Man-made climate change is "unequivocal" and demands urgent action. Yesterday’s report from the Intergovernmental Panel on Climate Change underlined the former point, while discussions at the World Economic Forum in Davos last week demonstrated the growing consensus on the latter. The challenge now is action.

The IPCC’s warning is stark: temperatures are likely to rise by about 3°C by 2100, with a range of 2°C to 4.5°C. The latter would be close to the difference between the last ice age and today

Adaptation is going to be part of the response, not least because a substantial rise in temperatures is already on the way: the stock of greenhouse gases in the atmosphere is already 50 per cent above pre-industrial levels. But it is also essential to mitigate growth in the stock, ideally to keep it below 550 parts per million, which would still be double the pre-industrial levels.

On present trends, the atmosphere is likely to reach such a concentration in just three decades. To prevent levels rising further, emissions will need to be reduced to at least 50 per cent below what Sir Nicholas Stern called "business as usual" – that is, the continuation of historic trends – by then.

The good news, suggests the Stern review of climate change, is that the economic costs of achieving these objectives might be as little as 1 per cent of global gross product. The bad news is that big changes to long-lived investment decisions will be required soon, particularly in the power sector.

For this reason, the world – and business, above all – needs a predictable and effective replacement for the Kyoto protocol, which expires in 2012. If this is to happen, negotiations will need to be completed by 2010, so progress this year, particularly in discussions between the leading high-income countries and five significant developing countries (Brazil, China, India, Mexico and South Africa) is essential

Much depends, however, on the US, which is responsible for a quarter of all emissions. Without willing American engagement, the chances of an effective international agreement are minimal. The US does not have to sign a treaty. But it does need to put in place an effective scheme for emissions control that can be linked to a global one.

Then, and only then, are the important developing countries likely to be drawn into an effective framework. But they will not agree to the same limits as the high-income countries – and rightly so. Not only have they not caused the problem, but they have overriding development objectives.

The way forward is a framework that compensates developing countries for the costs they bear, but also encourages the most efficient possible use of energy resources. The buying of rights to emit by high-income countries from developing countries is one way to achieve this result. A common tax regime, with accompanying cross-border transfers, would be another.

The crucial requirements, however, are three: a clear and predictable price for carbon emissions across the world; much increased investment in research and development in renewables, nuclear power and carbon capture and storage; and arrangements for transfer of best technology across the globe.

This is a huge, long-term and global challenge that involves difficult questions of justice both within and across generations. Humanity’s ability to address it is a test of its capacity to manage the consequences of its own actions. So far it has failed. It can afford to do so no longer

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