Sunday, 6 December 2009

Copenhagen climate change conference: Borrow to the hilt to stop global warming, says Lord Stern

Governments should increase borrowing to tackle global warming despite the dire state of public balance sheets, according to Lord Stern of Brentford, the former chief economist of the World Bank.

By Rowena Mason:Published: 7:23PM GMT 05 Dec 2009
The author of the 2006 Stern Review on the cost of tackling climate change said he was an expert in dealing with tough budgetary constraints and acknowledged that the current public debt was "worrying".
But he believes that the irreversible nature of climate change means that extra pressures on the public balance sheet are justified.
"What I'm saying is that we should be prudent with public finances, but if we were to ask future generations: would you rather have a desecrated earth or more debt, then the answer would be they would like to have more debt," he told The Sunday Telegraph, after giving a speech this week. "You can get out of debt, but you can't get out of the other. It's one of the few cases where there's actually an argument for more borrowing. There's a logical justification to it."
His comments come ahead of the Copenhagen conference on climate change starting tomorrow, where global leaders will put in place plans to keep temperature rises below two degrees celsius by 2050.
The International Energy Agency has estimated that the world will need to spend more than $10 trillion on low-carbon energy generation and efficiency measures by 2030.
But more pressure on Britain's balance sheet would be likely to unsettle the markets, which are waiting to see how efforts to tackle the deficit will effect the country's triple-A credit rating.
Britain's budget deficit jumped far more than expected this autumn, as the downturn cut tax receipts and the UK has boosted spending on public projects and bailing out the banks.
The cost of tackling climate change is likely to be a vast expense over the next decade, with estimates from Ofgem, the energy regulator, and Ernst and Young, the accountants, agreeing that it could cost Britain £200bn.
The Government hopes that much of this will come from the private sector, eventually passed on to consumers through more expensive energy bills, airline tickets and manufactured goods. But so far, market mechanisms such as carbon trading have failed to deliver enough incentives for utilities and heavy industry to lower emissions.
Industry experts expect that the Government will at some point have to introduce more taxes or levies to make new nuclear and offshore wind economically viable.
Bruce Duguid, head of investors at the Carbon Trust, said he believed it was still feasible for the private sector plus state incentives to deliver the right investment to meet the UK's targets.
"We need to build the equivalent of two turbines the size of the Gherkin building every day for the next 10 years to meet our targets. But companies know we need to and I don't think we will need to increase public borrowing."