Stern Warning

By Gundersen, Bryan | New Zealand Management, December 2006 | Go to article overview

Stern Warning


Gundersen, Bryan, New Zealand Management


The Stern Review: The Economics of Climate Change, published at the end of October, is a comprehensive analysis of the economics of climate change. Commissioned by the British Chancellor and authored by Sir Nicholas Stern, head of the Government Economic Service and former World Bank economist, it estimates that uncontrolled climate change will cost at least five percent of global GDP per year. Considering a wider range of risks and impacts, the estimates rise to 20 percent of GDP or more. However, the review finds the costs associated with reducing greenhouse gas emissions could be limited to about one percent of global GDP per year.

The review emphasises that if action is not taken to reduce emissions (ie, carbon pricing, urgent development of low-carbon and high-efficiency technologies and removal of barriers to behavioural change--poor information and transaction costs), there could be major disruption to economic and social activity which will be difficult, maybe impossible, to reverse.

So what is the Stern Review's significance for New Zealand? Firstly, it will influence the policies of our major trading partners: Australia, the United States, Japan, China and the United Kingdom.

UK Chancellor Gordon Brown endorsed the view that a global carbon emissions trading system is one of the best ways to promote cost-effective reduction in emissions. He said that the EU scheme established to meet Kyoto targets should be linked with large emitters worldwide, enabling a global carbon price to be set, fixing a clear cost for pollution.

Australia and the US refused to ratify the Kyoto Protocol, opting for participation in the Asia-Pacific Partnership on Clean Development and Climate, an alliance of the world's biggest polluter countries emphasising low emission fuel projects. Australia has expressed the view that it will only commit to emissions trading as part of a global response.

While the points of emphasis differ, New Zealand must ensure its policy response is in line with the responses of these major trading partners.

Secondly, the review is an opportunity by protectionists to oppose New Zealand exports. The concept of "food miles" to measure the distance to transport food to market, provides a crude measure of the fossil fuel component. Proponents argue for barriers against New Zealand exports because of high food miles.

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