consistent with the IPCC TAR, but indicate that
18
Calculated using method shown in Meinshausen (2006).
STERN REVIEW: The Economics of Climate Change
8

Relative Frequency
Part I: Climate Change – Our Approach

higher climate sensitivities cannot be excluded; and secondly, it allows a more explicit treatment of risk.
For example, eleven recent studies suggest only between a 0% and 2% chance that the climate sensitivity
is less than 1°C, but between a 2% and 20% chance that climate sensitivity is greater than 5°C19. These
sensitivities imply that there is up to a one-in-five chance that the world would experience a warming in
excess of 3°C above pre-industrial even if greenhouse gas concentrations were stabilised at today’s level
of 430 ppm CO2e.
Box 1.2
Recent advances in estimating climate sensitivity
Climate sensitivity remains an area of active research. Recently, new approaches have used climate
models and observations to develop a better understanding of climate sensitivity.
• Several studies have estimated climate sensitivity by benchmarking climate models against the
observed warming trend of the 20th century, e.g. Forest et al. (2006) and Knutti et al. (2002),
•

•
Building on this work, modellers have systematically varied a range of uncertain parameters in
more complex climate models (such as those controlling cloud behaviour) and run ensembles of
these models, e.g. Murphy et al. (2004) and Stainforth et al. (2005). The outputs are then checked
against observational data, and the more plausible outcomes (judged by their representation of
current climate) are weighted more highly in the probability distributions produced.
Some studies, e.g. Annan & Hargreaves (2006), have used statistical techniques to estimate
climate sensitivity through combining several observational datasets (such as the 20th century
warming, cooling following volcanic eruptions, warming after last glacial maximum).
These studies provide an important first attempt to apply a probabilistic framework to climate
projections. Their outcome is a series of probability distribution functions (PDFs) that aim to capture
some of the uncertainty in current estimates. Meinshausen (2006) brings together the results of eleven
recent studies (below). The red and blue lines are probability distributions based on the IPCC TAR
(Wigley and Raper (2001)) and recent Hadley Centre ensemble work (Murphy et al. (2004)),
respectively. These two distributions lie close to the centre of the results from the eleven studies.

0.70

0.60

0.50

0.40

0.30

0.20

0.10

–
0
1
2
3
4 5 6
7
8
9
10
Climate Sensitivity (degC)
Source: Reproduced from Meinshausen (2006)

The distributions share the characteristic of a long tail that stretches up to high temperatures. This is
primarily because of uncertainty over clouds20 and the cooling effect of aerosols. For example, if cloud
properties are sensitive to climate change, they could create an important addition feedback. Similarly,
if the cooling effect of aerosols is large it will have offset a substantial part of past warming due to
greenhouse gases, making high climate sensitivity compatible with the observed warming.
19
20
Meinshausen (2006)
An increase in low clouds would have a negative feedback effect, as they have little effect on infrared radiation but block sunlight,
causing a local cooling. Conversely, an increase in high clouds would trap more infrared radiation, amplifying warming.
STERN REVIEW: The Economics of Climate Change
9

Part I: Climate Change – Our Approach

In the future, climate change itself could trigger additional increases in greenhouse gases in the
atmosphere, further amplifying warming. These potentially powerful feedbacks are less well
understood and only beginning to be quantified.

Climate change projections must also take into account the strong possibility that climate change itself
may accelerate future warming by reducing natural absorption and releasing stores of carbon dioxide and
methane. These feedbacks are not incorporated into most climate models to date because their effects
are only just beginning to be understood and quantified.

Rising temperatures and changes in rainfall patterns are expected to weaken the ability of the Earth’s
natural sinks to absorb carbon dioxide (Box 1.3), causing a larger fraction of human emissions to
accumulate in the atmosphere. While this finding is not new, until recently the effect was not quantified.
New models, which explicitly include interactions between carbon sinks and climate, suggest that by 2100,
greenhouse gas concentrations will be 20 – 200 ppm higher than they would have otherwise been,
amplifying warming by 0.1 – 1.5°C.21 Some models predict future reductions in tropical rainforests,
particularly the Amazon, also releasing more carbon into the atmosphere22. Chapter 8 discusses the
implications of weakened carbon sinks for stabilising greenhouse gas concentrations.

Widespread thawing of permafrost regions is likely to add to the extra warming caused by weakening of
carbon sinks. Large quantities of methane (and carbon dioxide) could be released from the thawing of
permafrost and frozen peat bogs. One estimate, for example, suggests that if all the carbon accumulated
in peat alone since the last ice age were released into the atmosphere, this would raise greenhouse gas
levels by 200 ppm CO2e.23 Additional emissions may be seen from warming tropical wetlands, but this is
more uncertain. Together, wetlands and frozen lands store more carbon than has been released already
by human activities since industrialisation began. Substantial thawing of permafrost has already begun in
some areas; methane emissions have increased by 60% in northern Siberia since the mid-1970s24.
Studies of the overall scale and timing of future releases are scarce, but initial estimates suggest that
methane emissions (currently 15% of all emissions in terms of CO2 equivalent25) may increase by around
50% by 2100 (Box 1.3).

Preliminary estimates suggest that these “positive feedbacks” could lead to an addition rise in
temperatures of 1 – 2°C by 2100.

Recent studies have used information from past ice ages to estimate how much extra warming would be
produced by such feedbacks. Warming following previous ice ages triggered the release of carbon
dioxide and methane from the land and oceans, raising temperatures by more than that expected from
solar effects alone. If present day climate change triggered feedbacks of a similar size, temperatures in
2100 would be 1 – 2°C higher than expected from the direct warming caused by greenhouse gases.26

