THE economic wellbeing of Britain and the rest of the world depends on changing to a low-carbon global economy, the Government’s chief economist said in a report published yesterday.

Sir Nicholas Stern described climate change as the “greatest and widest-ranging market failure ever seen”, but said that action could and should be taken to avert the worst effects.

He concluded that spending 1 per cent of gross domestic product each year on tackling climate change would save 5 to 20 per cent of GDP by the end of the century, but that Britain could not act alone — it required internationally agreed measures.

“The conclusion of the review is essentially optimistic,” said Sir Nicholas. “There is still time to avoid the worst impacts of climate change if we act now and act internationally. We can grow and be green.”

The report identified carbon pricing, including carbon-emissions trading worldwide and green taxes, improved low- carbon technology, energy efficiency and halting deforestation as the main methods of cutting greenhouse-gas emissions.

In his assessment of global warming Sir Nicholas, head of the Government Economic Service and the former chief economist at the World Bank, said that the scientific evidence was now “overwhelming” that climate change was under way and presented “very serious risks”.

He accepted that the world had warmed up half a degree since the Industrial Revolution and that a minimum of another half degree could be expected over the next few decades. He blamed greenhouse gases created by human activity, such as carbon dioxide and methane. The current level of greenhouse gases in the atmosphere is about 430 parts per million, compared with 280ppm before the Industrial Revolution.

The report said that the level would reach 550ppm by 2050 at the current rate of increase, but that the levels were rising so fast that 550ppm “could be reached as early as 2035”. As levels increase, temperatures are expected to rise. A 550ppm level gives a 77-99 per cent chance of an increase above 2C (3.6F), and doing nothing about emissions gives a 50 per cent risk of a 5C rise by the end of the century.

“Such changes would transform the physical geography of the world,” the report states, with many millions, of people facing starvation, water shortages or homelessness.

The melting of glaciers would initially cause floods but would then leave a sixth of the world population facing water shortages. Sea rises would threaten cities such as London and New York, and a rise of 2C would put 15-40 per cent of wildlife at risk of extinction.

Falling crop yields could leave hundreds of millions of people, especially in Africa, at risk of starvation and, once temperatures have risen by 4C, “global food production is likely to be seriously affected”.

Sir Nicholas said that scientists were clear that the higher the temperature rise the worse the impact on people and economies. Developing countries are likely to be hit hardest, but developed nations will also suffer. The cost of flooding in Britain if temperatures rise 3C or more is estimated at up to 0.4 of GDP and in the US stronger hurricanes are expected to double the costs of wind damage.

Sir Nicholas argued that the stabilisation of greenhouse-gas levels in the atmosphere is possible and will not halt economic growth. He said: “The world does not need to choose between averting climate change and promoting growth and development.

“With strong, deliberate policy choices it is possible to ‘decarbonise’ both developed and developing economies on the scale required for climate stabilisation, while maintaining economic growth in both.”