Climate change legislation can be an effective driver for economic rehabilitation and job creation. By making bold emissions reductions at home, large numbers of practical jobs can be created at a time when unemployment is rising, and relying on the service industry to invigorate the market looks increasingly shaky. At the moment, the UK position is to allow up to half of emissions reduction commitments to be sourced abroad via the Clean Development Mechanism. This doesn’t make sense for the UK economy - installing a solar stove in Kenya doesn’t employ a builder in Essex who could be fitting cavity wall insulation.

A possible argument laid out against this approach is that developing countries rely on the CDM (and other ‘flexibility mechanisms’) for assistance with climate change mitigation and adaptation, especially to finance technology transfer. This is in effect using ‘off-setting’ to fund developing countries technology needs, and it is the only mechanism currently on the table that links developed countries emissions reduction with finance for those less well-off. There are alternatives.

By auctioning permits to pollute “upstream”, that is as close to the point of fossil fuel production as is feasible (as discussed previously), significant revenue can be generated. Oil and gas companies are incredibly profitable, and forcing them to buy permits to pollute through auction could yield significant funds for mitigation and adaptation in developing countries. These funds would exist independently of flexibility mechanisms such as the CDM and allow target-setting for national economies to be much clearer, and more directly linked to job creation.

It’s clear that significantly advanced economies such as China need to be brought into a global agreement with increasingly stringent emissions reductions targets. However, whilst off-setting prevails in global cap-and-trade markets, and clean technology wavers on the periphery of developed countries’ fossil-fuel based economies, no example for true clean development is being set.

The key phrase here is ‘technology transfer’. It is a funny one, because all discussion on the subject at the UNFCCC (where I am now) makes the assumption that developed countries have already installed the necessary technology for a massive infrastructure overhaul towards energy efficiency and renewable energy in their own economies. With new coal-fired power stations being built all over the developed world, this is clearly not the case. There are countless excellent ideas for clean technology breakthroughs that have not moved from concept to market in the developed world. Clearly this internal developed world transfer must occur in tandem with the transfer between developed and developing worlds. Nowhere is this made explicit, and subsequently most political discourse on the subject lacks credibility.

Effective knowledge-sharing and commercialisation of clean technology intellectual property must happen globally. As energy efficiency and renewables are significantly rolled-out we can pre-empt potentially protectionist economic policies from emerging. We can continue to collaborate internationally, not by the developing world buying loads of plastic crap from China, but by jointly developing and implementing a huge infrastructure shift towards a cleaner world.

The G8 are very worried about the risk of countries raising tariffs and engaging in protectionism to buffer their economies from further shocks. Taking action on climate change, and helping developed countries move away from superficial service-based economic activities, deals with this risk. For specifics on the kinds of jobs that will be created, see George Monbiot’s critique of the recent Climate Change Committee’s report. Rapidly localising economies without resorting to protectionism is the key challenge in ensuring a stable world, both economically and in terms of the climate.

The economic logic that needs to be employed during this paradigm shift is not necessarily neo-classical, but is nonetheless valid (see for example this report from the New Economics Foundation). A lot of discussion about financing action on climate change talks about hypothecation, or ‘ear-marking’ funds from one particular activity (e.g. auctioning permits to pollute) for a specific purpose (e.g. building new wind-farms). This debate takes focus away from what is really required.

The Keynesian approaches emerging in response to the collapse of the financial sector render any discussion of hypothecation largely irrelevant. Significant funds need to be mobilised, and if we follow historical precedent for financing a ‘new deal’, it doesn’t matter whether these funds come from a particular tax revenue. In essence, government spending will significantly exceed climate-related revenue because the task will be to create jobs just as much as to mitigate climate change.

Having said that, for the sake of fiscal responsibility (of which the developed world has been lacking in recent history), it would make sense to identify funds. A domestic approach to this question that has a firm grounding in current government debt-financing measures, is the idea for ‘enercgy bonds’ as proposed by Tim Helweg-Larsen. The budget deficit blow can of course be softened at the international level by an innovative market mechanism close to the point of fossil fuel production, and as part of a global deal on climate change as identified at the beginning of this article, and in great detail by Oliver Tickell in Kyoto2. All this needs more thinking about (and discussing by parties to the UN), and I welcome comments to this post.

It goes without saying that all of the above objectives will be greatly helped by policy-level engagement from the corporate sector, and in particular shareholders of multi-national companies (and here I would note initiatives such the Carbon Disclosure Project and in the UK, The Prince of Wales’ UK CLG). The economic problems facing countries around the world are very similar and interdependent. The above analysis applies to all of them and given the truly global nature of climate change, it’s clear that time is ripe for visionary and courageous action by ministers everywhere.