Two decades ago, economist Sir Nicholas Stern was asked by then chancellor Gordon Brown to carry out a review on the economics of climate change. The 700-page document that he produced would become a landmark shift in how climate change is framed: that it is an economic issue, and not just an environmental issue; that the cost of inaction is far greater than the cost of action; and that climate change is “the greatest market failure the world has seen”.
The Stern Review would go on to shape UK and EU climate policy for decades, helping to mainstream key decarbonisation tools such as carbon pricing and green investment. The years since have seen the price of green technologies plummet and major achievements like the 2015 Paris Agreement, which has given the world a framework for decarbonisation. But there has also been another, less positive story: of emissions continuing to rise year-on-year, and of extreme weather resulting from the climate crisis shifting from a future problem to a present emergency.
Given this contradictory context, how does Lord Stern view his own assessment, two decades on?
“Well, at the time we were accused of being alarmist, but in fact we understated the risks,” he tells The Independent, speaking over Zoom this week. “Every time a major new scientific report has come out, the climate crisis looks worse… 20 years ago we thought the British local surface temperature relative to the second half 19th century might go up by 0.2C per decade, but had that been true, we would be at about 1.2C now, while instead we are at 1.4C or 1.5C.”
At the same time, low-carbon technologies have delivered far greater opportunities than were originally anticipated, only strengthening the Stern Review’s central argument, suggests Stern.
“We did not anticipate 20 years ago that round-the-clock renewables would become cheaper than dirty energy, and we did not anticipate that the rise of electric vehicles would mean we are approaching the end of the era of the internal combustion engine,” he says. Other, harder to decarbonise sectors – including heavy industry and aviation – can follow a similar price trajectory with the same formula of helpful state regulation and investment resulting in technological improvements, he says.
One constant across the many decades of the climate movement has been a well-funded climate-sceptic lobby, determined to dismiss the logic of the green transition and undercut its arguments. That lobby’s strength has, despite ever-more alarming extreme weather, only grown in recent years – with a climate sceptic president now in the White House, and figures from Conservative leader Kemi Badenoch to former Labour prime minister Tony Blair (whose government commissioned the Stern Review) souring on the UK’s net zero strategy.
Tony Blair, Stern says with a smile, is “a friend – but he’s wrong”. The pushback we are seeing, he continues, is an inevitable outcome of net zero – at least in the UK, where emissions are down 50 per cent since 1990 – now beginning to reach its more difficult stages.
“Now that we are in the process of actually doing it, we see that it is difficult and messy, and involves quite a lot of investment and some dislocation of people,” he says. “The pushback is, in a sense, an indication that we are now engaging in this process”.
The “significant” level of political backlash currently being experienced in the UK means, however, that proponents of decarbonisation must become more effective at sharing the benefits of net zero among the population.
“If we need more air-source heat pumps, we have to work to make them more accessible to people,” says Stern. “If we need to invest in the grid, the national grid should borrow more now to be able to spread the costs over a longer period of time. We should also try to de-link electricity prices from gas prices.”
One thing that Stern is certain of is the fact that there is no logic to opening up the North Sea for more drilling. “If we want energy security, we need to get away from fossil fuels as fast as we can. A decent country should be investing in opportunities and for people in places that depend on oil, rather than trying to extend the life of a dying industry” he says.
North Sea drilling has no impact on price, due to the fact that fossil fuels are priced on global markets, while the “energy security” argument is undermined by the fact that oil is typically refined overseas, says Stern. “The tax advantage is very possibly negative due to very friendly decommissioning arrangements, while profits will mostly go overseas. So where is the big advantage?”, he says.
Stern is also critical of the government’s decision to cut UK aid – and therefore government money classified as “climate finance” – at a time when humanitarian and climate impacts are escalating around the world.
“Making cuts to the UK aid budget from 0.7 to 0.5, and then from 0.5 to 0.3 per cent of [Gross National Income], have been major mistakes. It is very minor in terms of the overall UK budget, but very major in terms of our global standing” he says. “If you really want to reallocate money for defence or health, you need a really major amount of money that the aid budget is not really going to make a difference with.”
Speaking as a former chief economist of the World Bank, Stern nonetheless backs more recent moves in the UK’s development agenda under new PM Andy Burnham. With less climate aid available, it is going to be increasingly important to find ways of encouraging private investors to back renewable energy and climate adaptation projects in developing markets traditionally seen as more “risky” – and the decision of new Foreign Secretary Ed Miliband to take the UK’s seat at the World Bank could allow the UK “to be at the forefront of that”, says Stern.
“Ed Miliband understands very well this agenda of expanding access and lowering the cost of capital for developing countries,” says Stern. “I hope and I expect that he will now be taking a lead on this.”
Now aged 80, Stern’s motivation to drive the climate agenda, as well as his openness to new ideas, appears undimmed. He makes a big point, for example, of emphasising the importance of AI as a climate solution: “I don’t want to minimise the costs of data centres, but AI can help us run cities and energy systems much better, and do things like observe deforestation and look at where methane is being emitted,” he says.
open image in galleryStern has recently published a new book – available to download for free from the London School of Economics website – which revisits the insights of the Stern Review to remake the case that pursuing the climate agenda is the way to drive sustainable and inclusive growth this century. He has also been tasked, alongside fellow economist Vera Songwe, with helping develop an agenda for “sustainable, resilient growth in Africa” at the Cop32 climate conference, which is the UN climate conference taking place in Addis Ababa, Ethiopia in 2027 (after this year’s edition takes place in Antalya, Turkey).
What continues to motivate him to continue his climate work at a time when his legacy is already more than assured?
“Because not doing anything is profoundly dangerous,” he says. “Net zero is simply about stablising concentrations and stabilising temperatures… If you say I don’t want net zero, then you’re saying let the temperature go on up to wherever it goes, which means you are either ignorant, or you do not care about what happens over just the next 20 or 30 years.”
He continues: “My grandchildren are aged 11 to 15: they will be around at the end of this century, so we are talking about huge disruptions, dislocations, and the destruction of lives and livelihoods in their lifetimes if we do not make a difference now.”
This article was produced as part of The Independent’s Rethinking Global Aid project