 First, who is going to speak to open this morning's session, is my colleague Nicholas Stern, our colleague from the London School of Economics, who is the IG Patel Professor of Economics and Government at the LSE, and Nicholas's report for the UK Government, I think it's fair to say, has radically altered the way people in Britain and beyond think about this issue, partly by applying precautionary principles based on economic analysis to the way in which the world needs to react to the issue of climate change. So Nicholas, can I invite you to start us off this morning, then Ramesh will introduce our second distinguished speaker. Thanks very much, Tony and Wolfgang. It's very nice, Tony, after all these years we've known each other, that I became Nicholas. Everybody calls me Nick is the... Now, I'm going to try to do three things, it may be a bit risky, in the 20 minutes that I've got. I'm going to try to tell you something about the Stern review and what its basic conclusions and analytical approaches were. Try to link that with cities and finally say something about how I think India can play a leadership role in taking on the building of a global deal on climate change. So I'll have to go fairly fast. Now the Stern review was on the economics of climate change and it was exactly that. It was about the economics of climate change, the analysis of costs and benefits of action and inaction and still more important, the techniques that we can bring in terms of policy to give the right kinds of incentives to get the kind of policies we need. And there's quite a lot of heavy difficult economics in there. Now I realize that you are not all economists in this room. That's mostly your fault. You had some choices in your past which you didn't take. But nonetheless I'm going to give you some economics but I'll try to be both fast and gentle because I want to get on to the city story and to the role of India in the global deal which is the only way in which we're really going to tackle this problem. I should say that I'm not an expert on cities. I was born and brought up in London and one of the very few professors at the LSE who was born and brought up in London, it's my home and I take it very seriously. And I've lived for long periods in Delhi and Bangalore and have been working in India since 1974. But I haven't actually studied cities as such so I've been trying in preparing for this talk to have a little think about the links between climate change and cities which I will share with you. But let's move fast into the economics of climate change. First is to look at what the problem is. The problem is that our economic and other activities yield a flow of greenhouse gases. The flow of greenhouse gases builds up into a stock. The stock traps the heat. That warms the planet and it's the warming of the planet that changes the climate and it's the change in climate that has the consequences for us in the way we live our lives. That's the simple logic of the story but it's key that we keep that simple logic in mind because it's the stock that causes the problem and it's the flow that we can control and that means that anything we do happens slowly and it does mean that we can't turn the clock back because what has built up into that stock cannot easily be extracted. So that flow stock, long time period process is very important and secondly it's very important to see this as an issue of risk. We can control the risks. We can't predict exactly what's going to happen to the climate but we can talk about what the probabilities are and what we're trying to do here is to bring down the risks. We can't eliminate them but our action could bring them down strongly. So that's the logic of the problem and how does this work? Well it's not particularly through the temperature by itself, it's mostly through water. This is about storms, floods, droughts, sea level rise, heat stress, shortening of growing seasons, they do matter too but the bigger part of the effect is of climate change comes through water in some shape or form. Global warming is not good language, that's an intermediate part of the process, what causes the problem, what changes the physical geography of the world and therefore the human geography of the world is climate change operating largely through water. So the slide here gives you the kinds of in a very very summary form, all this is in the review, you can get at it when www.sternreview.org.uk is the fastest way in or you can buy a copy of the book from Cambridge University Press for which I get no royalties at all because it was written whilst I was serving Her Majesty who doesn't allow you to do that sort of thing. So this is the way these effects happen. Now we are currently right over to the left-hand side of this story here, just under one degree C. We're seeing record effects now from temperature increases under one degree C. We're going to go somewhere between two or three even if we act very responsibly and that's not a terribly comfortable place to be. If we do not act responsibly we're headed out here and that is very dangerous indeed. Five degrees centigrade is enormous. Five degrees centigrade less than where we are now we were in the last ice age 10 to 12,000 years ago there was ice sheet down to close to Watford. Those of you don't know where Watford is it's just a few miles to the north of London and correspondingly everybody who was alive then and there was of course a number of human beings 10-12,000 years ago were living around the equator. If we went up five degrees centigrade there'd be massive movements of population away from the equator. Five degrees centigrade is an average over all of the land mass around the equator over land. The average would be 10 or 15. That would still be an average across the year. You'd see extremes of temperature much higher than that. Much of the area around the equator would become uninhabitable. You'd see massive movements of population to higher latitudes and all the conflict that is associated with it. I don't have to remind you in this part of the world the conflict that arises when population moves. What are the probabilities? Well the stocks here are measured. Four fifty parts per million is where we will be in just a few years from now. Five or ten years from now. That gives us a 50-50 chance of being either side of two degrees centigrade. The