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Stern warning to world: Export impact of climate change

19 February, 2007

Nicholas Stern saved my father’s life, or at least save him from acute embarrassment. Source: Tim Harcourt, the chief economist of the Australian Trade Commission.

Yes, it was the same Nicholas Stern, Now Sir Nicholas Stern, whose was appointed by the British Government to head an inquiry in to the economics of climate change. His lengthy inquiry produced a massive 590 page tome known formally as “The Stern Review on the Economics of Climate Change “ but now known all over the globe in shorthand as simply as “The Stern report”.

On a visit to China in the 1980s, my father rushed out from a public lavatory as he didn’t have any money to pay the entrance fee. In a panic and amidst a sea of Chinese faces – there were few western visitors in China then - he saw someone he knew: one Nicholas Stern, who was then a young British development economist studying the Chinese economy.

“Quick Nick, can you have any spare change, I am busting, desperately…” said my father in a panic. 

Thankfully the young Nick Stern obliged and my father was saved.

What ground does the Stern report cover? The Stern report attempts to examine both the science and the economics of climate change but with an emphasis on the economics of the problem, given his comparative advantage as a professional economist. In economic terms, Stern regards human-induced climate change (via carbon emissions and the like) as an ‘externality’ and the global climate as a ‘public good’ of international proportions. Stern argues that climate change is therefore solvable through appropriate actions using economic mechanisms. Furthermore, if action is not taken and a ‘business as usual’ response is taken in the face of climate change, the report says, it could get a lot worse. 

Stern recommends a series of actions including:  the expansion of a carbon emissions trading schemes (using market mechanisms to have the producers of emissions pay for doing so to better reflect the true economic costs); international technology co-operation; actions to curb emissions from certain types of deforestation, and development assistance to enabling poorer countries to integrate climate change policies into economic development programmes.   Governments and societies around the world are examining these and other approaches to addressing climate change.

The Stern report features Australia frequently – particularly what he sees as the threat of climate change to the Great Barrier Reef, and its links with wilder, wetter temperatures in northern Australia and drier temperatures in the south. The Stern report also warns of the possible impacts of rising sea levels for international trade routes vitally important to an island continent like Australia.

However, within the Stern warnings, the report also placed emphasis on the solvability of the problems at hand. For instance, as a development economist, Stern is optimistic about the capacity of richer countries to help poorer countries in terms of environmental technology, innovation and trade in emission rights. This sort of assistance isn’t only about development assistance or aid. There is also an opportunity to contribute through international trade and investment.

Australia has already provided examples of this with the development of clean coal technology and the export of environmental technology to developing nations in Asia. For example, even in the case of big event infrastructure, both the Beijing Olympics in 2008 and the New Delhi Commonwealth Games in 2010 will benefit from environment enhancing design developed at the Sydney Olympics 2000 and the Melbourne Commonwealth Games in 2006.

Indeed, many Australian exporters, from a range of different quarters, are already taking action in the face of climate change. For example, Woodhead, a Sydney architecture firm, have changed their operations with the objective in becoming carbon neutral, not only in their design, but also in their own operations. Woodhead plans to reduce their own emissions by 10-15 per cent within three to five years, and are also creating designs that will have similar effects for their clients – particularly in China and India. According to Woodhead managing director Geoffrey Lee, China in particular is very conscious of the environmental impact of its huge growth and is desperate for experts to help address these issues,” he said.

In conclusion, climate change and the most effective and efficient means of addressing it this complex global issue will continue to be a hot topic of debate. As my father discovered in that infamous lavatory incident in China the benefits of “spending a penny”. Australian exporters are already “spending their pennies” too and playing an important part in finding a solution to one of the major international public policy issues of our time.

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