1/ Introductions. Cameron explains why global warming is a threat and some possible market-based solutions. Click here
2/ DiPerna explains the basics of how carbon trading functions. Click here
3/ Wilder discusses how the private sector is becoming increasingly involved in carbon trading. Click here
4/ The possible economic consequences of climate change and tackling it. Click here
5/ Shifting U.S. attitudes to climate change, both from the government and business. Click here
6/ How businesses get involved in carbon trading, and how the process is organised. Click here
7/ Market forces versus regulation in the carbon market, and the importance of long-term targets. Click here
8/ How not taking action is a major risk, the involvement of U.S. companies in carbon trading. Click here
9/ What the government can, and should do, how companies have to plan for a low carbon future. Click here
10/ The role of new technologies and R & D, what local government can do. Click here

Part six

MICHAEL ELLIOTT: Martijn, gives us a concrete example of how a hedge fund, or investors, or private capital in the U.S., thinking of getting a rate of return, thinks: 'Goddamit, it's the carbon market where I want to be'. Walk us through an investment example.

MARTIJN WILDER: I'll give you an example of quite a public transaction which took place 12 months ago, and which we were involved in. It's important, as it's in a China context.

This was a project which was an HCFC-22 plant (click here for a page explaining what HCFC-22 is), producing a very high greenhouse emission gas called HCFC-23 click here for a page explaining what HCFC-23, or fluoroform is).

It was in China, a very large plant, and the World Bank went in and they negotiated a contract with that plant to basically pay for the installation of a catalyst on the stack to knock out the HFC-23, and had a contract with that plant to acquire it. And in doing so they paid for the catalyst to go onto the plant.

What the World Bank simultaneously then did was look at putting out information saying, 'Look, we've got this project in China, we've got 120 million tonnes of carbon and we would like to sell them.'

They took that information around the European market and there were a number of buyers, including Deutsche Bank (click here for home page), including a number of other major firms in Europe. And all that went up for tender. They said: 'The price is $920 million, we need to have commitments from investors towards buying this carbon from the World Bank, acting as intermediary.

What happened was, they said you can send in your commitments at nine o'clock on the Monday morning. By 9.25 -- and the delay was more due to the state of the fax machine at the World Bank -- they had raised $1.3 billion in commitments towards buying that carbon.

That project's interesting for a couple of reasons. First of all, you hear a lot of things about developing countries not doing anything, but in this case you've got a project in China. Under Kyoto, it sees a billion dollars come into China to knock out 120 million tonnes of greenhouse emissions from that plant. And from the income received from that plant, 65% goes to the Chinese government to go into other greenhouse reduction projects.

MICHAEL ELLIOTT: Just follow the chain through, though. Deutsche Bank and everyone else buy this carbon -- they do what with it?

MARTIJN WILDER: Well, some of the buyers bought the carbon for their own investors -- they have a compliance commitment in Europe and need to meet EU regulations. People like Deutsche Bank had sold that carbon within 24 hours, it was a back-to-back sale.

So, you have certain buyers in the market who are buying because they need credit to comply with their legal obligations, and others who are purely buying to make a premium.

And since then there have been two very large, similar deals done in China, very similar models where large volumes have been purchased under contracts and re-sold.

MICHAEL ELLIOTT: I can tell, this is a financially sophisticated audience who are keen for spotting investment opportunities, so can you tell us the price differential of the price in China and the price that it moved at in the European market?

MARTIJN WILDER: Probably not. But what I can tell you is that the World Bank paid around six or seven U.S. dollars [per unit] and some of that carbon was being sold at the time for as high as 14 euros.

JAMES CAMERON: Can I add a little extra bit of explanation? We have the largest private sector fund in the world, and our investors and big pension funds investing through their alternative investment arms. Our investors are also investment banking and commercial baking groups -- Standard Chartered (click here for home page), Swiss Re (click here for home page).

These are people who have strategic interests in the marketplace, and are also trying to invest to reduce risk over time. But, they're not doing this for charity, for good will, for environmental purposes. They're doing this for commercial returns. They're absorbing risk and they expect returns that are commensurate for that risk.

When we go and make these investments in China, and our asset is actually a legal contract, we have to put an awful lot of work into establishing relationships with the Chinese counter-party, and we absorb all of that risk until it gets to market, so it's perfectly proper that there is a price difference.

