The Cost of Inaction
The Economic Cost of Greenhouse Gas Emissions
There is a view within the general public that transforming the World economy into net zero carbon will come at a great cost. What is the present cost of CO2 emissions to the economy? Is the alternative of “business as usual” less costly?
Nicholas Stern lead a major review of the economics of climate change with the extensive 700 pages report issued in 2007. The experts then recognised that the cost of inaction could be as high or higher than a 5% reduction in World GDP, or around $5 trillionin today’s money. They concluded that each tonne of emitted CO2 causes damages of at least US$85, but emissions can be cut at a cost of less than US$25 a tonne: the benefits of action outweigh the costs.
A more recent report by the Swiss Re Institute in April 2021 entitled “The economics of climate change: no action is not an option” concludes that current likely temperature-rise trajectories, supported by implementation of mitigation pledges, would entail 2.0–2.6°C global warming by mid-century. As a result, global GDP would be 11–14% less than in a world without climate change. The actual predicted cost to the economy is around $11 to $14 trillion, or US$350 to US$450 per tonne of CO2-e. The cost of not acting would be significantly worst then predicted by the Stern Review and probably catastrophic.
The cost of carbon dioxide removal or abatement in Australia in 2022 was just under US$12 per tonne. Most experts around the World agree that the average cost of carbon abatement could be as high as US$50 per tonne of CO2-e, still significantly lower that the cost to the economy of US$350 to US$450 per tonne of emitted CO2.
With the benefit of hindsight, we now know what Stern Review confirmed 16 years ago that the benefits of strong, early action on climate change outweigh the costs. Given that “early action” was not capitalised on, the job of mitigating climate change has become even more urgent and challenging.
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Sources:
Stern Review: The Economics of Climate Change
The Swiss Re Institute in April 2021 entitled “The economics of climate change: no action is not an option”.