red here is a confidence interval. There's a 90% probability of falling in that. Five percent probability off the lower end. Five percent probability off the upper end. As I said this is all about risks and probabilities. If we go on as business as usual we're headed down here by the end of the century and actually probably a little bit higher than this and that would take us to a 50% probability of being either side of five degrees centigrade sometime next century. It's very important to understand the odds for which we are playing and this really is gambling the planet in a very direct sense. The good part of the story of course, these are the, I'm not going to give you all this in any detail, economists like numbers, they like adding things up and here we estimated that averaged over space, averaged over time, averaged over possible outcomes, the losses from this kind of movement measured very crudely in economic terms would be upwards of five percent of GDP per annum and under some assumptions nearer to 20. So there are lots of assumptions involved in that. Don't take the economic models too seriously. The basic message is that the costs of inaction, the costs of business as usual are very high and the next part of the message is that this is what we have to do about it. The blue line is where the emissions will go and these lines here is what we have to do to have any chance of bringing these risks down. Now notice that this involves action fast. We have to have emissions peaking within 15 years or so and falling pretty rapidly thereafter. This top line corresponds to stabilizing the stock of greenhouse gases in the atmosphere around 550 parts per million of CO2 equivalent. Many people, that would give you a 50-50 chance of being either side of three degrees centigrade above pre-industrial times. That's a pretty risky place to be. It involves nontrivial probabilities of being above four degrees centigrade and under some models small probabilities of being above five. This path here is the most risky that we should be contemplating in my view and many of my environmentalist friends emphasize rightly so in my view we should be aiming below that. So that gives you an idea of the magnitude of the problem which is what I've been talking about up to now. This here gives you the magnitude of the action. Emissions have to peak within 15 years and then they have to fall pretty sharply. So that's a pretty strong set of actions. The scale then and let me just give you just a few numbers for your mental arithmetic. We are as a world giving off about 4045 gigatons of CO2 equivalent with a population of about six billion. Gigar is billion. So divide 4045 by six, seven tonnes a year is the average CO2 per person in the world. We're going to have to cut that by half. That's the Heiligandam targets of June this year which Angela Merkel bravely led actually at the G8 summit. We're going to have to cut that by half. Half of 4045 is 2025. The population of the world in 2050 will be around nine billion. That says that we have to be averaging 2025 divided by nine. We have to be averaging two or three tonnes per person by 2050. We're already averaging seven and we're growing as a world pretty rapidly so you can see the dimensions of the action that we have to take. And of course you have to look within that at the great inequity of all this. It's the rich countries that have caused most of the problem and it's the poor countries that are going to be hit earliest and hardest. There's a double inequity in all this. If you just look at the bottom here, tonnes per person in the US above 20, Europe is 10 and above, China close to four, India just one. Remembering that we should be aiming at two to three as an average worldwide in 2050, India is the only major part of the world that's under that. And that's why India has such a strong moral position to exercise leadership on this point. It has to argue two things. One, that our targets should be very strong, that the Heiligen Dam targets, and of course Dr Menmernsing was there in the G8G5 summit in June. We have to argue that those Heiligen Dam targets are the right kind of targets, cutting the flows by 50% by 2050. But we also have to argue as friends of India that the biggest responsibility for adjustment is elsewhere. But if you look at the story of where we have to be in 2050 at two or three tonnes per capita and that India is growing very rapidly from one ton per capita, India as well as demanding a great deal from others has to be part of this story as well. It's just such a big country. Where do we have to act? We have to act to cross the board. Emissions come from everywhere. Two-thirds from energy, one-third from other things, deforestation, an extremely important part of that story. What does it cost? It costs around 1% of GDP. Now that is a significant sum, world GDP. It's like a one-off 1% increase in our costs. That is a big sum, but it's a very small sum relative to the risks that we avoid. The better we do it, the cheaper it will be. Since the Stern Review was published on the whole, a number of estimates have come in suggesting that the costs may be a little less than that. Of course if we do it badly and we follow bad policies, the cost of the adjustment could be more than that. It depends whether we do it well or whether we do it badly. Here's a MacKinsey's diagram, typical MacKinsey's diagram, lots of stuff, but what it's telling us is that there are lots of ways of cutting back which actually have a negative cost. Most of that of course is energy efficiency. If you save energy, you reduce emissions, you save money. Tremendous scope for that. As you move up, you move into higher cost activities. Carbon capture and storage for coal is going to be absolutely crucial in this process. We know China's going to use a lot of coal in electricity generation. We know India's going to use a lot of coal in electricity generation. So too is Poland, Germany, United States, many other countries. We're going to have to have a price for carbon in all this that supports carbon capture and storage for coal. We're going to have to have a price for carbon at $30 or $40 per tonne of CO2. Unless people have the right kind of incentives and it does mean a price for carbon, a price for the damage that they're inflicting on other people, unless those incentives are there, we're not