Ep48: Nick Stern 'Planetary Crisis? Call an Economist!'

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Michael Liebreich: Before we start, if you're enjoying these conversations, please make sure that you like or subscribe to Cleaning Up, it really helps other people to find us. Cleaning Up is brought to you by the Liebreich Foundation and the Gilardini Foundation. Hello, I'm Michael Liebreich and this is Cleaning Up. My guest today is Lord Nicholas Stern, Baron Stern of Brentford. He's the IG Patel Professor of Government and Economics at the London School of Economics. He's also Chair of the Grantham Institute, and of course, author of the seminal 2006 Stern Review into the economics of climate change. Please welcome Nick Stern to Cleaning Up. So, Lord Stern, Nick, great to have you on Cleaning Up.

Nicholas Stern: Hello, Michael, very happy to be here.

ML: No, it's entirely my pleasure on this very hot summer's day here in London. It's so hot that I've broken out my Mexican guayabera. So, I hope you noticed that little touch.

NS: I'm hugely impressed. It's very elegantly white, but more than white as the Mexicans usually make it. I was just looking for a bit, that sort of light, you know, sometimes you have sort of jolly stripes and so on these things.

ML: When I saw this thing, I actually got it during a, I think it was a Clean Energy Ministerial in Merida in Mexico, where I suddenly realized that I needed one for the evening event, and it was actually just the right thing to wear in the sort of slightly sticky weather that we've got going at the moment. So now, as we record this, we've just seen the communique coming out of the Cornwall G7 meeting and you were very involved in preparing for that meeting. And then you've also got some thoughts on that communique. So, what have you been doing to get that meeting up and running and make sure it came to a successful conclusion?

NS: As a result of a couple of meetings with Prime Minister Johnson last year, he asked me through the G7 Sherpa, to put something together which would try to provide a coherent, integrated response to the problems that we face in the COVID crisis  and coming out of that from the point of view of the economics and the health, the problems of social cohesion. Harmony is internally that in so many nations we've been running into over the last years. And of course, the challenge of climate change, and that we had these problems which were interwoven. And that we could see that the right way out of this was to invest strongly in the right things. We didn't want a consumption boom of the roaring 20s, 100 years ago, and we didn't want the premature, you know, dive back into austerity that we had a dozen or so years ago, after the great financial crisis; that we have to invest out of this. And fiscal responsibility was about getting growth, going through investments, and then building your tax position up as you start to recover. And further, it was crucial to invest in the right things, invest in the technologies of the future, invest in the technologies that didn't damage our biodiversity, as well as climate. So as a result of those discussions a couple occasions last year, he asked me to put this together. So that's what we did. So, it's it came out in May, on May the 10th. Public document, it was independent of government, because I wouldn't have done it otherwise. And that form of background to the approach of the G7. And I think it's reasonable to say that in terms of strategy anyway, the G7 communique, which does actually acknowledge the report, recognizes the report, but the substance of that communique is I think strategically along the lines of this is how we have to recover, has to be driven by investment, but investment of the right kind, sustainable investment. And that I think is a good thing. My main concern is that the means to deliver on the strategy and the declared ends were not really adequate.

ML: Let's get, let's talk about the means to deliver. But you had this sort of $1 trillion figure, you were saying that the G7 should sort of announce a further, was it a further trillion or a trillion of clean… it's kind of climate transitions investment, but specifically triggered at restarting growth as we come out of hopefully, the COVID pandemic, is that correct?

NS: It is correct. Well, what we argue then it's beyond the G7. But the 1 trillion extra investment is G7 oriented. And what we've said is that if you look around the world, except China, where investment is very high already in China, what you need to do is to change the composition of investment, not necessarily increase it. But outside China, the kind of challenges the world faces in terms of recovery, in terms of infrastructure deficits across the world, and in terms of the investments we need to make the opportunities for investments we have, particularly in the energy sector, but also in, in natural capital. If you put those perceptions together, what do we need to recover in an investment driven way? What do we need to rebuild, to strengthen our infrastructure, which is weak in so many countries of the world? And what are these investment opportunities, particularly in new energy? You spiral in these arguments are not additive, they are complimentary, you come back to around two percentage points or so increase in investment is necessary. And that boils down to roughly a trillion a year in the G7. But that idea of two percentage points extra or so investment is across the world, except China.

ML: And the 2% is that a 2% increase in investment or 2%, more of GDP that should go towards…

NS: The latter. 2 percentage points of GPD.

