Leading article: We must force the polluters to pay

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It is most unusual for a single Government-commissioned inquiry to make the sort of splash generated by the Stern Report yesterday. But we live in unusual times. For Britain, like many other parts of the world, is in the process of coming to terms with an immense challenge to our way of life on this planet.

Of course, much of Sir Nicholas Stern's report on climate change sums up what this newspaper and many others have been saying for years. The scale of the threat is spelt out. There will be tens of millions of refugees as a result of flood, fire, drought and famine by the end of the century. A sixth of the world's population could be facing water shortages. Economic disaster looms too - and not just in the developing world. Up to 20 per cent of global output could be lost. Wildlife will suffer grievously too, with potentially up to 40 per cent of all species dying out.

Nor are solutions outlined by this report new. Sir Nicholas cites the urgent need to put an appropriate price on carbon through taxes, international emission trading schemes and tough regulation. There must be much greater government sponsorship of clean energy technologies. Stringent energy efficiency standards should be imposed on buildings and electrical appliances. These are all measures outlined in this newspaper's climate change manifesto last week.

Perhaps the report's most significant contribution lies in its lucid analysis of the situation - plus the fact that it comes from such a respected economist. The debate about climate change has spread from the realm of environmental activism and scientific conferences into the world of hard economic realism.

Sir Nicholas describes the progress of climate change as the "greatest and widest-ranging market failure ever seen". And global warming is undoubtedly a challenge to the political ideology of free markets that has delivered such prosperity to the developed world. But, contrary to some rather defeatist assertions, this does not mean we have to spurn liberal economics. Instead, there must be a recognition that those of us who are generating excessive carbon emissions are imposing "costs" on the world and future generations. In other words, it is time we forced polluters to pay.

The report is not apocalyptic. Sir Nicholas is at pains to stress that it is possible to combat climate change and maintain global economic growth. But this will not be pain-free. Sir Nicholas estimates that the cost of stabilisation will be 1 per cent of annual global GDP by 2050. There will also be gains: as Sir Nicholas points out, green technology could become the world's biggest growth industry. Moreover, the costs of doing nothing will be far greater. "The benefits of strong early action considerably outweigh the costs," says the report. This is an offer we cannot afford to refuse. But ultimately it is our political leaders who must choose whether to accept that offer on our behalf. There is evidence of radical policies emerging (although the proof will be in the delivery). The tax proposals of the Environment Secretary David Miliband, leaked at the weekend, and the promised environmental regulations on new homes, are encouraging. They demonstrate that the environment is now at the core of domestic politics. Gordon Brown, whose track record on this is mixed, signalled his attention to dominate the issue at the report's launch yesterday. Clearly, this is in response to David Cameron's seizure of the green agenda in the past year for the Conservatives. But it is good to see the environment at the heart of the political battlefield; this can only be beneficial to us all.

It is worth noting, too, the failure of the Liberal Democrats, who appear to have gone missing in action. According to a weekend poll, only 14 per cent of the public believe Sir Menzies Campbell is the political figure who cares most for the environment, despite all of the Liberal Democrats' pioneering work. This must be judged a terrible failure of leadership.

Amid fierce competition for the green vote, a political consensus over the need for radical measures is almost in place. But there is a looming danger: if green taxation is seen as simply another stealth tax it could provoke a backlash. Mr Brown does not have a happy record on this front. Any future tax rises must be handled sensitively, and accompanied by genuine cuts in other areas of taxation, to avoid discrediting the environmental cause.

Of course, climate change is not just a domestic issue, and Sir Nicholas's report also addresses the international picture. Mitigating climate change is a "global public good". Every nation has an interest in avoiding the extreme weather that it creates. The greatest global warming challenge in the coming century will certainly be the rapid industrialisation of countries such as China and India. Yet, as the report argues, rich countries, which have pumped out the majority of carbon in the earth's atmosphere, have a moral responsibility to lead by example.

We should not get carried away by the hype over this report. It is only a starting point. The difficult work of forging international agreements and imposing restraints on energy use is all to come. Time is against us. Stabilising carbon emissions at 550 parts per million in our atmosphere would require global emissions to peak in the next two decades. That is a frighteningly tall order.

Yet we must remain optimistic. The scientific case has been made. The economics have been laid bare. The solutions are emerging. The public is ready for action. What is required now is a generation of politicians around the world with the courage to do what is necessary.