going to get to where we need to go. So we're going to need quite a high price for carbon and we're going to have to go out here somewhere. Let's get these energy efficiency and let's get those things as soon as we can, but we've got to go further. That's a very important part of the story. How do we do it? Well, there's lots of economics in that. Incentives, you need carbon trading for a price of carbon. You need taxes as part of the story. You need to push technology along. You have to get people to understand the problem. People will do a lot of things because they believe them to be right, not simply because they're incentivised to do so. You need to operate on all these fronts and of course deforestation is going to be a very important part of the story. Deforestation currently is responsible for CO2 emissions about the same size as all the transport that now exists, air, road and sea. Combatting deforestation and energy efficiency are the two cheapest and fastest ways that we can bring down emissions, but of course they themselves will not be enough. We'll have to go a lot further. So let me move on to cities and here I'm moving into your area, as they say in the civil service, I'm moving out of my comfort zone. I'm all right on the economics of climate change on cities other than being a city dweller. I'm not a scholar, but let me just try to share some of my early thoughts and we're going to hear lots more about these subjects and people who know much more about cities and how to manage them than I do. But as I emphasised at the beginning, most of this is about water. Storms, droughts, floods, sea level rise and of course a lot of our cities really are close to the sea. The sea level rise part of the story is probably at the end of this century beginning of next. Sea levels rise slowly and inexorably, but there is inexorable so we better prepare for it. The floods, the droughts and the storms are in the here and now and they're going to get worse. I don't have to tell you what Mumbai experienced just a couple of years ago or what Bihar is experiencing now and remember the density of population on the Indo-Gangetic Plain is very high and that means there are lots of cities all over the place on the Indo-Gangetic Plain which many westerners have never heard of, but there are many cities of hundreds of thousands, millions of people in that area and when those areas flood, those cities flood, this is Bihar this year. Why is this happening? In large measure it's because we're losing the snow and ice off the Himalayas here is the decrease of the snow and glaciers, in this case the glaciers off the Himalayas. It's absolutely enormous the last 40 years you've seen 15% reduction. What does that do to the water flows in this part of the world and of course in China, Afghanistan, Pakistan, Bangladesh as well? It means that that sponge that holds the precipitation when it falls in the rainy season is getting smaller. Dr Manmohan Singh speaks about the water tower of Asia, that's another analogy, sponge water tower, those snows and ice they hold the water which means that you get rivers flowing in the dry season and you don't get such torrents in the rainy season, there's something to catch it. As that retreats you get torrents in the rainy season and floods of the kind that we just saw in Bihar and what we're going to see is dry rivers in the dry season which of course undermines the canal irrigation and the fact that it comes with intensity and runs straight off in the rainy season straight into the rivers, the Arabian Sea Bay of Bengal wherever it goes means that it doesn't sink in and recharge the water table. The two big sources of irrigation in North India, groundwater and from the rivers through canal irrigation are going to become under enormous threat. That's on top of of course the enormous task of managing those very rapid flows of water off the Himalayas which is going to become much more severe than it has been in the past. So that's where a lot of those floods are coming from. The cyclone in Mumbai just a couple of years ago is an example of the extreme events which in a get more extreme and more frequent and the monsoon in North India is very likely to be badly disrupted and the Indian scientists are working on that right now with all the implications. These are very serious stakes and India is very vulnerable and remember we're seeing 0.8 degrees centigrade now. We've got another one and a half to come even if we're amazingly responsible about it all. There's a tremendous adaptation problem to all this as well as a reduction. So I haven't got time to go into the details of adaptation. It's very important to link adaptation to development. Adaptation to a change in climate and the development process are not separate agendas. They have to be blended together. Development itself brings diversification. It brings more flexibility, being stronger human capital, the ability to adapt. Development itself is a very powerful form of adaptation and at the same time development has to recognise in ways I've just described how the climate is changing on us. Let's not ever separate development adaptation. They're part of the same processes. Now how does cities adapt? Well, these are a few examples. Many of you know much more about them than I do. Let me just give you London, my hometown, the London School of Economics. London's going to get wetter winters and it's going to get drier summers. London sewers can't cope with the extra precipitation we're going to be getting as a result of climate change. It's not a matter of replacing Victorian sewers by plastic. They've got to be much bigger because they're going to have to take much more water because of climate change. London Underground wasn't designed to be air conditioned. It would be very expensive to do it. But we either spend that money or close it down in the summer. I guess we spend that money. But that's just an example of the cost of adaptation in one city which is affected by climate change, but not as badly as many others around the world. And different parts of the world are starting to sink through those problems. Now let me talk briefly not just about adaptation, but how to cut back. And we have to remember that the cutting back on these emissions is going to take place largely in cities because that's where the majority of the population of