ML: Because the latter would be point something, something. This is 2% of GDP, right?

NS: That's right. And it's, it's not far away in the G7, from the ratios we had 15 or 20 years ago. And this is in a world where interest rates for the G7 countries are on the floor, you know, we live in a world which has got, if you like your Keynesian stories, planned investment far too low relative to planned saving. Now, the answer to that is not to cut your saving, it's to increase your investment. So, to generate that extra increase investment is a matter of policy to encourage that investment. And then you have to organize the right kind of finance the right place at the right time. But the savings will be there. It's the demand for investment that's critical, and then organizing the right finance, because you know, a lot of investment is risky, whether it's green or brown. And what you've got to do, particularly since you need to increase investment and need to increase investment of the green kind, you've got to have the right kind of finance to take sort of risks that are going to be there up front, particularly in infrastructure.

ML: And of course, right now you've got the excess capacity in the economy so you don't worry too much presumably about inflationary pressures, certainly in the short medium term.

NS: I think not just now. I mean, there are I think there are short run pressures there to do with restarting. You know, the hospitality industry has discovered, perhaps unsurprisingly, that a lot of its potential employees or past employees have migrated elsewhere. And of course, after Brexit, they don't have the, you know, the workers from Europe to fill the gaps. So, I think that's the kind of inflationary pressure which will be short lived. Similarly, you know, the builders’ merchants are not overly supplied with stock. But I think those are short run stories, that basic position of underemployed resources and what we've seen over the last 10 years or so, interest rates on the floor, because planned investments are higher, I wouldn't be worried over these next few years about the inflation part of the story.

NS: Maybe let's come back to that. But you said that China in terms of what you invest in, that China has to change its mix, but let's stick with non-China for the moment. What did you say about the mix the sorts of things that that trillion ought to be going into? Because you've talked a lot about infrastructure. But also you talked about technology. So what sort of mix do you see?

NS: Well, we need lots of innovation. But first and foremost, the big investments are in the energy sector, particularly electric power. If you look at work of the Energy Transition Commission, which is a very good group, chaired by Adair Turner and Ajay Mathur, they, I mean, for transparency, I'm a member, but the these are the driving forces, not me in that, in that story. If you look at the numbers, you need something like, numbers that need to get to net zero by 2050, you need something like a quadrupling of electric power, since so much is going to run off electric power, including, of course, not only what runs off electric power now, but also the big part of our road transport system, a big part of our heating system and so on. So, you're going to, you know, if we move strongly into hydrogen, you need a lot of electricity to do that, so their estimate is, and it fits with the International Energy Agency as well, is roughly a quadrupling of electric power between now and 2050. And all of that of being net zero electricity by 2040. So that is the big, big part of the challenge. And that needs the kind of investment numbers we've been talking about. Now, these are investments with wonderfully attractive returns. So much electric, cheap, electric power investment in renewables with storage is already cheaper than the dirty, you know, last century fossil fuel stuff. So, these are investments with great returns, we kill around the world, something close to 10 million people from air pollution out of a total number of deaths a bit more than 50 million people. Yeah, that's huge. Not all of its from burning fossil fuels, but a lot is, a lot. So, you know, if you think of those investments, we do have to make those strong investments, couple of percentage points extra of GDP. But they’ve got very high returns, they've got low costs, all kinds of health benefits and so on, but you've got to make the investment.

ML: Okay, now, just one thing we do with these, this YouTube channel and podcast is we'll put into the show notes links. So, we will link to your report for the G7 and obviously, we'll link to the G7 communique. You you've talked about the the toll from air pollution, I think that's World Health Organization. A big chunk of that is actually indoor pollution from burning wood and dung and so on but we’ll put some details into the show notes. You're absolutely right. But that that's, you know that there are fantastic returns financial and also social health returns from

NS:The International Energy Agency report on that zero two, three weeks ago, and Adair Turner's energy, which came out om April 27.

ML: So we'll actually we'll put that in. Absolutely. And in fact, we had on this show Kristian Ruby, who's the Secretary General of Eurelectric, the Association of the European Electricity Industry, talking about how direct electrification will go from its current 22% of energy provision to 60% which is consistent with your quadrupling figure. That's absolutely right. That doesn't even include hydrogen. But I want to push on something because I was on the Board of Transport for London and the big project when I was on the board, and it was on track and on budget when I left the board, was Crossrail. And cross rail was first proposed, I think it was 1947 and ground was broken in I think it was 2010 if I'm not mistaken. And so, whilst from a climate perspective, what you're talking about makes perfect, perfect sense. Does that make sense as the sort of quick economy restart after COVID? Because I wrote a piece where I extolled the virtues of energy efficiency and the drift distributed solutions as being perhaps quicker to jumpstart.

