Climate change: US economist's grim warning to Blair's Cabinet

The stark findings of Nicholas Stern's report yesterday increased the pressure on the PM to act

Global warming could cost the world's economies up to 20 per cent of their gross domestic product (GDP) if urgent action is not taken to stop floods, storms and natural catastrophes.

That stark warning was given to Tony Blair and his cabinet yesterday by Sir Nicholas Stern, a former World Bank economist, and is said to have left cabinet ministers chastened by the magnitude of the threat posed by climate change.

In a preview of a report he is to deliver next Monday, Sir Nicholas told the Cabinet the world would have to pay 1 per cent of its annual GDP to avert catastrophe. But doing nothing could cost 5 to 20 times that amount. He told them: "Business- as-usual will derail growth."

The massive 700-page report - commissioned by the Chancellor, Gordon Brown - was described as "hard-headed" and "frighteningly convincing". It focused on the economic peril now confronting the world, unless action was taken to combat harmful CO2 emissions that contribute to global warming.

"He left no one in any doubt that doing nothing is not an option," said one Whitehall source. "And he stressed that the need for action was urgent."

His review could be a watershed in overcoming scepticism about the existence of global warming. "It was hard-headed," said another source. "It didn't deal in sandals and brown rice. It stuck to the economics."

Mr Brown believes it could force the oil-dominated White House of George Bush to concede the importance of action to curb climate change. One minister who was present said it destroyed the US government's well known argument that cutting carbon emissions was bad for business.

His report, covering the period up to 2100, warns that climate change could cause the biggest recession since the Wall Street Crash and the Great Depression. A downturn of that magnitude would have "catastrophic consequences" around the globe, with the poorest countries hit first and hardest, Sir Nicholas told the Cabinet. Insurance analysts, who submitted their evidence for his report, said they feared insurance claims could exceed the world's GDP.

One witness said: "The entire pitch of the report is that there is nothing in it about the need to be green, or about caring for the environment, it's all hard-headed economic reality," he said.

The Treasury believes that publication of the Stern report could be a turning point in public opinion in America, to force the Bush administration to accept the scientific evidence that global warming is happening.

"It is huge, a desk-breaker. It could be as important for climate change as the Africa Commission was for poverty in Africa. Its biggest impact could be on public opinion in America, which is like turning around a tanker," said one official. It is expected to dominate the UN international climate talks scheduled to start in Nairobi, Kenya, next week.

The Prime Minister's official spokesman said the Cabinet recognised "this was a very serious piece of work on a very serious subject and a very clear piece of thinking about the economic benefits of dealing with climate change now."

The Foreign Secretary, Margaret Beckett, is believed to have been extrapolating from the findings when she warned this week that global warming could cause more conflicts as a result of massive population shifts because of rising sea levels and flooding.

Downing Street appeared to be gearing up last night to use the Stern report to launch a fightback over the Government's record on climate change which was attacked yesterday as "woeful" by Sir Menzies Campbell, the Liberal Democrat leader. The Chancellor gave the clearest hint so far that he would use his forthcoming Budget and the pre-Budget report next month to raise "green" taxes, including the cost of motoring. He promised legislation on climate change, but he appeared to resist the growing demands for binding annual targets for reducing CO2 emissions.

The Conservative leader, David Cameron, put forward his own Bill to impose annual targets monitored by a new independent commission. That strategy is supported by a growing cross-party coalition of more than 400 MPs who may still force the Chancellor to change his mind.