There are still many unanswered questions about these positive feedbacks between the atmosphere, land
and ocean. The combined effect of high climate sensitivity and carbon cycle feedbacks is only beginning
to be explored, but first indications are that this could lead to far higher temperature increases than are
currently anticipated (discussed in chapter 6). It remains unclear whether warming could initiate a self-
perpetuating effect that would lead to a much larger temperature rise or even runaway warming, or if
some unknown feedback could reduce the sensitivity substantially27. Further research is urgently required
to quantify the combined effects of these types of feedbacks.
21
22
23
24
25
26
Friedlingstein et al. (2006)
Cox et al. (2000) with the Hadley Centre model and Scholze et al (2006) with several models.
Gorham et al. (1991)
Walter et al. (2006)
Emissions measured in CO2equivalent are weighted by their global warming potential (see chapter 8).
These estimates come from recent papers by Torn and Harte (2006) and Scheffer et al. (2006), which estimate the scale of
positive feedbacks from release of carbon dioxide and methane from past natural climate change episodes, e.g. Little Ice Age and
previous inter-glacial period, into current climate models.
27
(Cox et al. 2006). It remains unclear how the risk of run-away climate change would change with the inclusion of other feedbacks.
STERN REVIEW: The Economics of Climate Change
10

Box 1.3
Part I: Climate Change – Our Approach

Changes in the earth system that could amplify global warming
Weakening of Natural Land-Carbon Sinks: Initially, higher levels of carbon dioxide in the atmosphere
will act as a fertiliser for plants, increasing forest growth and the amount of carbon absorbed by the land.
A warmer climate will increasingly offset this effect through an increase in plant and soil respiration
(increasing release of carbon from the land). Recent modelling suggests that net absorption may initially
increase because of the carbon fertilisation effects (chapter 3). But, by the end of this century it will reduce
significantly as a result of increased respiration and limits to plant growth (nutrient and water availability).28

Weakening of Natural Ocean-Carbon Sinks: The amount of carbon dioxide absorbed by the oceans is
likely to weaken in the future through a number of chemical, biological and physical changes. For
example, chemical uptake processes may be exhausted, warming surface waters will reduce the rate of
absorption and CO2 absorbing organisms are likely to be damaged by ocean acidification29. Most carbon
cycle models agree that climate change will weaken the ocean sink, but suggest that this would be a
smaller effect than the weakening of the land sink30.

Release of Methane from Peat Deposits, Wetlands and Thawing Permafrost: Thawing permafrost
and the warming and drying of wetland areas could release methane (and carbon dioxide) to the
atmosphere in the future. Models suggest that up to 90% of the upper layer of permafrost will thaw by
2100.31 These regions contain a substantial store of carbon. One set of estimates suggests that wetlands
store equivalent to around 1600 GtCO2e (where Gt is one billion tonnes) and permafrost soils store a
further 1500 GtCO2e32. Together these stores comprise more than double the total cumulative emissions
from fossil fuel burning so far. Recent measurements show a 10 – 15% increase in the area of thaw lakes
in northern and western Siberia. In northern Siberia, methane emissions from thaw lakes are estimated to
have increased by 60% since the mid 1970’s33. It remains unclear at what rate methane would be
released in the future. Preliminary estimates indicate that, in total, methane emissions each year from
thawing permafrost and wetlands could increase by around 4 – 10 GtCO2e, more than 50% of current
methane emissions and equivalent to 10 – 25% of current man-made emissions.34

Release of Methane from Hydrate Stores: An immense quantity of methane (equivalent to tens of
thousands of GtCO2, twice as much as in coal, oil and gas reserves) may also be trapped under the
oceans in the form of gas hydrates. These exist in regions sufficiently cold and under enough high
pressures to keep them stable. There is considerable uncertainty whether these deposits will be affected
by climate change at all. However, if ocean warming penetrated deeply enough to destabilise even a small
amount of this methane and release it to the atmosphere, it would lead to a rapid increase in warming.35
Estimates of the size of potential releases are scarce, but are of a similar scale to those from wetlands
and permafrost.
1.4
Current Projections
Additional warming is already in the pipeline due to past and present emissions.

The full warming effect of past emissions is yet to be realised. Observations show that the oceans have
taken up around 84% of the total heating of the Earth’s system over the last 40 years36. If global
emissions were stopped today, some of this heat would be exchanged with the atmosphere as the system
28
Friedlingstein et al. (2006) found that all eleven climate models that explicitly include carbon cycle feedbacks showed a weakening
of carbon sinks.
29
30
31
32
33
34
GtCO2/yr and studies project that this may rise by up to 80%. Davidson & Janssens (2006), Gedney et al. (2004) and Archer (2005).
35
36
STERN REVIEW: The Economics of Climate Change
11

Part I: Climate Change – Our Approach

came back into equilibrium, causing an additional warming. Climate models project that the world is
committed to a further warming of 0.5° – 1°C over several decades due to past emissions37. This warming
is smaller than the warming expected if concentrations were stabilised at 430 ppm CO2e, because
atmospheric aerosols mask a proportion of the current warming effect of greenhouse gases. Aerosols
remain in the atmosphere for only a few weeks and are not expected to be present in significant levels at
stabilisation38.

If annual emissions continued at today’s levels, greenhouse gas levels would be close to double
pre-industrial levels by the middle of the century. If this concentration were sustained,
temperatures are projected to eventually rise by 2 – 5ºC or even higher.

Projections of future warming depend on projections of global emissions (discussed in chapter 7). If
annual emissions were to remain at today’s levels, greenhouse gas levels would reach close to 550 ppm
CO2e by 205039. Using the lower and upper 90% confidence bounds based on the IPCC TAR range and
recent research from the Hadley Centre, this would commit the world to a warming of around 2 – 5°C
(Table 1.1). As demonstrated in Box 1.2, these two climate sensitivity distributions lie close to the centre
of recent projections and are used throughout this Review to give illustrative temperature projections.
Positive feedbacks, such as methane emissions from permafrost, could drive temperatures even higher.