NS: I think you need a clear programme. This is a 20 some years story where the first 10 years are of critical importance because we have to get emissions down quickly. And I think you have to put the bits together in terms of recovery from COVID, retrofitting buildings is with the right organization something that you ought to be able to do very quickly. You could start, and we emphasise natural capital, you know, you can get to work on restoring degraded land and planting trees quite quickly. You can accelerate the rollout of broadband quite quickly. And solar panels up and other ways of the solar energy, you can do quite quickly. So there's quite a number of things that you could do quite quickly which do respond to the challenge of unemployment. At the same time, you know, you've got to see that as part of a story that runs forward. Energy efficiency, as you say, to retrofitting buildings would be something that, I mean, we really need it anyway. But why not get on with it now, and if you know, you've got to do something, and you've got unemployment now, this is the moment.

ML: And one of the one of the criticisms that I had when I wrote my piece about how we should be doing energy efficiency, and solar roofs and home batteries, and so on, as the way of jumpstarting and it's a very valid criticism was that as things stand, most of those jobs will go to men. That's just the structure and the nature of the building trades and indeed, the engineering sector. Even if you're looking at the technologies of the maybe not the distant future but, you know, in 5,10, 15 years time right now, they are dominated by man, did you look at that, because there are presumably things that one could do to try and shift that quickly. But it's a, that's a tough challenge, is it not?

NS: It is, we raised it, but we didn't go into detail in how you tackle it. I do think that a lot of the job gendering is something that one would like to change. But you know, it's not something that is a fixed coefficient, the ratio of men to women in particular form of activity, but it does take a bit of time to change those things. At the same time, a lot of you know, if you look at the health and education, there's a majority of women, relative to men in those activities, and those are activities too where a lot of investment is needed. And, you know, if you focus on schools and hospitals, extra investment in those areas, I don't regard that is a conspiracy against zero carbon. They are good investments, of course, you can make your schools more efficient, in terms of energy, make your hospitals more efficient, you can, you know, explore different ways of educating, as we have, of course, in the, in the higher education sector as a result of the pandemic. But I don't want to, as it were, duck out of those questions, but they should be tackled in a strong way. And I think much of what you would do would be complimentary to the kinds of investments that we're talking about here.

ML: I suppose I would like to see a more coherent response, not from you, but from, you know, from policymakers to say, okay, right now we have the industry structure and the gender structure we have. But that is not there's no, there's no inherent reason why that needs to sustain. And I think, I wonder, for instance, you know, I wouldn't like it, where, if it was another our number one challenge in the world, the thing that needs to really be top of mind is climate, but that's going to be 70, 80 90%, you know, male dominated, I think we need to fix those gender balance. And I also wonder whether the nature based solutions might be a space where you could almost start with a more balanced workforce.

NS: I hope so,  the farming is a bit male dominated, as well. You know that things like horticulture, working on forests and so on, there's absolutely no reason why that should be male dominated.

ML: Now, as you go forwards, if you're on this kind of climate war footing, you know, increase the trillion dollars within the G7. And, and more, if you go outside of the G7, do you worry that there will be ultimately a resurgence of inflation that will require addressing because I'm just very struck, I found a thing recently, which was actually you mentioned Keynes, he wrote something about how to finance the war. And he suggested using war bonds, which would, which would sort of suck demand out of the consuming economy during the war, in order to allow space for the wartime economy, or in this case, it would be the climate economy to absorb talents and absorb resources without driving inflation. Do we need to be thinking about something like that? Maybe not for the next five years. But if that you want to keep the pedal flat to the floor for the next 10 years, let's say?

NS: Yes, yes and beyond. But the first thing is that this position of planned investment being too small in relation to planned savings has been with us for quite some time. You know, Larry Summers has spoken about secular stagnation. We've seen interest rates zero or in real terms, negative sometimes in nominal terms, negative in some countries. So, I think that challenge of too much, you know… that challenge of having to control consumption is not yet there. Because you know, you've got this surplus savings. That's the position which we are in. And so that problem would be down the track. I don't know how far down the track, but I would have thought the few years at a minimum down the track. So I mean, Keynes was during the war time was talking about talking about a very firmly fully employed economy, we haven't yet know, recovered from COVID sufficiently to describe it that way. And we have to look back at the decade before COVID when there was surplus savings. So I don't think that's an issue yet.

