The Kyoto Protocol (KP), which entered into force in 2005, legally binds participating developed countries to reduce emissions of greenhouse gases (GHGs) by at least 5 per cent below 1990 levels over the period 2008-2012; the US has famously declined to ratify it. The negotiations for the second phase of KP started in Bali on Monday and developing countries are likely to come under pressure to reciprocate by making binding commitments to reduce their emissions of GHGs.

If scientists are to be believed, the current climate predicament is approximately on account of the stock of GHGs that has been built up since the industrial revolution. To date, the majority of emissions have come from rich countries — America and Europe have produced about 70 per cent of the carbon dioxide from energy production since 1850. These and related facts give developing countries an unprecedented moral and scientific handle to resist pressure at Bali. Unequivocally, the responsibility lies with developed countries.

Repairing the environment is essentially about transfers, specifically, who will bear the burden of curtailing emissions. There are three, albeit not entirely independent, aspects. Firstly, between developed and developing countries. Secondly, across generations in each country. Thirdly, within the present generation in each country, which would entail, inter alia, accounting for lower growth if, say, coal mines are closed down, consequences of changes in fiscal priorities of governments, and health implications of moderation in weather cycles (a positive).

The climate change review by Nick Stern provides an ethically (but not necessarily economically) defensible inter-generational principle to underpin responsibility. The current generation does not have the right to damage the environment and the planet in a way that gives the successor generation inferior life chances compared to itself. The capital stock passed on to the next generation consists of structures, equipment, natural resources, the environment, and human capital covering education and health. The standard of living available to the next generation depends on this whole collection of stocks; therefore, a decline in one type of capital stock might be compensated by another one. However, some of the stocks that the current generation would like to leave for future generations require enhanced economic activity, hence an accentuation of the trade-offs and distributional complexities.

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