But we are at the only stage of the market where there are big arbitrage opportunities, and if you're prepared to absorb that risk, and you have knowledge, you can do very well. Now, over time, these markets are going to evolve, they're going to get bigger in scale, the markets will tend to converge and some of those margins are going to disappear.

But the scale really matters. The reason why one has to be really rather impressed by what the Kyoto Protocol has done, rather than be critical of it, is it has moved this money now to reduce these emissions, and very large numbers they are. The figures that Martijn is talking about -- those in the audience may well know how much that is.

A hundred and twenty million tonnes in one transaction is a big number. California's very adventurous program for the next decade or so, aims to reduce about 170 million tonnes from across the economy. This is one transaction.

We've been involved in transactions in China, and have caused to be reduced, at very low cost, the equivalent of Sweden's total annual output of greenhouse gases from across its economy.

Part seven

WARWICK MCKIBBIN: My view of public policy is that you don't look for the policy as if you knew how the world worked, you find the best policy that causes the minimum damage if you've got the wrong view of the world.

If you pick a policy where no matter what we hit a target on a particular date, in fact the emissions at any date don't matter, it's the accumulation of emissions over long period of time. Why would you incur an unnecessary cost when you can actually take into account the costs as well the environmental outcomes, and smooth this out over time?

That's why the cap and trade, as the Europeans are running it, I think is risky. Not because it won't work -- it probably will. But it will cause unnecessary cost. That's why the developing countries do not take on binding targets, they don't know what the cost will be. That's why the Americans and the Australians have been so reluctant to enter the Kyoto Protocol, because they don't know what it will cost.

You can argue that it will cost and incredible amount, and some people do, and you can argue, like James, that it will be very inexpensive. My argument is, design a market that lets us solve that over time, weigh up the rush to a big abatement outcome with the cost of getting there. If you just rush head on because there's a few hundred million dollars in market capitals washing around, how many other public policy choices have been missed directly, just because of that rush of enthusiasm.

I think you have to stand back and design the system to take into account the uncertainty that we're dealing with here.

JAMES CAMERON: We're hardly in a rush, are we? We've had sufficient knowledge to deal with this problem for 20 years. I'm not trying to suggest that there is a certainty to these outcomes, I'm trying to weigh probabilities, trends, trying to pick up the signs that, if left unchecked, there is a very alarming outcome and it's coming closer. That is the bulk of the evidence to date.

Where we agree is that you ought to build mechanisms that are good at learning and are good at reaching a very wide range of decisions and which downplay the role of government in selecting the right outcome.

WARWICK MCKIBBIN: Absolutely.

JAMES CAMERON: So that's common ground. Where I'm concerned about what you are saying is that I think we have wasted a lot of time using alarmist economic arguments for delay. I think we've wasted time trying to say, 'After you' to the rest of the world: 'You go first, after you, I'll just wait until you go before I do anything.'

And you're quite wrong about the developing countries. I represented a developing countries group of small island states over many years. The reason they have differentiated obligations is that it's perfectly proper and right that they do. They didn't cause the problem. They have, in the case of China and India, hundreds of millions of people living on a dollar a day, their per capita emissions are nothing like what ours are, and they ought to have the chance to learn from the early adaptations that we make in our economy, and they should be the beneficiary of the flow of capital and technology innovation that we are more capable of paying for.

Having said that, the innovation in China is taking place at a phenomenal rate, for reasons that are much more to do with anxiety about energy security, and we're just as likely to be purchasing Chinese technology to keep our emission reduction costs low as selling it to them.

WARWICK MCKIBBIN: But we can achieve that outcome by using a different system to the cap and trade Kyoto-style system. You need a long-term commitment by China that's locked into a long-term market, where the short term price of carbon is zero.

And we know how to do that, we did that in government bond markets and with monetary policy. You need the long-term commitment, and China doesn't have a long-term commitment, because they don't want to pay, if there are any, the short-term costs. There are ways of designing very clever market mechanisms to do that, and I think we should be looking at these long-term commitments.

We need 2050, 2070 targets. They're not priced into any of these markets at the moment. They should be. That's the flaw in the Kyoto Protocol, the black hole after 2012.

