Professor Lord Nicholas Stern - Stories of Change

Stories of Change Project

Professor Lord Nicholas Stern interview

Key

RH:      = Roger Harrabin interviewer

NS:      = Professor Lord Nicholas Stern, Economist, and Chair of the Grantham Research Institute on Climate Change and the Environment at the LSE, participant

RH:         Nick Stern, Lord Stern, thank you very much for agreeing to be interviewed for the OU and Radio 4. All our interviewees in this series are being asked the same first question which is: when did you first get interested in energy?

NS:         I’d been working on economics and development all my professional life, starting in the late sixties, so energy in relation to development has always been an important subject for me, but focussing on energy is really dating from about ten years ago when I started to work on the Stern Review which I began that work in 2005 and it was published in autumn 2006.

RH:         Whose idea was that? You were Chief Economist to the Treasury

NS:         Essentially I was Head of the Government Economic Service there, yes, and Second Permanent Secretary. It was Gordon Brown initially and immediately Tony Blair came on board, I mean within 24/48 hours. It followed right after the G8 Summit in 2005 and I’d written a report for the Commission for Africa, and this was the G8 Summit in Gleneagles, Scotland. And there were two subjects that Tony Blair had chosen: Africa and climate change, and the progress on Africa was really pretty good, you remember Live Aid and all the pressure to increase aid for Africa; most of the people there, including George W Bush, had fought hard about Africa. But the second subject, climate change, there was hardly any substance emerging from the Gleneagles Summit, and looking back and discussing with Gordon Brown, we thought that one of the reasons for this was that people at that level, Presidents, Prime Ministers and so on, were really rather unaware of the issues involved. They were unaware of the economic issues involved in particular. So it had lots of groundwork, including the commission for Africa on Africa, but not so much on climate change.

RH:         So did you set out to prove that climate change would be damaging to the economy, was that the remit?

NS:         No, it wasn’t the remit. I had been a lifetime, a professional lifetime in the economics of policy so the remit was to look into the economics of climate change from the perspective of policy and that –

RH:         But by then Tony Blair and Gordon Brown were completely on board with the need to act on climate change; some people saw it as the academic response to backing up the policy.

NS:         Gordon, I think it’s fair to say, he was the one or initiated the request to me, Tony Blair come on board very quickly afterwards but it was Gordon who initiated it, and I think these were days when Gordon really wanted to think through, together with those advising him on economics, and as a treasury official I was one of those. He wanted to think through the issues, so there was absolutely no preconceived rubric or required answer, as far as I was concerned.

RH:         Your conclusion from the review very clear though, ‘The benefits of taking action now to mitigate climate change far outweigh the costs.’ And that word ‘far’ I think was very significant in the conclusion.

NS:         It was, we concluded then the language we used that the costs of inaction, doing not much to manage climate change, far outweighed the costs of action and that was the conclusion. But it was a conclusion that certainly for me I came to as a result of the work.

RH:         There was some criticism by other academics at the time that you hadn’t submitted the review for any peer reviewed process, it was given to the media first and some people say, and I think there’s probably some truth in this, that there wasn’t much proper scrutiny of it at the time because no academics had had chance to digest its 700 pages before the interest in the media had blown over.

NS:         There was lots of interaction with academics right through the whole process. I set out the way we were working in a public lecture in Oxford in the early part, I think from memory it was January of 2006. So we’d been working for three or four months and I then stood up and shared with academic communities in the world, ‘This is where we’re going.’ Lots of working papers if you look at the acknowledgements in the front of the Stern Review, tremendous interaction with –

RH:         But no peer review though.

NS:         Well, you don’t –

RH:         For something as influential as this maybe it would’ve been backed up if you’d had a peer review.

NS:         You don’t normally have peer reviews for reviews by government of issues, and I don’t think you’d find many government reviews that were peer-reviewed in that sense. On the other hand I think you won’t find many government reviews with the degree of intellectual interaction and openness that we had for our work. We were constantly sharing working papers, constantly getting working papers from other academics, so if you ask the question: Was this a very open consultative process? Was our work constantly shared with other academics? The answer would be a big yes, much more so in my view, than government reviews. Having said that I think in those 700 pages there’s the odd typo but I haven’t found, in the ten, well nine years now since it was published, any mistake of any kind. That seems to me to be quite extraordinary for a review of that length. As I say, I know –

RH:         Unlike the IPCC for instance.

NS:         - I know of the odd typo. But I should say that people can disagree with conclusions, they can disagree with modelling; all that is standard academic fare. And I think that actually if you look back over the discussions around the analytical framework the discussion has moved very strongly in the direction of the Stern Review over the last nine years.