ML: Now, your focus for the last few months has been on this G7 report and the G7 communique, culminating in the in the decisions on the communique. But that's G7. That's the rich democracies. What do we need to do beyond that? And you've been working across the across the globe? Not just you know, that's only been a temporary focus on G7, correct?

NS: Yes, I spent. I've been working in India now for nearly 50 years. And in China for well over 30 years. My first ever research programme was on tea in Kenya in the late 1960s. So, my career has been that largely as a development economist growth and development and public policy. We're working quite closely with the G20. And just as a rule of thumb, we've got the G7 which is about a third of the world economy. And the G20 is about three quarters of the world economy, and not so very different fractions in terms of emissions of greenhouse gases. So, the G20 story is extremely important. And we now have three years where the G7, G20 constellation of presidencies is really quite promising. This year, we've got G7, G20, UK, and Italy. Next year, we've got G7, G20, Germany, and Indonesia. And the year following, we've got G7, G20, Japan, and India. And all those countries now talking to each other. And that's something that I and others have worked hard to try to promote, so that we get a three year perspective. In the past, you've had G7s or G20s dominated by a particular enthusiasm of the leader of that particular country at that time. Now, I think with the shared experience of these two global crises of COVID and climate, you're starting to see internationalism come back in terms of the shared view of how we should act together, over a period of time. And if you look back to last year, 2020, the G7, G20 constellation was the United States under the presidency of Donald Trump, and Saudi Arabia.

ML: Also, at 2019, I flew down to Argentina, because that was the G20 presidency was Argentina. And there was the energy ministers G20 meeting. And I thought that I'd be able to inject a little bit of, you know, maybe some data about how expensive or how cheap clean energy is, what else we need to do, clean transportation, the difficult bits we could get into get some work done, the entire time was dominated by the fact that the US would not use the words climate change in the communique. And Germany and the EU would not sign off the communique unless that included the word climate change. And so, I had a very nice time, very embarrassed about my carbon footprint flying down there and flying back to absolutely no effect because no work was done, effectively.

NS: But we have a three years now of what looks like a fairly sensible constellation of countries and we have a shared view of those two crises together. That is, I think, a different kind of period of international.

ML: But if I might put you on the spot and ask you to do almost rapid fire, it strikes me that the world divides, okay, you've got the kind of the rich democracies we just talked about the G7, but then you've got a bunch of very fast developing countries. The Chinas, the Indias, I'm not entirely sure who else I should add in Indonesia, Malaysia, but certainly people like Vietnam, Thailand, in Africa maybe South Africa, a bit on its own, but you know, Ghana, places like that, that are energy importers. So, developing countries are not all the same, you've got energy importers. But then you've got the energy exporting countries, I'm thinking of the Russias, the Saudi Arabias, the Venezuelas of the world. And you could almost, you know, broadening it from the developing world, maybe just talk about whether they are energy importers, energy exporters. And then of course, you've got the slower developing countries, the ones that are still really struggling to get industrialization going, what would be your prescription, the kind of rapid-fire quick prescription for those different groups and you can cut it, if you prefer to cut it in a different sort of segmentation, then then fine, but…

NS: Energy importers are people who in the past have not had enough fossil fuels to meet the overall demand. The right response to that is to change your dependency on fossil fuels. And that's a huge opportunity. And it looms large for those countries, not simply because of the terrible air pollution and climate change that the burning of fossil fuels creates. But the argument about energy independence and energy security. And the insecurity of depending too much on the import of fossil fuels, is a part of the story. It's a big part of the politics and the economics. And so, India, you know, which has quite a lot of deserts, where there's plenty of sunshine, and the land is cheap, has real opportunities there. You know, there's a company called Renew, which you probably know, which is delivering in its bids now around the clock solar, for under three cents per kilowatt hour. And if the cost of capital came down, that cost would come down quite a bit, as well. So, I think increasingly, you're seeing a realization that those things come together at a much cleaner way of producing your energy, a much healthier way, a low-cost way of producing your energy, and one that doesn't make you so dependent on fossil fuel imports.