MICHAEL ELLIOTT: Paula's trying to get in, I think.

PAULA DIPERNA: Again, sustainable development, everyone talks about it, no one ever says, 'Sustainable for how long?' We can get something that's sustainable for 10 years, it's likely that it will be sustainable beyond that point.

The perfect can be the enemy of the good. We have found the city of Melbourne, Australia, is so interested in understanding where these early cuts can be made that they have joined the Chicago Climate Exchange, willingly taking on a legally binding commitment to do that, to incentivize not only the cuts but make a moral statement, exercise leadership and so forth.

I completely agree with the James that you can tweak a system but the perfect system will never be there, it's like Vaclav Havel said (click here for a page about him), you're always approaching democracy, democracy is a horizon. So is the perfect cap and trade system; we can tweak it, but to say that we haven't locked in a target beyond 2050, in fact in the United States many of the bills are trying to project that.

We are trying to think long term, but you do have to think in do-able bites, and I don't think the do-able bites penalize unduly, given the framework that James referred to, what's fair and proper for the developing world.

MICHAEL HOLMES: This is layman's ignorance here -- how do you go about setting the price per carbon tonne? It's different in Europe, is it not, to the U.S., and in Europe there was a collapse not long ago in the price. How do you set the right price?

PAULA DIPERNA: Well, you don't set it. That's what the market does. And as I said earlier, there's no price that's high enough, you couldn't set a price. The atmosphere is to the Earth what the peach fuzz is to the peach -- that's what one of the astronauts said.

MICHAEL HOLMES: So how do you make money out of it? It's a business, as well?

PAULA DIPERNA: You have to knit the market together. Our price has been 80c when we opened, it peaked at $5, the European Union price was up above 35 euros, it came down. Part of the reason it came down was because the allowances were scheduled to expire. You need a future security, as Warwick just said, but you don't set a price -- the price is set by the scarcity of the resource.

What's traded is not the right to pollute but the value of the scarcity. And until you experiment with what the market will bear, you can't know what the price will be.

Our price at $4.50 [per tonne] is being used right now to plan business investments, signal markets to generate the kinds of investments that Martijn was talking about. I don't know if you followed what just happened in the United States with the utility in Texas, TXU (click here for home page).

If you look at toxic waste, which no one wants to buy a company that may have a subterranean toxic waste dump buried on the property. You do all kinds of due diligence (click here for page explaining this process) just to find that potentially hidden liability.

Well, carbon is a hidden liability, hiding in plain sight. And the TXU deal demonstrated that the people who wanted to buy TXU, the largest leveraged buyout deal in the history of the United States I'm told, won't touch that utility unless the utility limits its carbon liability.

What's the value of that liability? The market hasn't established this yet. But we know it's at least the value of that leveraged buyout deal.

WARWICK MCKIBBIN: I want to come back on this. You can set the price, it what you can do and we do it with monetary policy. The U.S. Federal Reserve (click here for home page) sets the short-term price of money [through interest rates] and the liquidity in the economy on any day moves up and down at a fixed price. The long-term bond market prices the long term price of money, with a fixed quantity of government debt.

So, by using a short-term price lever, and a long-term quantity target, you can actually achieve the sort of policy that I'm talking about. The perception, though, is that if you start with a cap and trade and you've already imposed the cap, then of course you can't set the price. That's why you need to move the markets I mentioned into the long term market for the long term investment incentive, and the short term price control from the government intervening to minimize the economic consequences of getting from here to 2050.

You can do it, but no one's thinking that way because the market is moving at the pace of the Kyoto Protocol.

Part eight

MARTIJN WILDER: The other thing to realize is that we shouldn't be entirely hung up on emissions trading. Emissions trading is very important as one tool, but it's applicable to every country. We've got to push everything we can at the moment to get a solution.

In the Al Gore film, "An Inconvenient Truth" (click here for page on film), there's one moment which is probably a defining moment of the film, where he gets on the elevator and says that historically, emissions in the atmosphere and temperatures have been about this level, and now emissions are up here, and he goes up.

We don't know for certain what the effects are going to be. We know that there is a very dangerous experiment going on, where emissions have gone through the roof. You need to ask yourselves, are we prepared to take a very significant risk of not taking action now, giving the sort of risk that these sorts of increasing emissions is likely to present.

