London (Platts)--1May2008

Developing countries should be prepared to take on binding emissions cuts
by no later that 2020, according to a new report by Nicholas Stern.

In a paper entitled "Key Elements of a Global Deal on Climate Change"
prepared for the London School of Economics, Stern said developed countries
must show the way forward by taking on immediate and binding targets, to
demonstrate that economic growth while reducing emissions is possible.

For their part, he added, "developing countries must draw up emissions
reduction plans now, and be able to benefit from scaled-up opportunities to
sell emissions reduction certificates."

Stern's influential 2006 Review on the Economics of Climate Change said
that early action to avoid the impact of climate change would cost just 1% of
global GDP, compared to at least 5% at a later date.

Once developed countries have demonstrated that low-carbon growth can be
achieved, and technology and resources, then developing countries can "take on
binding national targets of their own by 2020," the report said.

However, "some fast growing middle-income developing countries may need
to take on early sectoral targets, and possibly binding national targets,
before 2020," Stern warned.

Stern said that effective action on climate change requires that global
emissions must fall by 50% from 1990 levels of 41 billion mt by 2050, reaching
global per capita emission levels of 2 mt by that time.

In order to achieve this, he said, the United Nations Framework
Convention on Climate Change's meeting in Copenhagen in December 2009 must
agree to cut emissions by 80-90% from 1990 levels by 2050.

Including developing countries in a system of binding emission reductions
could lead to an unduly high cap, Stern conceded, and he proposed that, before
these countries are ready to take on binding caps, a "one-sided" trading
regime be established that would reward developing countries for cutting
emissions but not penalize them for failing to do so.

Stern said the Clean Development Mechanism could work as a "one-sided"
regime, but it would need to be scaled up and perhaps discard its
project-based mechanism in favor of a "wholesale mechanism," which could
include sectoral efficiency targets or technology benchmarks.

Stern emphasized that a future global cap-and-trade regime should be
based on the current architecture and institutions, and should link the
various regional and national markets that are emerging.

He added that a global carbon market working towards a modest cap on
atmospheric emissions of 550 parts per million of CO2 equivalent would also
have to scale up in size from the current $30 billion to between $50-100
billion by 2030.