Near the middle of this range of warming (around 2 – 3°C above today), the Earth would reach a
temperature not seen since the middle Pliocene around 3 million years ago40. This level of warming on a
global scale is far outside the experience of human civilisation.
Table 1.1
Temperature projections at stabilisation
Meinshausen (2006) used climate sensitivity estimates from eleven recent studies to estimate the range of
equilibrium temperature changes expected at stabilisation. The table below gives the equilibrium
temperature projections using the 5 – 95% climate sensitivity ranges based on the IPCC TAR (Wigley and
Raper (2001)), Hadley Centre (Murphy et al. 2004) and the range over all eleven studies. Note that the
temperature changes expected prior to equilibrium, for example in 2100, would be lower.
However, these are conservative estimates of the expected warming, because in the absence of an
effective climate policy, changes in land use and the growth in population and energy consumption around
the world will drive greenhouse gas emissions far higher than today. This would lead greenhouse gas
levels to attain higher levels than suggested above. The IPCC projects that without intervention
37
38
39
40
Wigley (2005) and Meehl et al. (2005) look at the amount of warming “in the pipeline” using different techniques.
In many countries, aerosol levels have already been reduced by regulation because of their negative health effects.
For example, 45 years at 2.5 ppm/yr gives 112.5ppm. Added to the current level, this gives 542.5ppm in 2050.
Hansen et al. (2006)
STERN REVIEW: The Economics of Climate Change
12

Part I: Climate Change – Our Approach

greenhouse gas levels will rise to 550 – 700 ppm CO2e by 2050 and 650 – 1200 ppm CO2e by 210041.
These projections and others are discussed in Chapter 7, which concludes that, without mitigation,
greenhouse gas levels are likely to be towards the upper end of these ranges. If greenhouse gas levels
were to reach 1000 ppm, more than treble pre-industrial levels, the Earth would be committed to around a
3 – 10°C of warming or more, even without considering the risk of positive feedbacks (Table 1.1).
1.5
Large Scale Changes and Regional Impacts
This chapter has so far considered only the expected changes in global average surface temperatures.
However, this can often mask both the variability in temperature changes across the earth’s surface and
changes in extremes. In addition, the impacts on people will be felt mainly through water, driven by shifts
in regional weather patterns, particularly rainfall and extreme events (more detail in Part II).

In general, higher latitudes and continental regions will experience temperature increases
significantly greater than the global average.

Future warming will occur unevenly and will be superimposed on existing temperature patterns. Today,
the tropics are around 15°C warmer than the mid-latitudes and more than 25°C warmer than the high
latitudes. In future, the smallest temperature increases will generally occur over the oceans and some
tropical coastal regions. The largest temperature increases are expected in the high latitudes (particularly
around the poles), where melting snow and sea ice will reduce the reflectivity of the surface, leading to a
greater than average warming. For a global average warming of around 4°C, the oceans and coasts
generally warm by around 3°C, the mid-latitudes warm by more than 5°C and the poles by around 8°C.

The risk of heat waves is expected to increase (Figure 1.5). For example, new modelling work by the
Hadley Centre shows that the summer of 2003 was Europe’s hottest for 500 years and that human-
induced climate change has already more than doubled the chance of a summer as hot as 2003 in Europe
occurring.42 By 2050, under a relatively high emissions scenario, the temperatures experienced during
the heatwave of 2003 could be an average summer. The rise in heatwave frequency will be felt most
severely in cities, where temperatures are further amplified by the urban heat island effect.

Changes in rainfall patterns and extreme weather events will lead to more severe impacts on
people than that caused by warming alone.

Warming will change rainfall patterns, partly because warmer air holds more moisture, and also because
the uneven distribution of warming around the world will lead to shifts in large-scale weather regimes.
Most climate models predict increases in rainfall at high latitudes, while changes in circulation patterns are
expected to cause a drying of the subtropics, with northern Africa and the Mediterranean experiencing
significant reductions in rainfall. There is more uncertainty about changes in rainfall in the tropics (Figure
1.6), mainly because of complicated interactions between climate change and natural cycles like the El
Niño, which dominate climate in the tropics.43 For example, an El Niño event with strong warming in the
central Pacific can cause the Indian monsoon to switch into a “dry mode”, characterised by significant
reductions in rainfall leading to severe droughts. These delicate interactions could cause abrupt shifts in
rainfall patterns. This is an area that urgently needs more research because of the potential effect on
billions of people, especially in South and East Asia (more detail in Part II).
41
42
Based on the IPCC TAR central radiative forcing projections for the six illustrative SRES scenarios (IPCC 2001b).
According to Stott et al. (2004), climate change has increased the chance of the 2003 European heatwave occurring by between 2
and 8 times. In 2003, temperatures were 2.3°C warmer than the long-term average.
43
Pacific warming significantly. This radically alters large-scale atmospheric circulations across the globe, and causes rainfall patterns
to shift, with some regions experiencing flooding and others severe droughts. As the world warms, many models suggest that the
East Pacific may warm more intensely than the West Pacific, mimicking the pattern of an El Niño, although significant uncertainties
remain. Models do not yet agree on the nature of changes in the frequency or intensity of the El Niño (Collins and the CMIP
Modelling Groups 2005).
STERN REVIEW: The Economics of Climate Change
13

Increase in frequency of extreme events
(multiplier)
Part I: Climate Change – Our Approach

Figure 1.5 Rising probability of heatwaves

There will be more extreme heat days (relative to today) and fewer very cold days, as the distribution of
temperatures shifts upwards. The figure below illustrates the change in frequency of a one-in-ten (blue)
and one-in-one-hundred (red) year event. The black arrow shows that if the mean temperature increases
by one standard deviation (equal to, for example, only 1°C for summer temperatures in parts of Europe),
then the probability of today’s one-in-one-hundred year event (such as a severe heatwave) will increase
ten-fold. This result assumes that the shape of the temperature distribution will remain constant. However,
in many areas, the drying of land is expected to skew the distribution towards higher temperatures, further
increasing the frequency of temperature extremes44.

40

35

30

25

20

15

10

5

0
0
0.5
1
1.5
2
Change in mean (standard deviations from the mean)
Source: Based on Wigley (1985) assuming normally distributed events.

Figure 1.6 Consistency of future rainfall estimates

The figure below indicates the percentage of models (out of a total of 23) that predict that annual rainfall
will increase by 2100 (for a warming of around 3.5°C above pre-industrial). Blue shading indicates that
most models (>75%) show an increase in annual rainfall, while red shading indicates that most models
show a decrease in rainfall. Lightly shaded areas are where models show inconsistent results. The figure
shows only the direction of change and gives no information about its scale. In general, there is
agreement between most of the models that high latitudes will see increases in rainfall, while much of the
subtropics will see reductions in rainfall. Changes in rainfall in the tropics are still uncertain.
Source: Climate Directorate of the National Centre for Atmospheric Science, University of Reading
44
Schär C et al. (2004)
STERN REVIEW: The Economics of Climate Change
14

Part I: Climate Change – Our Approach

Greater evaporation and more intense rainfall will increase the risk of droughts and flooding in areas
already at risk.45 It could also increase the size of areas at risk; one recent study, the first of its kind,
estimates that the fraction of land area in moderate drought at any one time will increase from 25% at
present to 50% by the 2090s, and the fraction in extreme drought from 3% to 30%46.

