The balance of scientific evidence points clearly to the need for all countries to plan credible emissions reduction policies now, if mankind is to avoid substantial risks to future generations. The impact of global warming is already being felt, and future generations face grave risks if activities continue unaltered. Delaying action increases the cost of meeting any temperature or concentration goal, and raises the risks of irreversible impacts as temperature thresholds are exceeded.
Dealing with this issue requires large-scale and urgent international action. Market mechanisms should be central in this, with both economic instruments and discretionary policy being used to provide incentives for behavioural change.
The challenge is far-reaching, comprehensive, and global: but it is manageable. The activities and technologies necessary to eliminate the bulk of the risks associated with climate change are already available, or can be developed through appropriate policies to support innovation.
Policies must be designed and applied carefully. Badly implemented policies can create additional market distortions, introduce perverse incentives, and foster protectionism. Care must be taken to ensure that additional policies are not simply layered on top of existing bad policies, such as distortionary energy market subsidies, trade restrictions, or agricultural policies. Where possible, policies must encourage market-based solutions, minimise transactions costs, and stimulate reform of existing distortion mechanisms.
The purpose of this paper is to put forward a coherent set of proposals on global policy that satisfy three basic principles:
• Effectiveness – it must lead to cuts in greenhouse gas (GHG) emissions on the scale required to keep the risks from climate change at acceptable levels;
• Efficiency – it must be implemented in the most cost-effective way, with mitigation being undertaken where it is cheapest; and
• Equity – it must take account of the fact that it is poor countries that are often hit earliest and hardest, while rich countries have a particular responsibility for past emissions.
It is also stated that the purpose of this paper is not to prescribe specific instruments or technologies. Different technologies and different policy instruments can be applied to different sectors and countries.

By: N. Stern (London School of Economics and Political Science)

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