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Last week the Center for Global Development hosted the third annual Richard H. Sabot Lecture to honor the memory of Dick Sabot, a development practitioner and scholar, and a founding member of CGD's board of directors (see our events page for photos and a trascript of the event). Lord Nicholas Stern, IG Patel Professor of Economics at the London School of Economics and author of the Stern Review, spoke on "The Economics of a Global Deal on Climate Change."

Welcoming more than 300 guests to the standing room-only event, Ed Scott, the founding chairman of CGD's board of directors, said that the international prominence of the speaker and the large number of influential individuals in the audience were testimony to Dick's legacy and to the impact of the Center's work. The Sabot Lecture Series features scholars and practitioners who have made important contributions to development. Lawrence Summers and Ngozi Okonjo-Iweala delivered the previous years' talks.
Oliver Sabot linked his father's legacy to the evening's topic:

Just before my father died, the topic that he was working most on, and very passionately in a paper he called "The Dollar and Development," was how our decisions here domestically, or decisions of those domestic decisions in Europe, impact the developing world…And I think that is quite pertinent for our talk we are going to hear today, because it is quite true for climate change as well.

That was what my father was so passionate about. Right at the end of his life. That we need to change the way that we think about development. That it is more than just foreign aid…I can't imagine a better tribute to the spirit of my father. And even more so than this annual lecture series, the ongoing work of CGD is an amazing tribute.

Lord Stern's presentation focused on five main points:

  1. Our atmosphere’s current carbon stock;
  2. The world’s carbon flows;
  3. Carbon-intensive sectors of the economy;
  4. Connecting climate change and development; and
  5. The prospects for a global deal on reducing greenhouse gas emissions

Describing climate change as "as difficult a subject in economics as you can imagine," Lord Stern argued it is inherently tied to development:

Development and climate change are the two big issues of the 21st Century. And unless we tackle them together we will fail on both of them. Climate change, if it goes on unmanaged will undermine development. Any response to climate change which appears to stall development will fail. It will fail politically and it will deserve to fail. Unless we tackle them both together we are not going to be successful on either…Now, how does all this work? Well, climate change starts with people and it ends in people.

Given the current stock of carbon dioxide in the atmosphere, he said, allowing rising global greenhouse gas emissions to continue unchecked would have disastrous consequences for the planet. Avoiding such scenarios, he argued, will require rapid reductions in emissions, starting now. He asked whether we are willing to invest in our future today to prevent a far-more costly tomorrow.
Lord Stern explained that continued high levels of emissions reflect a 'business-as-usual' mindset, a failure to accurately reflect the global social cost of carbon emissions in our economy and in our daily life. Business-as-usual, he said, "is the biggest market failure the world has ever seen." But rather than resort to central planning, he suggested using market principles to solve the problem.
Calculating a $30 charge per ton of CO2 as a responsible estimate for the social cost of carbon emissions, Stern reviewed many of the potential frameworks for gradually incorporating this cost into the global economy through mechanisms such as a global carbon tax and cap-and-trade. Stern suggested that a successful emissions reduction strategy would cost 1-2% of global GDP per year.
With the power sector accounting for 24% of global carbon emissions, he stressed that the world will need to quickly move to zero-emission electricity production in order to meet critical emissions reduction targets. Coal, the most carbon-intensive energy source, is currently cheaper than zero-carbon alternatives but would no longer be attractive with an added $30 carbon charge, he said, adding that changes in incentives will be crucial to the rapid deployment of low-carbon clean technologies. (For more on the potential for switching from fossil fuels to renewables, see CGD senior fellow David Wheeler's recent testimony before Congress.)
Lord Stern emphasized that poorer countries are particularly vulnerable to climate change, lacking much of the developed world's human capital and infrastructure. (William Cline, a senior fellow at CGD and the Peterson Institute, offers some sobering predictions in his 2007 book, Global Warming and Agriculture: Impact Estimates by Country.) With the entire development agenda threatened by rising temperatures, Lord Stern recommended increased support for efforts to help developing countries adapt to the negative effects.
Having outlined what's at stake, he discussed the difficulties of reaching a global deal on carbon emissions reductions. Climate change demands a global response, but countries have different levels of historic responsibility (the United States alone is responsible for 25% of the world's emissions). But Stern said that rising emissions in developing countries such as China and India requires commitments from everyone. CGD president Nancy Birdsall noted the importance of Stern's comments on conditionality and a 'grand bargain' between rich and poor countries in a recent blog post. (CGD senior fellow David Wheeler made a similar point in his working paper, Another Inconvenient Truth: A Carbon-Intensive South Faces Environmental Disaster, No Matter What the North Does. )
Stern concluded with cautious optimism, arguing that the world has an extraordinary opportunity to address this crisis but that it will require leadership on the international and national level:

We have to face up to the great risks and that will involve our children and grandchildren…Cynicism to the point of saying it is all impossible requires the honesty to describe the risks that follow from that, and they are very large indeed.

When you get into public life and decision-making, the decision you have to make is: given what you now know, what would you now do? That is the challenge of public office.

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CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.