Why battling climate change can be good for growth

**Peter Thal Larsen** (0:03)
Two decades ago, the UK government commissioned Nicholas Stern, then a senior civil servant, to write a report about climate change. The Stern Review, as it was called, was published in 2006 and made a clear and compelling argument for tackling global warming. The benefits of early action outweighed the costs of doing nothing. The report was highly influential in shaping thinking in the UK and further afield about the climate challenge.
Much has happened since, spurred on by public concern. Governments and companies initially took action to reduce greenhouse gases. Countries set targets to achieve net zero emissions. Then came the backlash fueled by worries about the costs of decarbonizing economies, concerns about energy security and growing economic and geopolitical rivalries. Yet at the same time, the costs of solar power, wind energy and other green technologies has plummeted. All of this has the consequences and costs of global warming become ever more real as the recent heatwave in Europe has once again reminded us. So this week on The Big View, we're going to take stock of the economics of combating global warming. It's what we do at Reuters Breakingviews. We tap our best sources around the world for fresh insights into the biggest stories in economics, business and finance. I'm your host, Peter Thal Larsen.
20 years on, Nicholas Stern has revisited the case for climate action in a new book. It's called The Growth Story of the 21st Century, The Economics and Opportunity of Climate Action. It's available free for download, and we'll provide a link to the book in the show notes. He's not a scientist, but an academic economist who has also served as chief economist to the European Bank for Reconstruction and Development and the World Bank. He is now the IG Patel Professor of Economics and Government at the London School of Economics, and Chairman of the Grantham Research Institute on Climate Change and the Environment at LSE.
I'm delighted to say he joins me in the studio in London. Nick Stern, welcome to The Big View.

**Nicholas Stern** (2:09)
Thank you very much, Peter. Very happy to be here. Thank you for inviting me.

**Peter Thal Larsen** (2:13)
So your original report at the Stern Review 20 years ago presented climate change as a choice, really, between the benefits of early action and the costs of not doing anything.
Now, in this book, you're writing about there's no horse race between climate action on the one hand and economic development on the other. So obviously, a lot has happened in the past 20 years, but can you reconcile those two points of view? Have you changed your mind about how this works?

**Nicholas Stern** (2:48)
We've learned tremendously in the last 20 years. So views have developed, and it's still true that the costs of inaction are much bigger than the costs of action.
It's still true that the greenhouse gas emissions are the biggest market failure the world has ever seen. And those are the two sort of central statements, if you like, of The Stern Review. I mean, it was 700 pages. I said a bit more than that, but that's the core of the story. And that remains true.
But what's happened is essentially that the science has got much worse. We should come back to that. But the technology has become much better.
And that means more and more that we see the things that we have to do as investments. It's building the new, building in a different way, running our cities in different ways, running our land systems and energy and transport and water in different ways. We have to invest to do it, and we have to change the way we do things. But that I see more and more as an investment with very powerful returns, less waste, greater efficiency, cities where you can move and breathe, you're much more productive in such cities, approaches to land management where you're not poisoning the rivers and degrading the forests and land and so on. So I see it much more now as an investment-driven growth story. So instead of using the language of cost, I much more use the language of investment, so I think it's the right way to describe it. There are places where the clean is not yet cheaper than the dirty. There are lots of places where the clean is cheaper than the dirty. So there will be some elements of cost in all this, which we should discuss. But the primary difference between those two ways of looking at it, is that we have to invest and embark on systemic and structural change, and those processes drive growth.

**Peter Thal Larsen** (4:57)
So we definitely should mention your point about the science, so we'll come back to that in a second. But just on this growth question, we've had a couple of decades of activity.