Hurricanes and other storms are likely to become more intense in a warmer, more energised world, as the
water cycle intensifies, but changes to their location and overall numbers47 remain less certain. There is
growing evidence the expected increases in hurricane severity are already occurring, above and beyond
any natural decadal cycles. Recent work suggests that the frequency of very intense hurricanes and
typhoons (Category 4 and 5) in the Atlantic Basin has doubled since the 1970s as a result of rising sea-
surface temperatures.48 This remains an active area of scientific debate49. In higher latitudes, some
models show a general shift in winter storm tracks towards the poles.50 In Australia, this could lead to
water scarcity as the country relies on winter storms to supply water51.

Climate change could weaken the Atlantic Thermohaline Circulation, partially offsetting warming
in both Europe and eastern North America, or in an extreme case causing a significant cooling.

The warming effect of greenhouse gases has the potential to trigger abrupt, large-scale and irreversible
changes in the climate system. One example is a possible collapse of the North Atlantic Thermohaline
Circulation (THC). In the North Atlantic, the Gulf Stream and North Atlantic drift (important currents of the
North Atlantic THC) have a significant warming effect on the climates of Europe and parts of North
America. The THC may be weakened, as the upper ocean warms and/or if more fresh water (from melting
glaciers and increased rainfall) is laid over the salty seawater.52 No complex climate models currently
predict a complete collapse. Instead, these models point towards a weakening of up to half by the end of
the century53. Any sustained weakening of the THC is likely to have a cooling effect on the climates of
Europe and eastern North America, but this would only offset a portion of the regional warming due to
greenhouse gases. A recent study using direct ocean measurements (the first of its kind) suggests that
part of the THC may already have weakened by up to 30% in the past few decades, but the significance of
this is not yet known.54 The potential for abrupt, large-scale changes in climate requires further research.

Sea levels will continue to rise, with very large increases if the Greenland Ice Sheet starts to melt
irreversibly or the West Antarctic Ice Sheet (WAIS) collapses.

Sea levels will respond more slowly than temperatures to changing greenhouse gas concentrations. Sea
levels are currently rising globally at around 3 mm per year and the rise has been accelerating55.
According to the IPCC TAR, sea levels are projected to rise by 9 – 88 cm by 2100, mainly due to
expansion of the warmer oceans and melting glaciers on land.56 However, because warming only
penetrates the oceans very slowly, sea levels will continue to rise substantially more over several
centuries. On past emissions alone, the world has built up a substantial commitment to sea level rise.
One study estimates an existing commitment of between 0.1 and 1.1 metres over 400 years.57
45
Huntington (2006) reviewed more than 50 peer-reviewed studies and found that many aspects of the global water cycle have
intensified in the past 50 years, including rainfall and evaporation. Modelling work by Wetherald & Manabe (2002) confirms that
warming will increase rates of both precipitation and evaporation.
46
these results. The study uses one commonly used drought index: The Palmer Drought Severity Index (PDSI). This uses temperature
and rainfall data to formulate a measure of ‘dryness’. Other drought indices do not show such large changes.
47
48
49
50
51
52
53
54
55
56
57
STERN REVIEW: The Economics of Climate Change
15

Box 1.4
Part I: Climate Change – Our Approach

Ice sheets and sea level rise
Melting ice sheets are already contributing a small amount to sea level rise. Most of recent and current
global sea level rise results from the thermal expansion of the ocean with a contribution from glacier melt.
As global temperatures rise, the likelihood of substantial contributions from melting ice sheets increases,
but the scale and timing remain highly uncertain. While some models project that the net contribution from
ice sheets will remain close to zero or negative over the coming century, recent observations suggest that
the Greenland and West Antarctic ice sheets may be more vulnerable to rising temperatures than is
projected by current climate models:
•

•
Greenland Ice Sheet. Measurements of the Greenland ice sheet have shown a slight inland growth,58
but significant melting and an acceleration of ice flows near the coast,59 greater than predicted by
models. Melt water is seeping down through the crevices of the melting ice, lubricating glaciers and
accelerating their movement to the ocean. Some models suggest that as local temperatures exceed 3
– 4.5°C (equivalent to a global increase of around 2 – 3°C) above pre-industrial,60 the surface
temperature of the ice sheet will become too warm to allow recovery from summertime melting and
the ice sheet will begin to melt irreversibly. During the last interglacial period, around 125,000 years
ago when Greenland temperatures reached around 4 – 5°C above the present61, melting of ice in the
Arctic contributed several metres to sea level rise.
Collapse of the West Antarctic Ice Sheet:62 In 2002, instabilities in the Larsen Ice Shelf led to the
collapse of a section of the shelf the size of Rhode Island (Larsen B – over 3200 km2 – and 200 m
thick) from the Antarctic Peninsula. The collapse has been associated with a sustained warming and
resulting rapid thinning of Larsen B at a rate of just under 20 cm per year63. A similar rapid rate of
thinning has now been observed on other parts of the WAIS around Amundsen Bay (this area alone
contains enough water to raise sea levels by 1.5 m)64. Rivers of ice on the ice-sheet have been
accelerating towards the ocean. It is possible that ocean warming and the acceleration of ice flows will
destabilise the ice sheet and cause a runaway discharge into the oceans. Uncertainties over the
dynamics of the ice sheet are so great that there are few estimates of critical thresholds for collapse.
One study gives temperatures between 2°C and 5°C, but these remain disputed.