RH:         OK, well you did get some criticism after an initial honeymoon period, there was criticism from some academics. Let me quote you one, he said, ‘By hurrying the process of switching from carbon-based fuels along by boosting energy costs, means that humanity will have to delay buying other good things such as clean water, sanitation, better food and more education.’

NS:         There will have to be substantial investment in different ways of doing things, but what we’ve seen over the last nine years since the stern review was published, very rapid falls in the costs of alternative technologies. I started work ten years ago on the Stern Review – the cost of a solar PV panel has come down by a factor of around ten in that time. So there will have to be substantial investment but the productivity of that investment in alternative ways of doing things has gone up enormously, faster even than we imagined at the time of the Stern Review. Secondly, we have become much clearer the dreadful cost in human life of air pollution; we are killing millions now through the air pollution from burning hydrocarbons. So the costs of the traditional hydrocarbon methods in terms of air pollution are much higher than we thought. Let me give you an example, the cost of a ton of coal, depends on the coal of course, but it’s around $50, US a dollars a ton of coal. If you take into account the cost of carbon dioxide at around $35 a ton, that’s the number that the US government standardly uses and I’m in print with a very powerful argument explaining that’s far too low. But if you did take $35 a ton CO₂ –

RH:         As the cost to the climate of emitting a ton of CO₂?

NS:         Yes, exactly right. You would have another roughly $70 because one ton of coal goes to close to two tons of CO₂ so at $35 a ton that is roughly adding another 70. (*1 see footnote) If you look at the IMS work on air pollution, that comes out roughly twice the cost of carbon dioxide when carbon dioxide is valued at $35 a ton. So that would add roughly another 140. So you’ve got 50 for the original ton of coal, 70 for the carbon dioxide emissions, rather conservative, my view should be higher and around another 140. So you’re talking about ballpark 250 as the real cost of coal. So we’ve found since the Stern Review was published the cost of renewable energy going down very rapidly and our understanding of the immense cost of burning hydrocarbons get much deeper, and that’s from closer observation and measurement and closer work of air pollution and closer work by the medical profession on what those costs are. A recent Berkeley Earth study, came out in the summer of 2015, showed that breathing in many Chinese cities is equivalent to smoking 40 cigarettes a day, man, woman and child.

RH:         But this has to be offset against the benefits that cheap energy brings to developing countries.

NS:         I’ve just explained at some length, Roger, this is not cheap energy; if you price coal at $50 it looks quite cheap, but that’s a deep mistake. Just take the air pollution, that’s real cost in terms of killing the local population, large numbers of people through the use of coal, unless you dismiss that as somehow irrelevant or not a cost, which would be an extraordinary thing to do and very bad economics.

RH:         If you were using a very modern Japanese design, for instance, coal-fired power station with scrubbers attached to take out the sulphur dioxide then you’d be looking at a much cleaner form of coal and much less health emissions problems.

NS:         Cleaner, but if you look say at our own country, the UK or Germany, those air pollution costs are very large in those countries too, mostly from burning hydrocarbon, whether it be from oil-based products using transport or from coal. The UK Supreme Court accepted in the summer of 2015 the number 29,000 deaths a year from air pollution in the UK, mostly from burning hydrocarbons. And similar very large air pollution costs in Germany. Let’s not kid ourselves, these plants that look clean, these vehicles that look clean or presented as clean still carry very high air pollution costs. So if you look at costs properly in terms of climate and in terms of human life around air pollution, the former climate killing people in the future, the latter air pollution killing people now, it’s a deep mistake, a serious mistake to argue that hydrocarbons are cheap, they’re very expensive if you look at their full costs of their use.

RH:         Should you have included that in your first report?

NS:         Looking back, I would’ve included more of the air pollution in that work and that’s something which, you know, it’s the benefit of hindsight, we understand much more, much more about air pollution over the last three or four years actually with much closer measurement and much closer attention from the medics into what the consequences are. So if you ask me the big changes since the Stern Review, I would say that the risks of climate change now look even bigger than we did then, a lot of the effects coming through rather more quickly, lots of –

RH:         Despite — despite the pause in surface warming?

NS:         Yup, well, I mean we’re talking about trends of… the pause looks to be over in any case, but these are long-run trends, each decade over the last several decades had been hotter in terms of average global surface temperature than its predecessors.(*2 see footnote)  So a lot of those effects are effects which are associated with the trend, you know, the melting of ice sheets, the melting glaciers, those are things which occur of a long-ish period of time and it’s a basic trend that’s driving those. So a lot of the things are coming through faster than we anticipated and the potential damage from some of the things that have been conventionally left out of the models, for example like thawing of the permafrost and the release of methane and so on, those look still more worrying than they did. So the science I think tells us that since the Stern Review things look riskier than we thought, the technology of renewables in particular has been moving more rapidly than we thought and the costs of using hydrocarbons, particularly air pollution, it’s now clear is much higher than we had embodied in that story. So it seems to me the headline conclusion that costs of inaction are much bigger than the costs of action is still stronger now than it was then.

