We stand at a crossroads where, consciously or otherwise, we must make fundamental choices that will shape our future economy and climate. Over the next two decades we will see a remarkable coincidence of two vital transformations in world history. First, it is in this period that we will largely determine whether or not we have a reasonable chance of avoiding dangerous climate change, usually defined as holding the increase in average global surface temperature to less than 2 ° C above nineteenth-century levels. The link between emissions of greenhouse gases and climate change should be well known. Our activities cause the emission of these gases (among which carbon dioxide is particularly important) which are not fully absorbed by the earth and which thus accumulate in the atmosphere, thereby raising concentrations of the gases. These concentrations prevent energy from escaping, resulting in global warming and climate change. We have a period-by-period “ ratchet effect ”of flows of emissions into concentrations in the atmosphere because carbon dioxide, in particular, is very long-lasting in the atmosphere.
The stock of greenhouse gases in the atmosphere is already at worryingly high levels; if we stay substantially above those levels for a long time, it will be difficult or impossible to have a reasonable chance of holding the global temperature increase to 2 ° C. And delay is dangerous because of the ratchet effect and because we will have locked in more long-lived, high-carbon capital and infrastructure. The window for action is closing.
The second reason why the next two decades are a critical period for climate action has to do with the extraordinary structural changes that will happen anyway over this period. It is a period that will determine the shape of many cities, energy systems, and land use patterns for decades or even centuries to come. Cities will grow rapidly, and older cities will require reform and renewal. Energy systems will be created as many countries pass through stages of development in which energy demand will grow strongly, while richer countries will be refurbishing their systems. And many of the battles to save and enhance forests and ecosystems will be resolved in the face of strong pressures from growth of population and demand for materials and food.
Regions, countries, provinces, cities, businesses, and households will have many decisions to make across these critical domains of cities, energy systems, and land use. These decisions can be made well or badly, explicitly or implicitly, haphazardly or thoughtfully. They can be made with sound judgment, with an eye to the future and with an understanding of the consequences of our actions for the environment and society — we can be thinking, for example, about the kind of cities we wish to live in and the pollution, congestion, and sense of community they might embody, the future of our ecosystems and natural resource usage, and the harnessing of opportunities that come from new technologies. Or they can be made with an eye to the past and narrowly — we can assume that traditional ways of doing things should be replicated, and that we can ignore consequences to others and the opportunities and challenges that surround us. If the decisions around this second transformation are made wisely, a great deal of what we need to do to avoid dangerous climate change will have been achieved just by doing what was sensible and desirable during this critical process of structural change, even without factoring in the longer-term climate benefits of reduced emissions. This structural change will require strong investments. One way or another, investments in and during this transformation will take place in some shape or form. The challenge is to create policies and frameworks that will encourage those investments to be sound in the sense just described. If we do, the challenge of managing climate change will be far less difficult than if we manage this structural change badly.
International cooperation can play an important role in accelerating the transition to the low-carbon economy and making it more equitable. Yet understanding the dynamics of structural change within countries, cities, firms, and households casts the role of international cooperation on climate change in a rather different light from the past. We need to think rigorously about the kind of cooperative interactions and institutions that can help steer these two transitions, the structural and the climatic, wisely — remembering that the case for each country to make the domestic transition toward a low-carbon, climate-resilient economy is already strong, but that constructive and equitable international cooperation would greatly strengthen that case and make the two transitions still more attractive, rapid, and efficient.
Part of the collaboration should include global goals on greenhouse gases that could avoid dangerous climate change, expressed in ways that provide clear signals that can induce confidence about the future direction of the global economy. International institutions, moreover, can help give countries a picture of global progress, through careful measurement of emissions across the globe and by diffusing more specific examples, lessons, and good practice from around the world. And they can also help coordinate the international transfer of more tangible things, like finance and clean technologies. Much of the cooperation should involve policies that help markets work well, including, for example, the pricing of greenhouse gases, supporting innovation, building networks (for example for electricity and transport), overcoming market obstacles and failures in long-term finance, sharing technologies, fostering measures to protect and enhance forests and ecosystems, and supporting poorer countries. Policies, in other words, that will promote sustainable poverty reduction and growth. The equity part of the story is basic, not only because ethical principles tell us that equity matters, but also because it is crucial for the sustainability of international understandings — arrangements that are seen to be inequitable or unjust may not last.
If we are to tackle climate change successfully, it will be necessary that those who make and influence climate policy — from treasury officials to business leaders, from international negotiators to ordinary citizens — have a strong understanding of why action is necessary, why now, what form it could take, and what it would deliver.
I remain optimistic about what we can do if we are imaginative, rational, scientific, and collaborative. Yet overall progress is dangerously, indeed recklessly, slow. Part of the explanation for this delay is that some of the techniques for analyzing the case for action have been weak, wrong, or inappropriately applied; risks from climate change have been grossly underestimated in the economics literature and the distant future far too heavily discounted. That is why it is so important to both make the analysis robust and rigorous and to show how so much of the opposition to action is based on flawed analysis. Sound argument should be a necessary condition for sensible and rational action. But it is not sufficient.
The people of the world are gambling for colossal stakes. Two centuries of scientific enquiry, founded in basic physics and powerful evidence, indicate that the risks from a changing climate over the next hundred years and beyond are immense. There is a strong possibility that the relationship between humans and their environment would be so fundamentally changed that hundreds of millions of people, perhaps billions, would have to move. History tells us that this carries serious risks of severe and extended conflict. We are the first generation that through its neglect could destroy the relationship between humans and the planet, and perhaps the last generation that can prevent dangerous climate change.
On the other hand, the potential paths of development embodying strong reductions in greenhouse gas emissions (mitigation) and creative adaptation to now unavoidable climate change are becoming ever clearer, and they look ever more attractive in themselves, over and above the fundamental climate risk reductions that they bring. We are constantly discovering and demonstrating different ways of managing the production and consumption of energy, of organizing cities, and of using land productively, with the aid of new technologies and smarter processes. We can now see that growth, development, mitigation, and adaptation go hand in hand, and that the portrayal of climate action as being in inexorable conflict with growth, poverty reduction, and radical improvements in human well-being is false and diversionary. Indeed, an attempt at highcarbon growth will self-destruct through the hostile physical environment it will create. A committed and measured low-carbon transition would likely trigger an exciting new wave of global investment, innovation, and prosperity.
The economic policies that can guide this transition are sufficiently clear to embark on the journey, and we will learn much along the way. They build on basic ideas about overcoming market failures, on an understanding of technological transformations in economic history, and on theories and experience of economic growth. If such policies are adopted, they will stimulate investment, growth, efficiency, and innovation. There is much that each country can do now that is in its own interests, even without placing a value on emissions reductions and without the context of an international agreement on climate change: make markets function better, improve infrastructure, stimulate investment and innovation, reduce inefficiencies and waste in the use of energy and other natural resources, improve energy security, and reduce local forms of environmental pollution and damage. Now is a critical time to make this transition.