As global temperatures continue to rise, so do the risks of additional sea level contributions from large-
scale melting or collapse of ice sheets. If the Greenland and West Antarctic ice sheets began to melt
irreversibly, the world would be committed to substantial increases in sea level in the range 5 – 12 m over
a timescale of centuries to millennia.65 The immediate effect would be a potential doubling of the rate of
sea level rise: 1 – 3 mm per year from Greenland and as high as 5 mm per year from the WAIS.66 For
illustration, if these higher rates were reached by the end of this century, the upper range of global sea
level rise projections would exceed 1m by 2100. Both of these ice sheets are already showing signs of
vulnerability, with ice discharge accelerating over large areas, but the thresholds at which large-scale
changes are triggered remain uncertain (Box 1.4).
58
59
60
61
For example, Zwally et al. 2006 and Johannessen et al. 2005
For example, Hanna et al. 2005 and Rignot and Kanagaratnam 2006
Lower and higher estimates based on Huybrechts and de Wolde (1999) and Gregory and Huybrechts (2006), respectively.
North Greenland Ice Core Project (2004). The warm temperatures in the Northern Hemisphere during the previous interglacial
reflected a maximum in the cycle of warming from the Sun due to the orbital position of the Earth. In the future, Greenland is
expected to experience some of the largest temperature changes. A 4-5°C greenhouse warming of Greenland would correspond to a
global mean temperature rise of around 3°C (Gregory and Huybrechts (2006)).
62
63
64
65
66
Huybrechts and DeWolde (1999) simulated the melting of the Greenland Ice Sheet for a local temperature rise of 3°C and 5.5°C.
These scenarios led to a contribution to sea level rise of 1m and 3m over 1000 years (1mm/yr and 3mm/yr), respectively. Possible
contributions from the West Antarctic Ice Sheet (WAIS) remain highly uncertain. In an expert survey reported by Vaughan and
Spouge (2002), most glaciologists agree that collapse might be possible on a thousand-year timescale (5mm/yr), but that this
contribution is unlikely to be seen in this century. Few scientists considered that collapse might occur on a century timescale.
STERN REVIEW: The Economics of Climate Change
16

Part I: Climate Change – Our Approach
1.6
Conclusions
Climate change is a serious and urgent issue. While climate change and climate modelling are subject to
inherent uncertainties, it is clear that human activities have a powerful role in influencing the climate and
the risks and scale of impacts in the future. All the science implies a strong likelihood that, if emissions
continue unabated, the world will experience a radical transformation of its climate. Part II goes on to
discuss the profound implications that this will have for our way of life.

The science provides clear guidance for the analysis of the economics and policy. The following chapter
examines the implications of the science for the structuring of the economics.
STERN REVIEW: The Economics of Climate Change
17

Part I: Climate Change – Our Approach

References

The Third Assessment Report of the IPCC gives the most comprehensive assessment of the science of
climate change up to 2001 (IPCC 2001a,b). The summary for policymakers gives a good introduction to
the more in-depth analyses of the three working groups. Maslin (2004) provides a more narrative
description of climate change, including an overview of the history. Schellnhuber (2006) gives a good
summary of the evolution of the science from early 2001 to 2005, including articles describing temperature
projections based on new estimates of climate sensitivity (e.g. Meinshausen (2006)), positive feedbacks in
the carbon cycle (e.g. Cox et al. (2006)) and several articles on the impacts of climate change.

Annan, J.D. and J.C. Hargreaves (2006): 'Using multiple observationally-based constraints to estimate
climate sensitivity', Geophysical Research Letters 33: L06704

Archer, D. (2005): 'Methane hydrates and anthropogenic climate change', Reviews of Geophysics,
submitted, available from http://geosci.uchicago.edu/~archer/reprints/archer.ms.clathrates.pdf

Barnett T.P., D.W. Pierce, K.M. AchutaRao et al. (2005): 'Penetration of human-induced warming into the
world’s oceans', Science 309: 284 – 287

Bengtsson, L., K. Hodges and E. Roeckner (2006): 'Storm tracks and climate change', Journal of Climate,
in press.

Brohan. P., J.J. Kennedy, I. Harris, et al. (2006): 'Uncertainty estimates in regional and global observed
temperature changes: a new dataset from 1850'. Journal of Geophysical Research, 111, D12106, doi:
10.1029/2005JD006548

Burke, E.J., S.J. Brown and N. Christidis (2006): 'Modelling the Recent Evolution of Global Drought and
Projections for the Twenty-First Century with the Hadley Centre Climate Model', Journal of
Hydrometeorology, 7(5):1113–1125

Bryden, H.L., H.R. Longworth and S.A. Cunningham (2005): 'Slowing of the Atlantic meridional
overturning circulation at 25°N', Nature 438: 655-657

Church, J.A., and N.J. White (2006): 'A 20th century acceleration in global sea-level rise', Geophysical
Research Letters, 33, L01602, doi: 10.1029/2005GL024826.

Collins, M. and the CMIP Modelling Group (2005): 'El Nino – or La Nina-like climate change? Climate
Dynamics' 24: 89-104

Cox, P.M., R.A. Betts, C.D. Jones, et al. (2000): 'Acceleration of global warming due to carbon-cycle
feedbacks in a coupled climate model', Nature 408: 184-187

Cox P.M., C. Huntingford and C.D. Jones (2006): 'Conditions for Sink-to-Source Transitions and Runaway
Feedbacks from the Land Carbon Cycle', in Avoiding dangerous climate change, H.J. Schellnhuber et al.
(eds.), Cambridge: Cambridge University Press, pp.155 – 163.

Davidson and Janssens (2006): 'Temperature sensitivity of soil carbon decomposition and feedbacks to
climate change', Nature 440: 165-173

DEFRA (2005): 'Climate change and the greenhouse effect: a briefing from the Hadley Centre', available
from http://www.metoffice.com/research/hadleycentre/pubs/brochures/2005/climate_greenhouse.pdf

Emanuel, K. (2005): 'Increased destructiveness of tropical cyclones over the past 30 years', Nature 436:
686-688
STERN REVIEW: The Economics of Climate Change
18

Part I: Climate Change – Our Approach

Forest, C.E., P.H. Stone and A.P. Sokolov (2006): 'Estimates PDFs of climate system properties including
natural and anthropogenic forcings', Geophysical Research Letters
33: L01705, doi:
10.1029/2005GL023977

Friedlingstein, P., P. Cox, R. Betts et al. (2006): 'Climate-carbon cycle feedback analysis: results from
C4MIP model intercomparison', Journal of Climate, 19: 3337-3353

Fyfe, J.C. (2003): 'Extratropical southern hemisphere cyclones: Harbingers of climate change?' Journal of
Climate 16, 2802-2805

Gedney, N., P.M. Cox and C. Huntingford (2004): 'Climate feedback from wetland methane emissions',
Geophysical Research Letters 31 (20): L20503

Geng, Q.Z. and M. Sugi (2003): 'Possible changes in extratropical cyclone activity due to enhanced
greenhouse gases and aerosols – Study with a high resolution AGCM'. Journal of Climate 16: 2262-2274.

