Climate change: new global plan to tie in worst polluters

Britain and Germany lead effort to get US, China and India to agree to carbon trading scheme

London, Portugal: how Europe's climate is heading south
Pollution in London
Mist and pollution over London. Photograph: Matthew Fearn/PA

The plan would involve setting up a network of carbon trading schemes and is one of five main proposals drawn up by the Germans and British ahead of the G8 summit next month.

The concept of an international agreement involving the G8 industrialised nations, and some of the poorest but most polluting countries such as India and China, was first mooted by Mr Blair at the G8 summit in Gleneagles in 2005. British officials believe they are now close to securing an outline agreement in time for the June summit in the German seaside resort of Heiligendamm. Mr Blair wants an agreement before President Bush leaves the White House; they are due to hold talks tomorrow at the White House during the prime minister's last official visit to Washington.

Although some environmental groups believe Mr Blair is wasting his time trying to persuade Mr Bush, the president is "changing his thinking" on the issue, according to the prime minister's special envoy on climate change, Elliott Morley.

Apart from the trading schemes, other elements being pressed by the British in the G8 declaration are:

· An agreement to stabilise the world temperature rise above pre-industrial levels at no higher than 2C (4F), or cut world greenhouse gas emissions by 50% below 1990 levels by 2050.

· An agreement to give companies and countries new technology "rewards" if they stopped cutting down forests.

· A new programme of energy efficiency, modelled on the EU scheme to cut C02 emissions by 20% by 2020 using simple techniques, such as energy-efficient lightbulbs and green cities.

· A new commitment to help poor countries in Africa adapt to the change.

Under the new trading plans, China and India would not face binding targets; instead they would be allowed to continue their extraordinary economic growth in exchange for a commitment to establish national cap and trade schemes to cover some of their most heavily polluting industrial sectors, such as metals processing and cement manufacturing.

Companies in these sectors would be granted permits to emit carbon dioxide and other gases, in the hope they would rather reduce pollution than pay for permits. The idea is based on a scheme covering power generators and heavy industry that operates in Europe under Kyoto.

Further cap and trade schemes - this time with binding targets and penalties for non-compliance - would be set up to cover carbon pollution in developed countries, including the US and Australia, which have refused to sign up to Kyoto. These could be along national, regional or sectorial lines, officials said, with carbon credits eventually traded between different schemes using exchange rates similar to currency conversions, with the goal of placing a global price tag on pollution.

The US is already experimenting with regional cap and trade schemes, but the White House and Congress have been opposed to a federal scheme.

By placing a premium price on carbon, officials believe, business has a greater incentive to invest in carbon-free energy.

Government representatives floated the idea at a meeting of officials from the G8 countries plus those from China, India, South Africa, Brazil and Mexico in Berlin last weekend, as one of five components they believe essential to make a new global deal work.

A Downing Street source said: "There won't be binding targets on China and India but we'll need them to take some of the effort as part of everybody doing more." But the source warned that the US position was "fluid".

The UK and Germany are clinging to the idea that temperatures could be stabilised at 2C above pre-industrial levels, but the developing countries are less keen because they view it as a way to impose binding targets.

The best realistic hope at Heiligendamm is an agreement on the five principles, with the specific details of a treaty to succeed Kyoto worked out as part of UN negotiations in Bali in December, the source said.

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