Tony Blair welcomed the publication of the Stern review on the economics of climate change calling it a wake up call to the world.1 Its message was clear. The costs of taking action to stabilise the climate will be high but much less than the costs of inaction. Delay would be dangerous. Action is needed now. The review also exposed the economic cause of climate change. Climate change is market failure on the greatest scale the world has ever seen.1

Markets fail to provide the right quantity of goods and services when important costs are left out of our private economic decision making. In general, the extent to which people engage in activities that result in the emission of greenhouse gases depends on the cost of those activities. For example, when deciding whether to travel by car we might consider the cost of the time, petrol, parking, and wear and tear on the vehicle. Londoners might include the congestion charge, but few people would take into account the costs to the world and future generations of the emissions that their journey will produce. Costs on others that do not (without public action) …