Gorham, E. (1991): 'Northern Peatlands: Role in the Carbon Cycle and Probable Responses to Climatic
Warming', Ecological Applications 1: 182-195, doi: 10.2307/1941811

Gregory, J. and P. Huybrechts (2006): 'Ice sheet contributions to future sea level change', Phil Trans
Royal Soc A 364: 1709 – 1731, doi: 10.1098/rsta.2006.1796

Hadley Centre (2005): 'Stabilising climate to avoid dangerous climate change – a summary of relevant
research at the Hadley Centre', available from
http://www.metoffice.com/research/hadleycentre/pubs/brochures

Hanna, E., P. Huybrechts, and I. Janssens, et al. (2005): 'Runoff and mass balance of the Greenland ice
sheet: 1958-2003'. Journal of Geophysical Research 110, D13108, doi: 10.1029/2004JD005641

Hansen, J., M. Sato, R. Ruedy, et al. (2006): 'Global temperature change, Proceedings of the National
Academy', 103: 14288-14293

Hope, P.K. (2006): 'Projected future changes in synoptic systems influencing southwest Western
Australia. Climate Dynamics' 26: 765-780, doi: 10.1007/s00382-006-0116-x

Huntington, T.G. (2006): 'Evidence for intensification of the global water cycle: review and synthesis',
Journal of Hydrology 319: 1 – 13

Huybrechts, P. and J. de Wolde (1999): 'The dynamic response of the Greenland Ice Sheet and Antarctic
ice sheets to a multiple century climatic-warming', Journal of Climate 12: 2169-2188

International ad hoc detection group (2005): 'Detecting and attributing external influences on the climate
system: a review of recent advances', Journal of Climate 18: 1291-1314

Intergovernmental Panel on Climate Change (2001a): 'Climate change 2001: summary for policymakers,
A contribution of Working Groups I, II and III to the Third Assessment Report of the Intergovernmental
Panel on Climate Change' [Watson RT, and the Core Writing Team (eds.)], Cambridge: Cambridge
University Press.

Intergovernmental Panel on Climate Change (2001b): 'Climate change 2001: the scientific basis.
Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on
Climate Change' [Houghton JT, Ding Y, Griggs DJ, et al. (eds.)], Cambridge: Cambridge University Press.

Johannessen, O.M., K. Khvorostovsky, M.W. Miles et al. (2005): 'Recent ice-sheet growth in the interior of
Greenland'. Science 310: 1013-1016
STERN REVIEW: The Economics of Climate Change
19

Part I: Climate Change – Our Approach

Knutti, R., T.F. Stocker, F. Joos and G-K Plattner (2002): 'Constraints on radiative forcing and future
climate change from observations and climate model ensembles', Nature 416: 719 – 723

Lawrence D.M. and A.G. Slater (2005): 'A projection of severe near-surface permafrost degradation during
the 21st century', Geophysical Research Letters 32: L24401

Lambert S.J. and J.C. Fyfe (2006): 'Changes in winter cyclone frequencies and strengths simulated in
enhanced greenhouse warming experiments: results from models participating in the IPCC diagnostic
exercise', Climate Dynamics 1432, 0894

Landsea, C. (2005): 'Atlantic hurricanes and global warming', Nature 438, E11-E12

Levitus, S.J., J. Antonov and T. Boyer (2005): 'Warming of the world ocean 1955 – 2003', Geophysical
Research Letters 32: L02604, doi:10.1029/2004GL021592

Lindzen, R.S., M-D Chou and A.Y. Hou (2001): 'Does the earth have an adaptive infrared iris?' Bulletin of
the American Meteorological Society 82: 417-432

Mann, M.E., R.S. Bradley and M.K. Hughes (1999): 'Northern hemisphere temperatures during the past
millennium: inferences, uncertainties, and limitations', Geophysical Research Letters, 26, 759-762.

Maslin, M. (2004): 'Global warming: a very short introduction', New York: Oxford University Press,
Meehl, G.A., W.M. Washington, W.D. Collins et al. (2005): 'How much more global warming and sea level
rise?' Science 307:1769 – 1772

Meinshausen, M. (2006): 'What does a 2°C target mean for greenhouse gas concentrations? A brief
analysis based on multi-gas emission pathways and several climate sensitivity uncertainty estimates',
Avoiding dangerous climate change, in H.J. Schellnhuber et al. (eds.), Cambridge: Cambridge University
Press, pp.265 – 280.

Murphy, J.M., D.M.H. Sexton D.N. Barnett et al. (2004): 'Quantification of modelling uncertainties in a
large ensemble of climate change simulations', Nature 430: 768 – 772

National Research Council (2006): 'Surface temperature reconstructions for the past 2,000 years',
available from http://www.nap.edu/catalog/11676.html

North Greenland Ice Core Project (2004): 'High-resolution record of Northern Hemisphere climate
extending into the last interglacial maximum', Nature 431: 147-151

Orr, J.C., V.J. Fabry, O. Aumont et al. (2005): 'Anthropogenic ocean acidification over the twenty-first
century and its impact on calcifying organisms', Nature 437: 681-686

Parmesan, C. and G. Yohe (2003): 'A globally coherent fingerprint of climate change impacts across
natural systems', Nature 421: 37 – 42

Pearce, F. (2003): 'Land of the midnight sums', New Scientist 177: 2379

Pierrehumbert, R.T. (2004): 'Warming the world', Nature 432: 677, doi: 10.1038/432677a

Pielke, R. (2005): 'Meteorology: Are there trends in hurricane destruction?' Nature 438: E11

Rapley, C. (2006): 'The Antarctic ice sheet and sea level rise', in Avoiding dangerous climate change,
Schellnhuber HJ (ed.), Cambridge: Cambridge University Press, pp. 25 – 28.

