The world can expect a $US7 trillion ($9.1 trillion) clean-up bill if it fails to act now against global warming, according to a new report by former World Bank Chief Economist Nicholas Stern.

The 700-page report, prepared for the British Treasury, was officially released yesterday. It is the first thorough investigation of its kind into the economics, rather than the pure science, of climate change.

It has already had a mixed reception in Australia, with the Federal Government giving a lukewarm response to Sir Nicholas’ findings.

But IAG CEO Michael Hawker says he agrees with the report’s findings and the need for an immediate response. “Early action enables businesses to adapt and to adjust and new businesses to be formed,” he told ABC Radio this morning.

“Late action… would have more catastrophic outcomes and would create cliff-face changes for businesses, which could be not only catastrophic for the country but also catastrophic for those businesses.”

The report’s predictions are disturbing. Sir Nicholas says rising global temperatures could trigger a worldwide recession, with an economic downturn on the scale of the early 1930s not out of the question. Part of this would come from the massive numbers of refugees expected as floods and droughts make many parts of the planet – including densely populated Bangladesh – uninhabitable.

But there is some good news in the report – or at least the potential for good news. Changing business practices and investment in low-carbon technologies could provide economic stimulus during the necessary transition. “The evidence gathered by the review leads to a simple conclusion,” the report says. “The benefits of strong, early action considerably outweigh the costs.”

The required action won’t come cheap. The report recommends worldwide spending of $US350 billion ($455 billion) a year. UK Chancellor of the Exchequer Gordon Brown has endorsed the report’s conclusion and will now seek to expand the European Union’s carbon trading market to include the US, Japan and Australia.

Mr Brown wants to reduce European carbon emissions by 60% before 2050. He says the issue can only be properly handled on a global level. “The truth is we must tackle climate change internationally, or we will not tackle it at all,” he said.

Federal Opposition Treasury spokesman Wayne Swan, who has held talks with Mr Brown and Sir Nicholas, says Australia needs to reverse its position on the Kyoto Protocol. It should also look at new technologies for carbon storage – particularly for power stations.

“We need some urgent action there,” he said.

But Treasurer Peter Costello says there is no point reducing emissions locally if developing countries like China and India are not also compelled to take action.

The insurance industry is also preparing itself for changes. Most stakeholders are carefully analysing the report to see what impact climate change may have on the local market.

Mr Hawker says he agrees with the report’s findings and the need for an immediate response. “Early action enables businesses to adapt and to adjust and new businesses to be formed,” he said.

“Late action, we felt, would have more catastrophic outcomes and would create cliff-face changes for businesses, which could be not only catastrophic for the country but also catastrophic for those businesses.”