ML: Okay, so that's that group of currently importing. And in India, I saw the figure a few years ago, I think it's when the when the oil price was very high, if something like they were on track to have 7% of their GDP would be overseas, would be importing energy, if the energy prices have not come down. And these are huge numbers, so they get sorted by shifting to clean resources. Right. What about the next group, the countries that are fully dependent on exporting fossil for their economies? What's the prescription for them?

NS: Well, they have to make a transition, if it turns out that what you're selling is a product for which the world is rapidly going to reduce its demand, then there's no doubt that you have to reorient your activities. And you know, for example, the arch oil exporter is Saudi Arabia, and they are already starting to move strongly because they also have deserts and lots of sunshine. They're also moving quite strongly into the possibilities of renewables. They're looking at algae, of course, as well as, as possibilities. So, some of the oil exporters not all, of course, but some of them who have that kind of possibility. Others would have to really change that pattern of production. But in in many cases, you know, if you look, the economic historians have drawn attention to as it were, the oil curse, that actually having a natural resource which allows you to sort of sit back and not do much has not been, on the whole, a driver of growth. So, over the medium term, I think the switch to new activities would actually be in historical retrospect, 30 years down the line, actually seen as beneficial, so that you would be starting to produce things based much more on human capital and skills and so on, than this kind of resource capital. But having said that, there's an adjustment that needs to be made and they have to… the earlier you start thinking about that adjustment, the better.

ML: Do you worry that they'll start to be very mischievous that they may become bad actors in climate diplomacy because it is very threatening. If you're in Russia, you're Iran, you're a Venezuela, you're an Australia even, this is a wrenching change. And, you know, you mentioned Saudi Arabia, it's a wrenching change, it may, you don't have to sort of check out from, you know, the science of climate to say, well, you know, maybe we could just keep going for 10 or 15 years more, salt away a bit more money, you know, wherever the salting is good, either in a national fund or in Switzerland, depending on your kind of house style. But do you not worry about that, that the plea to sort of make the transition would potentially fall on deaf ears?

NS: Well, the first thing is the demand side, I mean, if the world is switching very strongly away from fossil fuels, then that demand is going down, it becomes a fact of life, you don't go on poisoning and polluting, because one, or two, or three or 10 countries have adjustments to make, you couldn't possibly not do it for that reason, because you'd be killing people in very large numbers, simply because you weren't able to make the adjustment, and you allowed some countries to veto. So, I think that those countries have to, in many ways, except what's gonna be a fact of life is that the demand for their products is falling. And that happens, the whalers saw the demand for their products fall, when electric lighting started to come in, the people who looked after horses saw a fall in the demand for their product as the motorcar started to come in, these things happen, and they can happen quite quickly, the right thing to do is to look ahead and prepare, and in this case, particularly invest in people, if you take, if you take Russia, the potential for investing in human capital there, I would have thought would be very large. That would make Russia much more productive in the world than resting on fossil fuels. And indeed, probably by now, the fossil fuels as a fraction of the GDP have already fallen quite a long way. But you have to think ahead and invest. I don't think there's a compensation story that makes a lot of sense. But what you can do is to try to be helpful around the investing in new ways of doing things.

ML: I think that's right. I mean, I suppose I remain very concerned, partly because in a lot of those countries, the elites are, you know, they benefit from different things from the people. So, the people would benefit from education, from full integration in the global economy, from diversification, etc. But that actually is something that would undermine the grip of the elites on power in lots of these countries that have already effectively succumbed to the oil curse.

NS: Yeah, if you look back over the last few decades, and you look forward to the middle of the century, I think the economic historians of 2050 would not see Venezuela’s oil as having bought great development benefits to Venezuela.

ML: And we could scroll through some other countries. But there is that final group I want to talk about, so I'm on the Board of Trade and I'm trying to grapple with the current flavour of the moment, which is carbon border adjustments, and everybody's decided that they're desirable. I've been talking about them and actually sort of saying that probably an inevitable part of the landscape for quite some time. But of course, if you're that last group, the lesser developed countries, the slower developing countries, are the ones that are still… they don't have the natural resources or they may have the natural resources, there may be a Mozambique fabulous natural resources, gas, etc, but not yet developed. What is the strategy vis a vis them?

