Costing the earth: How to save the planet and $12 trillion

The costs to the global economy of failing to tackle climate change are graphically set out today in a report which warns that £11 trillion could be wiped off world economic output by the end of the century if nothing is done.

Prepared for Friends of the Earth (FoE) by two American economists, the report calculates that global economic output could be cut by some 6-8 per cent by 2100 if the rise in greenhouse gas emissions continues unabated.

The consequences of failing to act could be catastrophic, say the researchers from the Global Development and Environment Institute at Tufts University, Massachusetts, in the US. Their report says that in the UK alone, the effect of a 4C rise in global temperatures would be to increase the annual cost of flooding to £22bn by 2080, double the number of people at risk of coastal flooding to 1.8 million and dramatically increase the chances of extremely hot summers from 1 per cent to more than 60 per cent. The London Underground system would also need to be permanently cooled, something which has so far defeated engineers, while an extra £5bn of electricity would need to be generated to power air conditioners.

Science fiction, or science fact? Although those who deny the very existence of global warming may now be in a minority, opinion is still divided about how violent a change we can expect to the environment. Therefore, attempting to assess the economic implications is bound to be an inexact science.

As one of the report's authors, Frank Ackerman, says: "In one sense the numbers are arbitrary. What we are really talking about is whether your grandchildren will inherit a degraded world and will they ever know what a polar bear was like. We are on the brink of a catastrophe not recoverable on any human timeframe. How many trillions is that worth?"

That said, the numbers quoted by Mr Ackerman and his colleague Elizabeth Stanton are derived from a model used by the highly respected German Institute for Economic Research. Using the World Integrated Assessment General Equilibrium Model, to give it its full name, they calculate the annual economic damage caused by a 4C rise in temperatures above their pre-industrial level to reach $20 trillion. But if the temperature increase were kept to 2C, that cost could be reduced by some $12 trillion. The amount that would need to be spent on climate protection measures to achieve that reduction would be $3 trillion a year.

A similar conclusion is expected to be contained in the report from Sir Nicholas Stern, a former chief economist at the World Bank, which the Treasury is to publish soon. This is likely to say that to take action now would be cheaper than to wait for the consequences to materialise. The Association of British Insurers says that if no action is taken and the world heats up in line with the forecasts by the Intergovernmental Panel on Climate, then the worldwide cost of storms will increase by as much as two-thirds, or £15bn a year.

It also calculates that in a severe hurricane season the cost of insured damage in the US alone would be three-quarters higher at £82bn - an increase equivalent to three Hurricane Andrews (in August 1992).

Apart from the economic costs, which may be an underestimate because they only cover those which are easy to measure, there is also the environmental and social impact, such as the loss of biodiversity or the reversal of the Gulf Stream, the damage from which would be "incalculable".

By comparison the Tufts report claims that the cost of limiting the increase in world temperatures to 2C would cost £1.6 trillion a year - a little more than the annual output of the UK economy. For that outlay, the payback would be an extra £6.4 trillion on global GDP.

A 4C rise in temperatures, says FoE, would cause mass melting of one of the Antarctic ice sheets. That would raise sea levels by six metres, wreaking untold havoc, particularly already poor communities.

In Bangladesh, 40 million people would be displaced as the water levels rose, and crop yields in the developing world would slump as drought and water shortages became widespread. In addition, there would be near-total loss of coral reefs, which are vital for fisheries and tourism, and an increase in the prevalence of tropical diseases such as malaria. Mr Ackerman, the director of the research programme at Tufts University, said: "We have to start turning off greenhouse gas emissions now in order to avoid catastrophe. Climate change will not only be an environmental and social disaster, it will also be an economic catastrophe."

The FoE report is the latest to indicate that stabilising emissions at current levels is affordable. Last week, the accountants PricewaterhouseCoopers said there would be a one-off cost of 2 to 3 per cent of world economic growth, or $1 trillion (£526bn), to take the steps needed to curb emissions. The focus of the work by John Hawksworth, its head of macroeconomics, was on the share that would have to be borne by the Group of Seven richest countries.

He said it would be inequitable to expect growing countries such as India and China to make the cuts that the West was never prepared to endure when it sought growth post war.

Adair Turner, the former director-general of the CBI who has served on the International Climate Change Task Force, says it would cost 2 per cent of world GDP to achieve a 60 per cent cut in emissions by 2050. Lord Turner of Ecchinswell likens the impact of this to the UK economy reaching the same level in 2051 that it would otherwise have achieved in 2050. As the advocates of action on climate change now would say, a small price to pay for saving the planet.

Climate change market could be worth £30bn to UK business

Combating global warming is not only affordable but could create a climate change market worth £30bn to British businesses over the next decade, says a report funded by the oil giant Shell.

The cost of tackling climate change in the UK by 2010 would be equivalent to just 0.3 per cent of GDP, according to the Shell Springboard report.

Globally, concerted action to stop the rise in greenhouse gas emissions could create a worldwide market worth $1 trillion in the first five years alone.

In the UK, the climate change market is growing principally because of government action - for instance through the tightening of building standards, the extension of renewable energy schemes and measures to tackle the energy efficiency of the housing stock and encourage more environmentally friendly fuels.

The report, by Vivid Economics, says the biggest opportunity for small and medium-sized companies will come from new building regulations for commercial and industrial use, which will generate a market worth £950m by 2010. Other big markets will include renewable electricity, worth £800m, biofuels for road transport, £500m, and domestic energy efficiency, £400m.

The Shell report is also full of examples of the way in which private enterprise is driving the climate-change market. It cites the example of HeliSwirl Technologies, a spin-off from Imperial College London. Scientists there noticed what Leonardo da Vinci had observed 500 years ago - that blood travels around the body in a spiral motion, thus reducing bubbles and clots - and decided to adapt that. The end-product was a new industrial fluid technology that cuts friction in pipework and avoids the build-up of sediment, allowing pumps to be smaller, so that less energy is used.

Lord Oxburgh, the former chairman of Shell UK who was a rector of ICL and is chairman of the House of Lords Science and Technology Committee, said: "The urgent need to reduce greenhouse gas emissions offers opportunities to the nimble. There is now scope for a wide range of devices and services, which a decade ago would have made no economic sense, and for which there would have been no demand."

Philip Thornton and Michael Harrison