15 Years after the Stern Review

There Has Never Been A More Important Moment for International Collaboration Than Now

Fifteen years ago, the Stern Review made the economic case that the cost of inaction on climate change was greater than the cost of action. Today, Lord Stern says, the cost of inaction has gone up, as the scientific projections for the effects of climate change have become more severe, and, the cost of action has gone down (largely due to technological advancements).

At the LSE last week, where he chairs the Grantham Institute on Climate Change and the Environment, he gave a lecture marking the anniversary of the report where he hinted at some optimism in terms of private sector and international action.

Since 2005 there has been an increase of emissions by 20% and a stalling of political interest following the financial crisis in 2007. Stern claims that to have the necessary impact, there must be significant investment, innovation and disruption in order to create systemic change within markets and infrastructure. Slow progress has been made he suggests because of assumptions that if we take environmental action, living standards have to be compromised and the economy loses out.

However, Stern sees growing recognition that environmental change is a new form of growth, and signs that the international community is starting to move. Countries are to share their carbon projections at COP26 with the goal of keeping global warming below 2 degrees, and aiming for below 1.5. When these projections were shared at COP21 in Paris, 6 years ago, they would have led to over 2 degrees, so it was decided that countries needed to make these more ambitious, and they had 5 years to figure out how (this became 6 because of the pandemic). 

He was positive about China’s commitment, made in September last year to go carbon neutral by 2060 and suggested that there were clear signals that they are doing it because they think it is the right thing to do, they recognise the danger of climate change on China itself and they have ambitions for the ‘green race’.

Stern argues that climate change is the biggest market failure the world has ever seen. Greenhouse gases were almost entirely unpriced. He says carbon pricing is one part of the story, but that, more broadly, policy must be built that gives the right signals to markets. Development banks can play an important role in kick-starting the right kind of investment.

He cites ‘remarkable movement’ toward net zero investments, suggesting that while some investments are more credible than others, all are promising as this statement gives the shareholders the opportunity to hold them to account in this way. Stern sees as hopeful the prediction by BlackRock’s Vice Chair that we will see the biggest market reallocation the world has ever seen.

He sees this as a critical moment for internationalism, suggesting that the international community is in a good place, with the G7 and G20, to move in an integrated way. He stated “There has never been a more important moment for international collaboration than now”. 

It is a very attractive path if we get it right, he argues, with benefits and improvements to lifestyle going beyond the avoidance of catastrophe.