The 21st Century climate challenge

nomic benefits beyond what is achieved by stabilizingtemperatures. These benefits are likelyto be realized through Keynesian and Schumpeterianmechanisms with new incentives formassive investment stimulating overall demandand creative destruction leading to innovationand productivity jumps in a wide array of sectors.It is impossible to quantitatively predicthow large these effects will be but taking theminto account could lead to higher benefit-costratios for good climate policies.The design of good policies will have to bemindful of the danger of excessive reliance onbureaucratic controls. While government leadershipis going to be essential in correcting the hugeexternality that is climate change, markets andprices will have to be put to work, so that privatesector decisions can lead more naturally to optimalinvestment and production decisions.Carbon and carbon equivalent gases have tobe priced so that using them reflects their truesocial cost. This should be the essence of mitigationpolicy. The world has spent decades gettingrid of quantity restrictions in many domains,not least foreign trade. This is not the time tocome back to a system of massive quotas and bureaucraticcontrols because of climate change.Emission targets and energy efficiency targetshave an important role to play but it is the pricesystem that has to make it easier to achieve ourgoals. This will require a much deeper dialoguebetween economists and climate scientists aswell as environmentalists than what we haveseen so far. We do hope that this Human DevelopmentReport will contribute to such adialogue.The most difficult policy challenges willrelate to distribution. While there is potentialcatastrophic risk for everyone, the short and medium-termdistribution of the costs and benefitswill be far from uniform. The distributionalchallenge is made particularly difficult becausethose who have largely caused the problem—the rich countries—are not going to be thosewho suffer the most in the short term. It is thepoorest who did not and still are not contributingsignificantly to green house gas emissionsthat are the most vulnerable. In between, manymiddle income countries are becoming significantemitters in aggregate terms—but they donot have the carbon debt to the world that therich countries have accumulated and they arestill low emitters in per capita terms. We mustfind an ethically and politically acceptable paththat allows us to start—to move forward evenif there remains much disagreement on the longterm sharing of the burdens and benefits. Weshould not allow distributional disagreementsto block the way forward just as we cannot affordto wait for full certainty on the exact pathclimate change is likely to take before we startacting. Here too we hope this Human DevelopmentReport will facilitate the debate and allowthe journey to start.Kemal DervişAdministratorUnited Nations Development ProgrammeAchim SteinerExecutive DirectorUnited Nations Environment ProgrammeThe analysis and policy recommendations of the Report do not necessarily reflect the views of the United Nations DevelopmentProgramme, its Executive Board or its Member States. The Report is an independent publication commissioned by UNDP. Itis the fruit of a collaborative effort by a team of eminent consultants and advisers and the Human Development Report team.Kevin Watkins, Director of the Human Development Report Office, led the effort.HUMAN DEVELOPMENT REPORT 2007/2008 vii