RH:         You’ve done a follow-up to the Stern Review, tell us about that.

NS:         Well, I’ve written a book which is called, Why Are We Waiting? The Logic, Urgency and Promise of Tackling Climate Change. Why are we waiting is a bit of a rhetorical question, it’s a why indeed are we waiting? We shouldn’t be waiting is the story of the book. And what we found in recent years, based on some of the kinds of things I’ve just been describing is that the transition to low carbon economy is enormously attractive. We published a report in the autumn of 2014 called Better Growth, Better Climate from the Global Commission on the Economy and Climate which I co-chaired with Felipe Calderón. We showed that building the kinds of infrastructure in cities and energy, protecting our forests, produced country by country a very attractive growth story, even if you’d never heard of climate change. If you build your cities in a less congested, more efficient way, if you thought about air pollution, if you tackled those challenges of building the cities, building the energy systems, looking after the soil and forests you would do a big part of what you needed to do to tackle climate change. So in other words even if you don’t know much about climate change, which shame on you if you don’t know much about climate change, but even if you don’t know much these alternative paths which are cleaner, more efficient, less congested and so on are extremely attractive. So the story of my new book is that if we’re thinking about the low carbon economy and the transition to low carbon economy, that’s an extremely attractive form of economic development.

RH:         And your key point is that it’s the developing countries that are going to have to develop differently from how we’ve developed.

NS:         It is because we now know much more and we know now much more of the costs of climate change, we know much more about the costs of air pollution, we know much more about the dangers of –

RH:         So tell me about an African city, for instance, what are you advising, you’re going round the world actually advising presidents, prime ministers; what are you advising leaders in Africa, for instance?

NS:         I haven’t been directly involved in the recent past with leaders in Africa, I was most recently in Africa in July of 2015 for the Summit on Climate Finance.

RH:         But I think other members of your team are advising –

NS:         I was going to go on, and at that point I met the Ethiopian Prime Minister and we discussed some of these issues, and Ethiopia has been doing remarkably well in increasing its income whilst controlling emissions. And Ethiopia has an ambition to be a middle-income country (*3 see footnote) whilst not increasing its emissions. And they’re making a very good job of it.

RH:         Explain why cities in Africa and other developing areas of the world, why they can’t follow our model, our Los Angeles model.

NS:         First we have to understand how big this phenomenon is, ‘cause it helps in understanding why. The current population of the world’s cities is around 50% of a little over 7 billion people, so that’s ballpark 3.5 billion people. That’s going to move to 70% of well over 9 billion people by the middle of this century, around 2050 and that will be around 6.5 billion people. So we’re going to move from around 3.5 billion to around 6.5 billion. Precise numbers don’t matter too much but that’s, roughly speaking, the scale. So in other words we’re not far off doubling the size of our cities so we have to think very hard about the investment that we make and the structure of those cities. And that’s the first point, this is in many cases a building of our cities, an intensification of our cities which is going to come in the next 35 years or so.

RH:         Intensification meaning more densely packed buildings –

NS:         More people.

RH:         - a lot of public transport, more people.

NS:         Exactly, all those things are going to be designed and we can do that well or we can do that badly. Doing it well means that you’re very well connected within your cities with public transport, that you’re compact as far as possible so you don’t have to travel too far, that you’re using systems which don’t pollute the air, you’re managing your traffic in a way that avoids congestion. And there are a tremendous amount of options now that were not available when London’s roads were built, when London’s energy and transport systems were built.

RH:         But it’s a huge ask on the institutional capacity of African nations who are finding it difficult many of them to manage their own economies that they should bring in place this sort of planning on the scale that you’re requiring for their future cities and also the cost of the energy systems.

NS:         Let’s be clear, it’s not myself that’s requiring this, this is a process of growth, investment in energy and movement into cities which is going to take place. The challenge is to do it well, well means less congested, less polluting, more energy efficient.

RH:         What I’m asking is is it realistic to expect that they have the institutional capacity to plan cities in this way?

NS:         The question is: are they going to be done well or badly? If they’re done badly then they are in deep trouble with waste and air pollution and the world is in deep trouble, including them because they’re most vulnerable, from climate change. So it’s not that you’re asking them to do something that’s impossible, it’s not for us to tell, ask or instruct, those in developing countries are thinking through the investments that they have to make and more and more are coming to the conclusion that it’s better to avoid the kind of paths that we followed and the Chinese, for example, have made that very explicit. They wouldn’t have gone where they’ve gone if they knew 20 years ago of the deeply damaging costs, they’d have found alternative ways of doing it. So it’s a question of learning the lessons and many countries around the world are indeed learning those lessons.