NS: Well, let me take the border adjustments, first. Essentially, the evidence on the relocation of production, as a result of environmental policies, is very weak. We looked at it at the time of the Stern Review 2006. And the evidence then of relocation of production to somehow take advantage of relaxed environmental policies was very weak, and not surprisingly, because if you're deciding where to produce something, you worry about the availability of the right kind of labor. You worry about the behavior of the government and whether it's gives you a hard time you worry about the quality of the infrastructure and transport links, and so on. Those are big things in your location decisions and not some environmental regulation which may currently look a bit lax but may not necessary look like that way in the future. So that was back then in 2006, I think the evidence is still very much the same way. Of course, in the meantime, we've had more carbon taxes and carbon pricing. So that's another kind of environmental policy. But still, the only places it makes much difference are in the energy intensive trade exposed sectors, there are not many of those, perhaps half a dozen, steel, aluminum, cement, some plastics, that kind of thing. Now, but rather than erect something which is incredibly complicated, you know, border carbon adjustment right across every product, you should focus on those few where it is of relevance. And there, you can't be just dismissive and say, it's only five or six industries, because those industries are actually responsible for quite a lot of the carbon emissions. But you know, even cement, you know, people don't move cement around that much, because it's so heavy. So, it's only a few that really count. Steel, I would put up front as being a particular importance. So, when I'm asked about this, you know, so first of all that the evidence on relocation, second, narrow it down and then think about what are the ones that are really going to make a difference. And what we want as a world is a much cleaner production process for steel, we can see how to do it, it's a little way away and it's still quite a lot more expensive. But we want to try to bring that through very fast. So, we should be investing strongly in R&D around that. But having said that, it does seem to me that you could put in place, just a few industry specific policies, where you can measure, roughly speaking, the carbon content, particular kinds of steel, and you can have some idea about the intensity of carbon policies in the countries which are exporting the steel, so it ought to be possible to manage that in a way which was fairly modest, and in a way where you could speak with the steel makers of the world, look at the industry organizations, talk to the countries which are exporting and on the whole Africa doesn't export much steel. So, it's not an issue which would trigger, as it were, the widespread suspicion of protectionism, which an economy or sort of whole import wide story. And that would be very dangerous to have an import wide story of border adjustments, because I've been to all the COPs since 2006, the biggest problem of all the COPs is suspicion of the developing countries of the rich countries in trying to restrict their development or to impose protectionism. And it's hard to argue that that suspicion is wholly unfounded. So, it would be very dangerous a COP process to do something which would trigger the suspicion of protectionism. And that's a very important reason why it's so important to narrow the focus on any border carbon adjustment story.

ML: Yes, and that worry about protectionism and the carbon border adjustment story just plays, you know, so easily into that. And I'm thinking maybe not in terms of steel, not necessarily in Africa. But if you're looking at Malaysia, you know, they would produce steel, and they would put it into cars and they would sell it into Europe. And so, Europe saying, oh, no, you're not gonna be allowed to do that for some, you know, climate reason, which may seem very urgent to us on the streets of European capitals, but probably isn't quite seen as urgent in Malaysia.

NS: Yeah, the carbon, you know, if you had a decent carbon price, how maybe $50 a ton, rising upwards, how much that would affect a car? It isn't very much, you're talking about a couple of percent or something on a car, it'd be hard to argue that that was a massive undercutting of European car makers. The right answer to that is to work with Malaysia on carbon policies and try to be helpful.

ML: Yeah, and I'm very struck also that we're having, you know, going into COP 26. There's this big discussion. In fact, the G7 communique mentioned it, this 100 billion investment north south in climate solutions. That was the Copenhagen commitment that the developed countries would invest 100 billion from all sorts of sources in the developing countries. And the OECD said that by 2018, the figure had got to just under 80 billion. So, there's a kind of a shortfall of 20 billion. And there's this huge focus, endless discussion, this narrative of how the developed countries have reneged on their responsibility and so on. And meanwhile, there's nearly 20 trillion of global exports and we don't have nearly the sophistication of discussion about how to use those to help, whether it's the Malaysia or the Mozambique or frankly, the Saudi or anybody else to make this climate transition. Any thoughts on that?

