This June, Group of Eight leaders confirmed the need for "substantial global reductions" in the man-made emissions of greenhouse gases that are dangerously warming the earth. By 2050 global emissions will have to be at least 50 percent below their level in 1990.
Such radical calls are crucial to prevent a climate catastrophe. They also make countries nervous. The reason? They're worried carbon reductions will hurt economic growth.
But this is no longer an excuse. As the 2006 landmark Stern Review has underlined, it is climate change itself, not action to prevent it, that risks crippling our economies.
And here's the good news. The European Union has already demonstrating the effectiveness of a cap-and-trade program. The United States should see its appeal – after all, America developed it to tackle sulfur dioxide pollution.
An ambitious new United Nations treaty containing binding reduction commitments for all developed countries is essential if we are to prevent climate change from assuming devastating proportions that will wreck our economies and put the lives of tens of millions of people at risk over the coming decades. For the new agreement to take over seamlessly from the Kyoto Protocol in 2012, negotiations must be launched in Bali, Indonesia, and completed by late-2009.
To stabilize global warming at the "relatively safe" level of no more than two degrees Celsius (3.6 degrees Fahrenheit) above the preindustrial temperature, worldwide emissions of greenhouse gases will need to stop increasing within 10 years.
As a first step in reaching this target, developed countries must take the lead by committing under the new treaty to reduce their collective emissions to 30 percent below 1990 levels by 2020. The advanced developing countries must also contribute by slowing their emissions growth.
These are without doubt enormous challenges, but our analysis shows that deep emissions cuts are both technologically feasible and economically affordable. The sooner we take action, the cheaper it will be. And time is running out.
That is why the EU has already taken action to cut its greenhouse-gas emissions substantially and is prepared to do more in the future. We believe that one of the keys to cutting emissions cost-effectively is emissions trading, an instrument pioneered by the US for controlling sulfur dioxide pollution.
The EU's Emissions Trading System (ETS), launched in 2005, is the cornerstone of our climate change strategy. We are convinced that a global carbon market based on international emissions trading must be central to the new climate treaty in order to facilitate deep emissions reductions at least cost after 2012.
The EU ETS currently addresses carbon dioxide (CO2) emissions from 10,500 major industrial sources collectively responsible for almost half of our total emissions of this gas. The system works by using market forces to put a price on carbon emissions.
This approach has two important advantages. First, by attaching a real economic cost to CO2 emissions, it creates a direct financial spur to cut emissions and invest in low-emission technologies. Combined with targeted government support, this is a real driver of ecoinnovation.
The second big advantage of cap and trade systems is that being able to buy and sell emissions allowances gives companies flexibility in deciding how best to cut their emissions. This promotes the biggest emissions reductions for the lowest cost.
Norway will soon link to our system. New Zealand, Australia, Switzerland, and Canada are planning trading systems, as are California and 10 Northeastern US states.
I hope it will not be long before the US government also puts its faith in the great American invention of emissions trading. Being a full player in the rapidly expanding global carbon market can only be good for America – and for our prospects of winning the battle against climate change.