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The last quarter of 2004 saw climate change hit the headlines, due to its growing influence on politics and economics. In the past 60 years the Earth's temperature has increased 0.6 C. Growing concern has not yet registered on the global thermometer, with global emissions of the greenhouse gas carbon dioxide having climbed about 10% since the world leaders were awoken to this threat to humanity at the 1992 Earth Summit in Rio de Janiero.156 The media is somewhat immune to these dire portents of pending doom, but Russia's ratification of the Kyoto Protocol in November provided this 1997 United Nations brokered accord with the critical mass it needed to enter into force, and sparked a renewed debate about the world's response.157 From 16 February 2005, the Protocol binds its 36 ratifying countries, representing 61 percent of the 'developed nations' greenhouse gas emissions, to specific reduction targets which on average will cut their emissions to 5.2 percent below 1990 levels by 2012.

This landmark move returns the spotlight to the United States' and Australia's refusal to ratify the Protocol on the grounds that it will be too costly for their economies and that it fails to bind any developing countries to emission reduction targets. The US government, for instance, claims that the treaty would cost nearly $400 billion to implement and result in almost 5 million job losses.158 By contrast, the recently released book Winning the Oil Endgame159, by Rocky Mountain Institute's Amory Lovins among others, suggests that their proposed energy strategy for "profitably breaking oil's stranglehold on our civilization" would save a net $70 billion a year, revitalize key industries and rural America, create a million jobs, and enhance security.

The International Energy Agency's World Energy Outlook160, released in October, reminds us that the Protocol is not in itself enough, with developing country impacts growing fast. According to the report, world energy demand will grow by 59 percent by 2030 and fossil fuel energy sources (oil, gas, and coal) will supply 82 percent of that reference case demand, up from 80 percent in 2002. Two-thirds of the new demand will come from India and China alone, neither of which are signatories to the Kyoto treaty. And China's greenhouse gas emissions, reported to the United Nations for the first time in November, were already 2.6 billion tonnes of carbon dioxide in 1994.161

The equity-based counter-argument is that Western countries should pay for the legacy costs which their development has imposed on global society. According to WWF's Living Planet Report, also launched in October, the global Ecological Footprint has grown by 70% between 1970 and 2000, of which the energy footprint, dominated by fossil fuels, was the fastest growing component, increasing by nearly 700% since 1961. Per person energy footprints in 2001 show a 14-fold difference between high and low income countries.162

As a result of this insatiable thirst for energy by the developed countries to fuel their own development, today, the US, representing around five percent of the world's population, emits around 25 percent of global greenhouse gases, which translates into 19 tons of carbon dioxide emissions a person a year, while India, representing around 15 percent of the world's population, emits only two percent of global greenhouse gases, or 0.8 tons of carbon dioxide a person a year. Similarly, the greenhouse gas generated by one Australian equals that of approximately 20 Indians or 10 Chinese.163

Despite Russia's ratification and the entry into force of the Kyoto Protocol, the US has maintained its position that it will strive to achieve President Bush's stated target of an of an 18 percent reduction in greenhouse gas intensity by 2012, using a combination of economic incentives and technology investments.164 Given this emphasis on voluntary action within the world's largest economy, a flurry of reports have been published in the past quarter which show why industry should act, and in many cases how it is already doing so effectively. For instance, The Climate Group has conducted research into the greenhouse gas reductions and associated monetary savings of climate change actions by 22 companies, 13 cities and 10 regional initiatives from Australia, Canada, Europe, Japan, the US and the UK. The report, called Carbon Down, Profits Up, finds that 5 of the companies surveyed have achieved greenhouse gas reductions of 60% or more (DuPont, Alcan, BT, IBM and Norske Canada), with combined savings of over US$5.5 billion.165

Other new reports carry a similar theme: A Climate of Innovation: Northeast Business Action to Reduce Greenhouse Gases by the World Resources Institute highlights actions of nine diverse northeast-based U.S. corporations (Bristol-Myers Squibb, Citigroup, Eastman Kodak, General Electric, Johnson & Johnson and Pfizer)166; U.S. Business Actions to Address Climate Change: Case Studies of Five Industry Sectors by the Sustainable Energy Institute and Numark Associates describes actions in five US industrial sectors (aluminium, chemicals, electric power, forestry and paper, and pharmaceuticals)167; and the Annual Review of the Climate RESOLVE Program by the Business Roundtable stresses that 70% of its member companies - drawn from every sector of the U.S. economy - have embraced voluntary actions to address greenhouse gas emissions.168