Rignot, E. and P. Kanagaratnam (2006): 'Changes in the velocity structure of the Greenland ice sheet.
Science' 311: 986-990
STERN REVIEW: The Economics of Climate Change
20

Part I: Climate Change – Our Approach

Root, T.L., D.P. MacMynowski, M.D. Mastrandrea and S.H. Schneider (2005): 'Human-modified
temperatures induce species changes: combined attribution', Proceedings of the National Academy of
Sciences 102: 7465 – 7469

Schär, C., P.L. Vidale, D. Lüthi, et al. (2004): 'The role of increasing temperature variability in European
summer heatwaves', Nature 427: 332-336, doi: 10.1038/nature02300

Scheffer, M., V. Brovkin and P. Cox (2006): 'Positive feedback between global warming and the
atmospheric CO2 concentration inferred from past climate change'. Geophysical Research Letters 33,
L10702

Schellnhuber, H.J., W. Cramer, N. Nakicenovic et al. (eds.) (2006): 'Avoiding dangerous climate change',
Cambridge: Cambridge University Press.

Schlesinger, M.E., J. Yin, G. Yohe, et al. (2006): 'Assessing the risk of a collapse of the Atlantic
Thermohaline Circulation', in Avoiding dangerous climate change, H.J. Schellnhuber et al. (eds.)
Cambridge: Cambridge University Press, pp. 37 – 47.

Scholze, M., K. Wolfgang, N. Arnell and C. Prentice (2006): 'A climate-change risk analysis for world
ecosystems', Proceedings of the National Academy of Sciences 103: 13116 – 13120

Siegenthaler U, Stocker TF, Monnin E, et al. (2005) Stable carbon cycle-climate relationship during the
late Pleistocene, Science 310: 1313 – 1317

Shepherd, A., D. Wingham, T. Payne and P. Skvarca (2003): 'Larsen Ice Shelf has progressively thinned',
Science 302: pp 856-859, doi: 10.1126/science.1089768

Smith, L.C., Y. Sheng, G.M. MacDonald, et al. (2005): 'Disappearing artic lakes'. Science, 308: 1429

Soden, B.J., D.L. Jackson, V. Ramaswamy, et al. (2005): 'The radiative signature of upper tropospheric
moistening', Science, 310: 841-844

Stainforth, D., T. Aina, C. Christensen, et al. (2005): 'Uncertainty in predictions of the climate response to
rising levels of greenhouse gases', Nature 433: 403-406

Stott P.A., D.A. Stone and M.R. Allen (2004): 'Human contribution to the European heatwave of 2003',
Nature 432: 610 – 614

Torn, M.S and J. Harte (2006): 'Missing feedbacks, asymmetric uncertainties, and underestimation of
future warming', Geophysical Research Letters 33: L10703

US Climate Change Programme (2006): 'Temperature trends in the lower atmosphere: steps for
understanding and reconciling differences', available from
http://www.climatescience.gov/Library/sap/sap1-1/finalreport

Vaughan, D.G. and J.R. Spouge (2002): 'Risk estimation of collapse of the West Antarctic ice sheet',
Climatic Change 52: 65-91

von Storch, H., E. Zorita, J.M. Jones, et al. (2004): Reconstructing past climate from noisy data, Science
306: 679-682

Walter, K.M., S.A. Zimov, J.P. Chanton, et al. (2006): 'Methane bubbling from Siberian thaw lakes as a
positive feedback to climate warming', Nature 443: 71-75

Webster, P.J., G.J. Holland, J.A. Curry and H-R Chang (2005): 'Changes in tropical cyclone number,
duration, and intensity in a warming environment', Science 309,1844-1846
STERN REVIEW: The Economics of Climate Change
21

Part I: Climate Change – Our Approach

Wetherald, R.T. and S. Manabe (2002): 'Simulation of hydrologic changes associated with global
warming', Journal of Geophysical Research 107: 4379

Wigley, T.M.L. (1985): 'Impact of extreme events', Nature 316: 106 – 107

Wigley, T.M.L. and S.C.B. Raper (2001): 'Interpretation of high projections for global-mean warming',
Science 293: 451-454

Wigley, T.M.L. (2005): 'The climate change commitment', Science 307: 1766 – 1769

Wood, R., M. Collins, J. Gregory, et al. (2006): 'Towards a risk assessment for shutdown of the Atlantic
Thermohaline Circulation', in Avoiding dangerous climate change, H.J Schellnhuber et al. (eds.),
Cambridge: Cambridge University Press, pp. 49 – 54.

Zwally, H.J., M.B. Giovinetto, J. Li, et al. (2006): 'Mass changes of the Greenland and Antarctic ice sheets
and shelves and contributions to sea-level rise: 1992–2002', Journal of Glaciology 51: 509–527
STERN REVIEW: The Economics of Climate Change
22

2
PART I: Climate Change – Our Approach

Economics, Ethics and Climate Change
Key Messages

Climate change is a result of the externality associated with greenhouse-gas emissions –
it entails costs that are not paid for by those who create the emissions.

It has a number of features that together distinguish it from other externalities:
•
•
•
•
It is global in its causes and consequences;
The impacts of climate change are long-term and persistent;
Uncertainties and risks in the economic impacts are pervasive.
There is a serious risk of major, irreversible change with non-marginal economic
effects.

These features shape the economic analysis: it must be global, deal with long time horizons,
have the economics of risk and uncertainty at its core, and examine the possibility of major,
non-marginal changes.

The impacts of climate change are very broad ranging and interact with other market
failures and economic dynamics, giving rise to many complex policy problems. Ideas
and techniques from most of the important areas of economics, including many recent
advances, have to be deployed to analyse them.

The breadth, magnitude and nature of impacts imply that several ethical perspectives,
such as those focusing on welfare, equity and justice, freedoms and rights, are
relevant. Most of these perspectives imply that the outcomes of climate-change policy are to
be understood in terms of impacts on consumption, health, education and the environment
over time but different ethical perspectives may point to different policy recommendations.

Questions of intra- and inter-generational equity are central. Climate change will have
serious impacts within the lifetime of most of those alive today. Future generations will be
even more strongly affected, yet they lack representation in present-day decisions.