the world now live and it's a fraction that's increasing and it's where a still bigger majority of the energy consumption originates. So this cutting back on energy has to be led by the cities. Now there are lots of examples of new cities, well not lots, but there are some examples of new cities. I'm sure there are many people here who know much more about this one than I do. Norman Foster and his team designing Mazdar, a zero carbon, a zero waste city in Abu Dhabi. Dong Tan in China and near Shanghai, another carbon neutral city that is moving forward very rapidly. Somewhere closer to London, Woking has actually cut right back on its emissions mostly by energy conservation, energy efficiency, but also by generating some of its own electricity in low carbon ways and feeding it back into the grid. And it's done it in a way that actually has enabled them to reduce taxation in the city, not increase it. Woking is somewhat of a joke for people who live in London as a suburb, but it actually should be taken very seriously as an example of somewhere that is acting. I give it because it's an old city, an old town. The other two examples were of course new ones. Why should cities be able to do a great deal? And here I'll just give you, there's a lot of actual quite detailed economics under this slide. But essentially cities are full of networks and networks have what we call in economics increasing returns to scale. You get more than double the output for doubling of inputs. And examples there is that you can really save resources through public transport, combined heat and power, enabling people to sell electricity back to local grids. In cities people are closer to other people and so learning by watching can be more important. You get skill aglomerations, so financial organisations, the technical people who know how to save energy, the organisational side of things, who know how to bring the plumber and the roof insulator into the right place at the right time. You can package that along with financial institutions and you can fund all these energy saving things in the right way without the person whose house is being made more energy efficient having to come up with any money. All these kinds of things you can do through the kind of skills and aglomerations. Ken Livingstone and Nicky Gavron will be here in a few weeks and they themselves will tell you about some of their ideas for joint procurement. My last minute on the global deal. It has to be a global deal and it has to be an equitable global deal and it has to be a global deal on scale. We have to confirm in Bali in just two months time actually. We have to confirm in Bali the highly guaranteed targets of cutting aggregate flows of greenhouse gases by 50% by 2050. Rich countries have to take on targets of at least 75%. California has got 80%, France got 75% and I'm hopeful that the UK will raise its 60% target 75% in the near future. We're talking about the right ballpark now. It's a question not only of setting targets but of delivery. The trading mechanisms trading carbon will allow finance flows to poor countries of the world, including India, so that India can have some contribution from outside to financing the changes. And we have to make that as simple as possible. Deforestation is going to cost real money, but for $10 or $15 billion a year, my guess is that you could have the amount of deforestation. That's incredibly good value. We have to demonstrate and share technologies. What we can't have is British, German, American industries developing these low carbon technologies and selling them at rip-off prices to the rest of the world. We're in a position which is not dissimilar from HIV AIDS where it's absolutely crucial that the technologies are developed and shared very quickly. And we have to have a delivery on the commitments on overseas development aid, which were made in Monterey in 2002 in Gleneagles in 2005, because development in the face of this changing climate is more costly than we had earlier thought it to be. And the origins of that extra cost are largely in the actions of the rich world over the last 100 years or so. So we have to deliver on that. So those are the two broad strands of the global deal. So what about India? India is very vulnerable. India has an enormous stake in this, as we've just illustrated and many others. But India at the same time has very little responsibility for the state which we are now in as a world. So as I said, India should be pushing very strong ambitions, but insisting on an equitable allocation of responsibility. The last note here is slightly personal. The Stern review has about 700 pages. Some people have read it. But there are lots of people tell me that there are things in the Stern review that are not in the Stern review. There's nothing in the Stern review on policy for India. But I am talking about policy for India now. And I do think that India's support for very strong targets, the Heiligandam targets, is absolutely crucial. But also that India should fight its corner very strongly because whilst India has to adapt and India has to be part of the story of reducing emissions, it's other people who should be taking still stronger action. So here's my view, my offer for India policy. I've just described it. Heiligandam targets push the rich countries very hard. Don't take anything less than 75% reductions from them by 2050 as targets. Really push for the development of carbon trading because it's those financial flows that are going to help to finance India's investments. Push the technological story very hard. But finally, let me just underline this point here. It's easy to say it's very tough to do. But we need much more intensive study of the dangers that India and this part of the world are running as a result of climate change. They are severe and adaptation is going to be costly. But unless we, and I say this as a friend of India, unless we all think that through in great detail now, we're not going to make the investments in flood control in the problems of drought in the changing agricultural technology in the protection of against sea level rise. We're not going to make those protective investments early enough unless we start now. Thank you very much. Thank you, Nicholas. Nick for that masterly summary of your carefully worked through report and its implications for public policy.