RH:         Alright, so we haven’t got long left, let me bring you onto the UK. Environmentalists perceive the Treasury to be a long-term adversary to attempts to tackle climate change, the Stern Review being a remarkable counter-example. What do you think to the kind of culture of the Treasury in that regard?

NS:         I think those at the Treasury do understand this problem; I’ve talked at length to George Osborne, to senior Treasury officials and I think there is an understanding of the magnitude of this difficulty. There is an understanding of the importance of making our cities clean and more attractive, more efficient. So to be honest I don’t see the Treasury as a major obstacle. I do see the Treasury as asking questions and it’s important that questions are asked about the scale of investment and how it’s managed and the costs and so on. I think that what –

RH:         While we’re on that do you have a thought about the very strong cuts to renewable subsidies for instance?

NS:         My understanding of the cuts we’ve seen in the summer of 2015 in support for renewables is, in large measure, clearing up of rather messy systems.   We’re speaking now in September 2015. The test is coming. In the coming few months will policies be put in place that take account of the great cost of emissions and of air pollution, will those policies be put in place that would replace the kind of dismantling of, I think most people regard as rather messy systems that went before?

RH:         OK, so there are two things that you might have thoughts on, one is the contraction of the VED incentives, so now there’s no incentive if you have a Porsche, there’s no incentive to buy a Prius in terms of VED. And the other one is the taxation, addition to tax renewables with a tax designed in order to promote renewables. Do you have views on those?

NS:         Well the specific design of individual things you have to look at very closely, but what I would say is that we need to increase the cost of carbon, increase the cost of air pollution that comes from burning hydrocarbons. That is a key aspect of policy and we have to invest much more in innovation. So if you ask me where to put our priorities it would be to taxing and regulating hydrocarbons so that they show something like the cost of what’s involved and we’re very far away from that at the moment, we’re very inefficient in our tax system because we’re allowing people to pollute for free, we’re allowing people to do very costly things around carbon and air pollution at much less than the cost that’s being inflicted. In other words, as the IMF showed very clearly in its report in the spring of 2015, we are subsidising hydrocarbons big time.

RH:         But George Osborne says he wants to reduce the amount he’s taking from green taxes.

NS:         I think that that’s a discussion that needs to be pushed and I would argue the opposite to that and I think that discussion is still to be had. Through regulation or taxation, making an efficient economy by forcing people to face the real costs of what they do, that’s the essence of a market economy. Current systems are letting people burn hydrocarbons at much lower than the real cost of those actions. (*4 see footnote) You can do it through regulation, you can do it through taxation, you can do it through carbon markets, there are a number of ways of doing it. That’s extremely important emphasis for policy and we have to invest very strongly in innovation. I’m hoping that this government will discuss these issues, is discussing those issues and that we’ll see strong policies to replace what has been dismantled. If there are no policies to replace what’s being dismantled that would be deeply worrying.

RH:         Final thought - we’re asking all our interviewees the same question to end with: How optimistic or pessimistic are you about the way things are going?

NS:         Can I split that into two bits? I’m optimistic about what we can do. What we’ve learnt in the last seven or eight years is how attractive the transition to the low carbon economy will be, it’s very economically, socially, environmentally attractive. This is a much better way to grow and develop, and that’s been the lessons of the last seven or eight years. So I’m very optimistic about what can be done. What will be done is a separate question. I’m less optimistic about what will be done, but you can’t create the political will for action as a community unless you show the first thing, that what can be done is an extremely attractive way to grow and develop, much more efficient, much less wasteful, much less polluted, much less congested, much more dynamic in terms of innovation. There’s a really attractive route that we can take. That I believe we’ve shown very clearly over the last decade or so.

RH:         So let me press you; pessimistic overall then?

NS:         I think that what we are doing in terms of public discussion as a world is moving in a good direction, my fear is that it’s not fast enough.

RH:         Nick Stern, thank you very much        <End of Interview>

FOOTNOTES : (added by Lord Stern for clarity)

 *1 “You would have another roughly $70 because when burned one ton of coal releases approximately two tons of CO₂ so at $35 a ton of CO2, that is roughly adding another $70 per ton of coal. If you look at the IMF work on air pollution…”

*2 “Yeah, well, I mean we’re talking about long-term trends. The pause of surface warming looks to be over in any case, but these are long-run trends, each decade over the last several decades had been hotter in terms of average global surface temperature than its predecessors.”

*3 “And Ethiopia has an ambition to be a middle-income country by sometime in the mid 2020s whilst not increasing its emissions. And they’re making a very good job of it”

*4 “Our current systems are hurting people from the burning of hydrocarbons, which are used  at much lower than the real cost of those actions.”