The second reason for climate change being so much in the spotlight was the fact that the European Union's Emissions Trading System (EU ETS) was scheduled for its launch on 1 January 2005. The EU ETS affects 12,000 installations across the continent. This follows on the precedent set by the UK emissions trading scheme, which began in March 2002 when thirty-one organisations voluntarily took on emission-reduction targets. As a result of this and other initiatives, according to the New York-based emissions trading firm Natsource, European countries already traded 2.5 million tons of emissions allowances in 2003.169

The EU plans to use the ETS as the primary vehicle for achieving its emission reduction targets, thus giving effect to the intensions of the Kyoto Protocol. Recent European Commission studies suggest that this can be achieved at an annual cost of between 2.9 billion and 3.7 billion Euros, which is less than 0.1 percent of Gross Domestic Product in the EU, compared to costs of 6.8 billion Euros without the ETS.170

Not everyone is so optimistic however. In a report entitled The European Union Emissions Trading Scheme: A challenge for industry or just an illusion? Ernst & Young has surveyed 204 European companies to determine their level of preparedness for the EU ETS and found that only 39% believed the EU ETS would achieve its emission reduction targets, with 50% claim to have dealt with the consequences of emissions trading in detail and 61% have identified measures to reduce emissions.171 A study by UK-based Enviros Consulting seems to support their scepticism, claiming that on the basis of allowances allocated to existing facilities covered by the ETS, European industry will be allowed to increase annual carbon dioxide emissions by 5 percent during the first phase of the scheme (2005-2007) relative to their emissions in 2000.172 Given the urgent need for absolute reductions in greenhouse gas emissions if we are to reduce climate change, we may question whether the ETS says more about contemporary ideologies and political realities than it does about our collective ability to protect our common security. The UK's Chief Scientist Sir David King has stated that "climate change is the most severe problem that we are facing today, more serious even than the threat of terrorism."173 A trading system where countries could sell their "rights" to produce weapons of mass destruction to those states that wanted them would not be viewed as a sensible policy response to that particular threat - and on its own, a trading system does not appear to be a serious attempt to manage the global threat of climate change. It is more difficult to demonise an enemy when that enemy is found within, in one's own assumptions, routines, and desires. Yet our future depends on that kind of introspection, especially by the most powerful in society.

Over and above the issue of whether the EU ETS will meet its targets, the new market in emissions looks set to spark off a new debate about how this affects free trade. For instance, German energy giant EnBW has filed a formal complaint with the commission's competition and environment departments. Independent experts employed by EnBW estimate that the German trading scheme will result in a $1.2 billion competitive disadvantage for the period 2005 to 2020.174

What is not in dispute, however, is that the use of market-based instruments to tackle climate change is mushrooming. According to Natsource, global carbon dioxide trading rose from 29 million tons in 2002 to 78 million tons in 2003 and is expected to double again for 2004.175 The effect of Russia's ratification has been clear and immediate, with about 670,000 tonnes of carbon emissions traded in the first week of October, according to Point Carbon, compared with the record one million tonnes in September and fewer than 50,000 tonnes a month earlier in the year.176

Apart from a rise in market trading activity, the past quarter saw other manifestations of the trend: Toyota, Sony and 33 other Japanese companies and industry organizations announced plans to establish a US $135 million fund for buying greenhouse gas emission rights from foreign businesses; and Sterling Waterford Securities made public its intention to list instruments derived from carbon credits on the JSE Securities Exchange SA in South Africa.177 A more tangible move to actually reduce emissions came from the telecoms giant BT, which made the world's biggest purchase of "green" electricity, saving emissions equivalent to the amount of carbon dioxide produced by over 100,000 cars or 50,000 homes - the size of a small town.178

What we shouldn't expect any time soon is consensus within the debate, as two recent reports make clear. A group of economists, including three Nobel prize winners, brought together under the auspices of the so-called Copenhagen Consensus by controversial environmentalism critic Bjorn Lomborg and asked to prioritise how money should be spent on helping the world's poor, listed climate change as the lowest spending priority of 32 of the most critical global challenges.179 In contrast, a report called Up in Smoke? by the Working Group on Climate Change and Development, a coalition of 18 environmental and development groups, warned of the economic implications of climate change on the world's poor, calling for cuts in emissions of 60-80% on 1990 levels. The report was endorsed, among others, by Nobel Prize winner Archbishop Desmond Tutu, who remarked that climate change is "...detrimental to humanity at large and especially to the most vulnerable of the world's communities ".180

Perhaps it is heartening to know that academia is not being left out of the debate. The Imperial College, London, has just launched a leading international, peer-reviewed journal on responses to climate change, called Climate Policy Journal. The journal presents a wide range of refereed research and analysis that address the broad spectrum of policy issues raised by the prospect of changes in the global climate.181