NS: I was involved actually in negotiating the 100 billion in Copenhagen in in 2009, working very closely with Prime Minister of Ethiopia Meles Zenawi, he was speaking for Africa. And it is, I think, largely totemic, but it's totemic of trust, you know, if you come to an agreement and you make an agreement, then you should deliver on that agreement. Now, that didn't distinguish much between grants, loans, and it included private sector finance, as well. And basically, if you look at the numbers now, my guess is that under the usual methods of counting, which are controversial, but under the usual methods of counting them, will probably be at the 100 billion in a couple of years, either this year or next year. The bigger point is the one we touched on earlier, it's the right kind of finance in the right place at the right time. And this is a story of investment. Excuse me I’m going to sneeze…  I'm sure you can edit that out.

ML: Bless you. Oh no, we have great Lord Nicholas Stern, one of the great economists of our time, sneezing.

NS: But the so what we need is help in bringing down the cost of capital and increasing a flow of capital, so that these investments that we've been emphasizing can be made. And that is something which is very important. That's not totemic, that's about getting the investment going. But I do think that if we increase the element of public finance that's flowing, I have been arguing with my friend Mr. Bhattacharya that that should double from the rich countries between now or between 2018 and 2025. That could start to make a difference. If we harness the ability of the multilateral development banks to do low-cost lending, and in some cases can strongly concessional lending, that will make a big difference. So, I think getting the financial flows going is very important. And as we withdraw trade finance from fossil fuels, and it's really rather substantial for rich countries, surely that trade finance could be reallocated to foster much better investments than it was fostering in the past. And of course, lowering barriers to trade, which is still quite important in many cases, will increase the ability to invest as well. So, I think the whole spectrum of actions around withdrawing the financing for fossil fuels, reallocating that trade financing somewhere else, bringing down the cost of finance, increasing the flows from the MDBs, opening up trade opportunities, there's so much we can do.

ML: Well, you won't find me disagreeing as somebody who has sat through and participated in literally probably hundreds of conference sessions on how we could increase the flow of finance, reduce the cost of capital to developing clean energy and transportation projects and so on. I would definitely concur with that. I just want to finish with a final question, if I might. Your name has been very associated with this whole area of the economics of climate change. very publicly since 2006. And I know you were working on it well before then. Where are we today relative to let's say, when the Stern Review was published in 2006, are we… I suppose the bookends are, it's got worse, we're even further from where we need to be to the problem is solved, we've got a few loose ends to tidy up to somewhere in between those two, where do you see us?

NS: It is somewhere in between. But let's carve it into the key dimensions. The science was very worrying in 2006, very worrying, it's much more worrying now. So many of the effects have come through faster and more severely than we thought. And of course, we haven't cut the emissions yet. And we've got to go beyond simply cutting them we've got to get down to net zero; science much more worrying. Technology has moved much faster than we thought. We didn't think in 2006, all the major car makers were talking about the end of the era of the internal combustion engine. We didn't know in 2006, that just 15 years on, so much electricity will be actually cheaper from renewable sources around the clock, renewable energy, without carbon price, or subsidy, technology has moved very fast. So, we can go on into materials, hydrogen, and so on. It that technological change has been remarkable. The politics have moved more slowly than we would wish, but they're starting to gain traction. And finally, over the last three, four years, the private sector has really started to move. So there are promising signs. The most promising sign for me is the insistence of the young people. I work in a university, the young people in our universities really understand this, they understand the magnitude of the problem, they can see what can be done and they find what can be done around that attractive way of organizing life in the future. So, science really, really troubling, still more so, technology, remarkable. We've got to invest in making a lot more happen. Public policy, finally starting to pick up too slow, but it's got to accelerate. Private sector really beginning to move quickly. But that's got to spread right across and have confidence in the [inaudible].

ML: So the summary would be something like the supertanker has actually started to show some signs of turning, but it is still a supertanker, is it not?

NS: It is yeah, and we want to get more and more crewed by young people.

ML: Very good, very good. Well, look, let me thank you for joining me here today. It's been great pleasure talking to you. It's always a great pleasure talking to you. But thank you for talking on the record as part of this series. And I'm sure I know that you need to drop off the call imminently. But as I say, accept please, on my behalf and also on behalf of the audience, my thanks for joining me here on Cleaning Up.

NS: Thank you, Michael. It'd be lovely to get together personally before too long. Thank you.  

ML: So that was Nick Stern, Lord Stern, Professor of Economics and government at the LSE, and of course author of the 2006 Stern Review. My guest next week on cleaning up is Johan Rockstrom. He's the director of the Potsdam Institute for Climate Impact Research and Lead Developer of the Framework of Planetary Boundaries which informs so much environmental policy today. Please join me at this time next week for a conversation with Johan Rockstrom.