In 2009, the G8 group of nations agreed (in Italy) that the increase in global temperatures should be no more than 2 degrees Celcius above pre-industrial levels. To accomplish this, global emissions have to be cut to 50 percent of the 1990 levels by 2050. For rich countries, that is equivalent to a cut of 80 percent of their emissions by 2050. Currently, the emission levels in America and Europe are 24 tonnes and 10 tonnes per head.
The Intergovernmental Panel on Climate Change (IPCC) figures suggest that the developed nations should aim to reduce the emissions by 25-40 percent below 1990 levels by 2020. So far the targets put by developed countries on the table are around 15 percent below 1990. The European Union is committed to 20 percent cut, rising to 30 percent if the rest of the world promises significant cuts. Details plans are developed by EU to achieve this target. Japan's new government has promised a reduction of 25 percent on 1990 levels, although the approach to achieve this is not revealed. Before the Copenhagen conference, the U.S. announced that it would offer a 17 percent cut on 2005 emissions by 2020 - the figure in the Waxman-Markey bill. This amounts to around 4 percent below 1990 levels - well below the 25-40 percent expected of developed nations. It is still possible that other nations might accept it, since the prior administration's policies have delayed the emission reduction actions and further the world is aware of the constraint on America's negotiators due to the precarious position of the legislation. The Senate reacts badly if it senses that America is being pushed around by foreigners. It voted 95-0 to reject the Kyoto deal that the Clinton administration had negotiated. China has offered a 40-45 percent cut in the carbon intensity of its economy by 2020. Even though it is less than the 50 percent target that America was hoping that China would accept, it is a good start.
Although, in theory Kyoto is a legally binding agreement with a compliance mechanism, it is difficult to implement it in practice since there is no effective way of holding non-compliant countries accountable. Some countries such as France have called for a toothier compliance mechanism involving trade sanctions, also referred to as "border-tax agreements." In fact, the Waxman-Markey bill also includes a provision for border-tax adjustments. For most developing countries, such compliance mechanisms are detrimental to their economic progress. An alternative approach is to provide monetary incentives to the developing nations to honor their emission commitments. There are two reasons for the rich nations to offer monetary incentives. One, it is widely accepted that the developed nations are responsible for pumping 200 years-worth of carbon dioxide into the atmosphere. Thus, it is reasonable to expect the developed world to help the developing world adapt to climate change. Second, the monetary incentives present a pragmatic way to get the developing world on-board with emission reductions. Except for China, most developing nations lack the capital required to invest in cleaning up their economies.
China suggests that the developed world should provide 1 percent of its GDP (about $400 billion) a year to the developing nations to implement emission reduction programs. The African Union wants $67 billion a year for Africa alone. Britain has suggested that the developed world should pay $100 billion in total. The European commission is proposing 100 billion Euros a year in 2020. The gap evident in these numbers is even higher when the approach for handing over money from developed world to developing world is taken into account. China and the African Union suggest government-to-government transfers only, whereas Britain and European Commission are talking about a combination of government-to-government transfers and private capital. According to International Energy Agency, the 2 degrees Celcius target will require around $ 1 trillion a year in investment. According to the World Bank, around $475 billion of the $1 trillion need to be spent in developing countries.
Some constructive ways to come up with the cash has been proposed. Mexico wants a $10 billion Green Fund to which countries should contribute on the basis of their emissions and their GDP. Norway is suggesting an auction of 2 percent of carbon-market emissions allowances which could raise $15-25 billion. The poorest nations have proposed a tax on air travel which could raise $8-25 billion. The World Bank has a $5 billion target for its climate investment funds. Altogether these proposals only amount to $60 billion, still way below the target numbers. To address this gap, there are suggestions for mobilizing private capital investments in developing-world clean-energy infrastructure. These long term energy infrastructure investments should suit pension and sovereign-wealth funds who have assets of $12 trillion and $3.75 trillion, respectively.
Source: "Closing the Gap: How the world divides on a global deal." The Economist, A Special Report on the Carbon Economy, December 5th 2009.