Standard externality and cost-benefit approaches have their usefulness for analysing
climate change, but, as they are methods focused on evaluating marginal changes, and
generally abstract from dynamics and risk, they can only be starting points for further work.

Standard treatments of discounting are valuable for analysing marginal projects but
are inappropriate for non-marginal comparisons of paths; the approach to discounting
must meet the challenge of assessing and comparing paths that have very different
trajectories and involve very long-term and large inter-generational impacts. We must go back
to the first principles from which the standard marginal results are derived.

The severity of the likely consequences and the application of the above analytical
approaches form the basis of powerful arguments, developed in the Review, in favour
of strong and urgent global action to reduce greenhouse-gas emissions, and of major
action to adapt to the consequences that now cannot be avoided.
2.1
Introduction
The science described in the previous chapter drives the economics that is required for the
analysis of policy. This chapter introduces the conceptual frameworks that we will use to
examine the economics of climate change. It explores, in Section 2.2, the distinctive features
of the externalities associated with greenhouse-gas emissions and draws attention to some of
the difficulties associated with a simplistic application of the standard theory of externalities to
this problem. Section 2.3 introduces a variety of ethical approaches and relates them to the
STERN REVIEW: The Economics of Climate Change
23

PART I: Climate Change – Our Approach

global and long-term nature of the impacts (the discussion is extended in the appendix to the
chapter). Section 2.4 examines some specifics of intertemporal allocation, including
discounting (some further technical details are provided in the appendix to the chapter).
Sections 2.5 and 2.6 consider how economic analysis can get to grips with a problem that is
uncertain and involves a serious risk of large losses of wellbeing, due to deaths, extinctions of
species and heavy economic costs, rather than the marginal changes more commonly
considered in economics. For most of economic policy, the underlying ethical assumptions
are of great importance, and this applies particularly for climate change: that is why they are
given special attention in this chapter.

The economics introduced in this chapter applies, in principle, to the whole Review but the
analysis of Sections 2.2 to 2.6 is of special relevance to Parts II and III, which look at impacts
and at the economics of mitigation – assessing how much action is necessary to reduce
greenhouse-gas emissions. Parts IV, V, VI of this report are devoted to the analysis of policy
to promote mitigation and adaptation. The detailed, and often difficult, economics of public
policy and collective action that are involved in these analyses are introduced in the sections
themselves and we provided only brief coverage in Sections 2.7 and 2.8. In the former
section, we refer briefly to the modern public economics of carbon taxation, trading and
regulation and of the promotion of research, development and deployment, including the
problems of various forms of market imperfection affecting innovation. It also covers an
analysis of the role of ‘responsible behaviour’ and how public understanding of this notion
might be influenced by public policy. Section 2.8 explores some of the difficulties of building
and sustaining global collective action in response to the global challenge of climate change.

In these ways, this chapter lays the analytical foundations for much of the economics required
by the challenge of climate change and which is put to work in the course of the analysis
presented in this Review.

The subject demands analysis across an enormous range of issues and requires all the tools
of economics we can muster – and indeed some we wish we had. In setting out some of
these tools, some of the economic analysis of this chapter is inevitably technical, even though
the more mathematical material has been banished to an appendix. Some readers less
interested in the technical underpinnings of the analysis may wish to skim the more formal
analytical material. Nevertheless, it is important to set out some of the analytical instruments
at the beginning of the Review, since they underpin the analysis of risk, equity and allocation
over time that must lie at the heart of a serious analysis of the economics of climate change.
2.2
Understanding the market failures that lead to climate change
Climate change results from greenhouse-gas emissions associated with economic
activities including energy, industry, transport and land use.

In common with many other environmental problems, human-induced climate change is at its
most basic level an externality. Those who produce greenhouse-gas emissions are bringing
about climate change, thereby imposing costs on the world and on future generations, but
they do not face directly, neither via markets nor in other ways, the full consequences of the
costs of their actions.

Much economic activity involves the emission of greenhouse gases (GHGs). As GHGs
accumulate in the atmosphere, temperatures increase, and the climatic changes that result
impose costs (and some benefits) on society. However, the full costs of GHG emissions, in
terms of climate change, are not immediately – indeed they are unlikely ever to be – borne by
the emitter, so they face little or no economic incentive to reduce emissions. Similarly,
emitters do not have to compensate those who lose out because of climate change.1 In this
sense, human-induced climate change is an externality, one that is not ‘corrected’ through
any institution or market,2 unless policy intervenes.
1
2
Symmetrically, those who benefit from climate change do not have to reward emitters.
Pigou (1912).
STERN REVIEW: The Economics of Climate Change
24

PART I: Climate Change – Our Approach

The climate is a public good: those who fail to pay for it cannot be excluded from enjoying its
benefits and one person’s enjoyment of the climate does not diminish the capacity of others to
enjoy it too.3 Markets do not automatically provide the right type and quantity of public goods,
because in the absence of public policy there are limited or no returns to private investors for
doing so: in this case, markets for relevant goods and services (energy, land use, innovation,
etc) do not reflect the consequences of different consumption and investment choices for the
climate. Thus, climate change is an example of market failure involving externalities and
public goods.4 Given the magnitude and nature of the effects initially described in the previous
chapter and taken forward in Parts II and III, it has profound implications for economic growth
and development. All in all, it must be regarded as market failure on the greatest scale the
world has seen.

The basic theory of externalities and public goods is the starting point for most economic
analyses of climate change and this Review is no exception. The starting point embodies the
basic insights of Pigou, Meade, Samuelson and Coase (see Part IV). But the special features
of this particular externality demand, as we shall see, that the economic analysis go much
further.

The science of climate change means that this is a very different form of externality
from the types commonly analysed.

Climate change has special features that, together, pose particular challenges for the
standard economic theory of externalities. There are four distinct issues that will be
considered in turn in the sections below.
•

•

•

•
Climate change is an externality that is global in both its causes and consequences.
The incremental impact of a tonne of GHG on climate change is independent of
where in the world it is emitted (unlike other negative impacts such as air pollution
and its cost to public health), because GHGs diffuse in the atmosphere and because
local climatic changes depend on the global climate system. Whi