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Angel Gurria, secretary general of the Organization for Economic Co-operation and Development (OECD), said there needs to be a 'big, fat price on carbon' and governments shouldn't presume that carbon storage is a silver bullet, since it is unproven on a large scale. (REUTERS)

The world must eliminate emissions from burning fossil fuels in the second half of this century to lower the economic cost of climate change, the Organization for Economic Co-operation and Development (OECD) said on Wednesday.

'This is worse than a debt because there is no bailout.'— Angel Gurria, secretary general, OECD

Leading economist and climate change expert Nicholas Stern has said that investment equivalent to two per cent of global gross domestic product a year is needed to limit and adapt to climate change.

OECD secretary general Angel Gurria acknowledged that climate change had serious economic consequences that could not be ignored.

Reducing emissions not enough

He said simply reducing emissions would not be enough to lower the economic costs because carbon dioxide accumulates in the atmosphere.

Sixty per cent of every tonne of CO2 emitted now will still be in the atmosphere 20 years from now and 45 per cent 100 years from now, he said, citing a scientific report this year from several universities and research centres around the world.

"We need to achieve zero emissions from fossil fuel sources by the second half of the century," Gurria told reporters at a briefing in London.

"That doesn't mean by 2050 exactly but it means by that time we need to be pretty much on the way to achieving it," he said.

"This is worse than a debt because there is no bailout and if you have two or three good budget years a debt can be reduced, but emissions hang around for 100 years," he said.

'Big, fat price on carbon' needed, Guerria says

He said there needed to be a "big, fat price on carbon" — either through carbon taxes or emissions trading schemes which send out consistent and clear price signals.

Last month, leading climate scientists said the world was set to experience more heat waves, floods and droughts as greenhouse gas emissions built up in the atmosphere.

The OECD said Hurricane Sandy in the United States last year was estimated to have cost around $75 billion in damage and economic losses and that it expects the global costs of flood losses to rise to over $50 billion a year by 2050.

Many countries already have national policies in place to lower emissions over the next decade or more. Governments are also working to get a global deal to cut emissions signed by 2015, to come into force by 2020.

However, a lot more progress needs to be made to cut emissions immediately, not after 2020, Gurria said.

According to the International Energy Agency, two-thirds of world electricity generation comes from fossil fuels and 95 per cent of energy consumed by transport is from fossil fuels.

In 2012, the world's top 200 listed oil, gas and mining companies spent $674 billion on finding and developing new sources of oil and gas, the OECD said.

Fossil fuel subsidies review recommended

Achieving zero emissions from fossil fuel sources is achievable but current policies need to be changed, Gurria said.

Fossil fuel subsidies, totalling $523 billion in 2011, need to be reviewed and government policies made more consistent.

Even though a shift in some countries to natural gas which emits less carbon dioxide than coal — namely a shale gas boom in the United States — is "good news," it should not be the end of efforts, Gurria said.

"Any new fossil resources brought to market — conventional or unconventional — risk taking us further away from the trajectory we need to be on," he said.

Governments should also not presume carbon capture and storage technology, which buries and traps CO2 underground, will be a silver bullet, because it is as yet unproven on a commercial scale, Gurria said.

The OECD, an organization of 34 member nations that aims to promote economic progress, plans to analyze each country's efforts to cut emissions in its annual economic surveys.