Problem of Climate Change

Climate change is the greatest market failure the world has ever seen, and it interacts with other market imperfections. Three elements of policy are required for an effective global response. 

• pricing of carbon, implemented through tax, trading or regulation
• policy to support innovation and the deployment of low-carbon technologies
• action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they  can do to respond to climate change.

Climate change demands an international response, based on a shared understanding of long-term goals and agreement on frameworks for action.

Many countries and regions are taking action already: the EU, California and China are among those with the most ambitious policies that will reduce greenhouse gas emissions. The UN Framework Convention on Climate Change and the Kyoto Protocol provide a basis for international cooperation, along with a range of partnerships and other approaches. More ambitious actions are now required around the world. Countries facing diverse circumstances will use different approaches to make their contribution to tackling climate change. Nevertheless, action by individual countries is not enough.  It is essential to create a shared international vision of long-term goals, and to build the international frameworks that will help each country to play its part in meeting these common goals.

Key elements of future international frameworks should include:

- Emissions trading: Expanding and linking the growing number of emissions trading schemes around the world is a powerful way to promote cost-effective reductions in emissions and to bring forward action in developing countries: strong targets in rich countries could drive flows amounting to tens of billions of dollars each year to support the transition to low-carbon development paths.
- Technology cooperation: Informal coordination as well as formal agreements can boost the effectiveness of investments in innovation around the world. Globally, support for energy R&D should at least double, and support for the deployment of new low-carbon technologies should increase up to five-fold. International cooperation on product standards is a powerful way to boost energy efficiency.
- Action to reduce deforestation: The loss of natural forests around the world contributes more to global emissions each year than the transport sector. Curbing deforestation is a highly cost-effective way to reduce emissions; large scale international pilot programmes to explore the best ways to do this could get underway very quickly.
- Adaptation: The poorest countries are most vulnerable to climate change. It is essential that climate change be fully integrated into development policy, and that rich countries honour their pledges to increase support through overseas development assistance. International funding should also support improved regional information on climate change impacts, and research into new crop varieties that will be more resilient to drought and flood.