EnvironmentSmith School of Enterprise and the Environment31cap-and-trade system.In his book Kyoto2 Oliver Tickell proposes a global system based upon auctioned upstream emissions permits [55]. In this system, greenhouse gases would be regulated as close to the point of production of the fuels themselves as possible. Permits to release greenhouse gases would be auctioned in a global cap and trade system. The caps would be set annually at levels which have been calculated to prevent dangerous levels of climatic change. The funds raised by the auction process would be used to tackle the causes and result of climate change, in particular the needs of developing countries and those most adversely impacted [55]. Mutsuyoshi Nishimura, a former climate negotiator of Japan, and Akinobu Yasumoto, Executive Vice president of the Japan Machinery Federation, have also put forward a proposal based upon a global cap and trade system. In this proposal, emissions allowances are sold to emitting enterprises before they burn fossil fuels. The concept of obligations to lower emissions is not a part of this proposal and governments are not required to make any reduction efforts. Emissions will be reduced as allowances will only be given up to the amount of 660GTCO2 - the amount it is estimated that can be emitted without pushing warming over the 2°C mark -over the period of 2010-2050. This period of time can be split into four ten year phases, for example as displayed in table 1. Reducing the availability of carbon allowances over time will increase the price and incentivise low carbon innovation.As all CO2-emitting enterprises of the world buy allowances for the amount of CO2 they emit, they bear the expense of the carbon cost in the first instance. The carbon cost is then passed on to the price of their products, thus internalizing the externalities. Households world-wide eventually defray the carbon cost when they buy those products. In the end, the cost of emitting carbon is passes on to the households of the world who are the ultimate polluters and should pay for the carbon price. The proposal offers a new form of climate financing by letting governments collectively earn new revenue. This would be used to help people, sectors and countries in need and to promote investment on breakthrough technologies. It was estimated that the proposal can yield new revenue of the order of $500-600billion per annum assuming a carbon price of $25 per ton CO2. The distribution of revenue amongst governments must be negotiated and agreed upon collectively by governments. A common assumption is that governments will find it difficult to agree on how much climate financing will go to government A and how much more to government B. Proponents of the proposal, whilst recognizing the difficulties, believe that governments will most likely come to terms amongst themselves since it is senseless to renounce collective new wealth of substantive magnitude. Our ProposalHere we present a proposal based upon a variation of this global cap-and trade concept. The proposal has origins in the contract and convergence principle as proposed by the Global Commons Institute in the early 1990s. This principle describes a trajectory whereby the overall emission level is reduced over time whilst the per capita emissions rates of different countries converge on a low value aimed at meeting the 2°C objective. This allows developing countries to maintain some emissions growth in the intermediate phase, which is made up for by a decrease in developed country emissions. The overall amount emitted should not be more than will cumulatively push temperature increases over 2°C. In the global cap and trade system we propose here, emissions are traded based on a per capita allocation of CO2 trading permits at some future date (2050 is favoured by many). The per capita system functions by setting a forward trajectory for CO2 emissions per head per nation, this amount being the same for all countries by the target date. These trajectories can be simply calculated, as 5Chapter 5Chapter 5: Next StepsEmission PhaseCarbon Budget for 2°CPhase I (2010 - 2020)250 GTPhase II (2021-2030)200 GTPhase III (2031-2040)150 GTPhase IV (2041-2050)60 GtTable 1 - Carbon allowances of 600 GT CO2 for 2010 - 2050 divided into four 10-year phases.

32Smith School of Enterprise and the EnvironmentSmith in Chapter 4, given the estimated national and global populations in the future and the amount of CO2 that it is 'safe' for us to emit to stay under a temperature increase of 2 ?C. Currently this figure is 2 tonnes of CO2 per capita by 2050 (figure 4). Since many least developed countries have emissions per capita today that fall well below this amount, they could be issued with CO2 trading permits at 2 tonnes per person at initiation of the trading process, and sell off their unused share to developed countries that produce over their limit. This would mean an immediate cash flow from rich to poor countries. In addition, it would encourage the least developed countries to develop low-carbon economies in order to sustain the in-flow of money. This avoids the least developed nations emerging with carbon-intensive economies. It is considerably more attractive for these growing economies to be fully incentivised as early as possible to maintain low emissions. (Additional regulations may need to be put in place in order to discentivise population growth, and other potential negative consequences.) However, developed and emerging nations would be required to pay for CO2 emitted above their agreed trajectories, out to 2050. Whilst the authors recognise the issues that have been raised with implementing such a scheme [56] and the current lack of political will displayed in the negotiations towards this goal, it is important that solutions that tackle effectively the problems of climate mitigation and financing are aimed at. There are signs that the political acceptability of this novel approach is growing. This idea has been pressed by many analysts and has support from developing countries. President Kagame, for example, explicitly expressed his support for this solution in a speech to the UN in 2009. Implicit in the emissions targets set by the UK government in 2007 is the acceptance of the per capita approach as an equitable goal to aim for by 2050.This solution is seen by many as being equitable - an essential factor in any solution to climate change. Industrialised countries have produced the significant majority of the CO2 in the atmosphere while industrialising countries will be worst affected and will not be able to develop along traditional pathways due to emissions restrictions. Currently, industrialised countries are responsible for around 55 per cent of the stock of GHGs in the atmosphere [57]. The changing face of the global power structure has risen to the fore in recent years. In the future, emerging nations such as the BASIC countries are likely to be increasingly vocal. It is unlikely that a future deal could be reached, including this group, which does not take equity properly into consideration. This solution could be a way of bringing emerging nations such as China and India into the global climate change regime. India has in the past indicated an inclination towards this concept. In summary, this scheme would demonstrate the resolve needed to properly manage the process of defossilising the global economy by 2050 in an equitable and efficient manner, and also recognises that the least developed nations will in time join the emerging economies group and potentially become the high CO2 emitters of the future.It is clear that resolve to act on climate change needs to be strengthened if such a scheme were to be implemented. There needs to be increased action at all levels and individual political champions or figure heads setting examples for others. In order for this to happen, the best and most up to date science possible needs to be available and communicated to political decision makers and leaders. Climate related research needs to ratcheted up to fill in gaps of knowledge.Funding for Research, Development and Demonstration (RD&D)Many commentators have called for much greater public investment in energy RD&D to address the need for new low carbon technologies to cover energy production, transport, storage, conversion and usage [58]. Indeed, over the past ten years there has been a very significant increase in research activities in these areas in universities and public research institutions around the world. But government finance can in general only stimulate the first part of the full RD&D process. The turnover in the global energy sector is measured in trillions of dollars. The proportion spent on RD&D in this sector is notoriously low, and by far the largest part of that is spent to address technological issues around oil Chapter 5Chapter