I would be saying that we have to try everything now, if some things don't work then sure, they don't work, but we should be trying all different solutions.

Even if you take the IPCC, the IPCC at the moment has different scenarios [for the future effects of emissions], if you take their most extreme scenario, you could say there is a one in 10 chance of that happening. How many people in this room will take a one in 10 chance? If you were getting on a jumbo in New York today to fly back to Sydney and you were told that 50 of the 500 passengers were likely to be shot, would you take that risk?

And I would say, when you're looking for minerals and everything else, you accept much smaller risk scenarios than that. Insurance companies like IAG (click here for home page) in Australia, who are doing a lot of climate modeling, are not prepared to take risks of that nature, where things that were one in 100 year events are now one in four year events.

Looking at this issue, we have to accept there is uncertainty and there are significant risks, but because the risks are so great, we've got to start managing those risks, including those that are on perhaps the 10% range.

JAMES CAMERON: I hope this doesn't get too technical, or market-stuffed, for wider consumption, but it seems to me that in the places where the market has already begun, there's a lot of creativity about how to make it better.

Nobody is suggesting that we have the perfect model yet. We don't see a clip in 2012, after which there is no value for carbon, and that's because we understand how the system works, we're in it every day and it's highly, highly unlikely that there will be no value for emissions reductions at the global level beyond 2012 -- which is the end of the compliance period for Kyoto.

The framework continues, there's no end date there. The European Emissions Trading System continues to exist, there's no end date there, we have long range targets in the UK, we have them in California now, we have long range targets just recently in British Columbia.

We have long-range targets, we have a working carbon market. We have problem in getting sufficient capital to flow to the right places now, when we don't have a long-term carbon signal that's reliable.

So, people are really, seriously addressing this. One of my colleagues, Tony White, has a view that you need to combine a price-setting market with some kind of floor price that is long lasting, that the investors in the markets can believe in. People are looking at trying to make a better structure that combines setting a price in the market with sufficient incentives for long term capital deployment in clean energy solutions.

Because, we are about to put to work roughly $21 trillion worth of investment in energy infrastructure -- replacing old and building new in the world. That's a lot of money to be invested, which will have a long date, 20, 30, 40 years. So which infrastructure? What type? How many emissions? Where? These decisions are going to be affected by these policy signals, and that's why we really have to hurry up and give the investors the right signals so that money goes to clean energy, not dirty, or lower carbon rather than higher carbon.

MICHAEL HOLMES: Paula, you mentioned a second ago that Melbourne had come to the Chicago Climate Exchange and is interested in doing deals. I'd like you to expand on what American industries are becoming involved in carbon trading schemes despite the fact that Kyoto isn't yet in place as an American obligation. What's getting U.S. investors so interested in carbon trading?

PAULA DIPERNA: There are probably as many reasons for getting involved as reasons for not getting involved. It's a very diverse set of opinions. People join the Chicago Climate Exchange, which requires them to cut emissions, make a legally binding commitment in the absence of any mandatory forces. They do that partly to be prepared, in anticipation of regulation, to mitigate regulatory risk.

Nobody believes that carbon can be separated from the price of energy. If you believe you need to manage your energy costs you understand you probably have to be managing your emissions. If you're doing one, you're by definition doing the other.

Companies are looking for a sensible measurement of their carbon risk, and emission reduction in absolute tonnage is a sort of physical measurement. Then the markets are putting out a signal that there is going to be a value to these allowances. There is an arbitrage over time, there is potentially between the United States and Kyoto countries, even at the moment, if the political curtain were not there.

So, you have smart money, you have smart thinkers, you have visionary thinkers, you have risk takers, you have pioneers, you have adventurers, you have very morally committed people who are willing to step up to, as I said earlier, a beyond compliance challenge.

Once you define it as a beyond compliance challenge you can never get too much energy efficiency and it can never be too cheaply valued, it's always going to have a higher value. There is no point in wasting energy, and so many, many companies have come to it from a point of view of strategic business commonsense, regulatory risk mitigation, satisfying shareholders.

I was at a discussion of the Carbon Disclosure Project (click here for home page), which has been phenomenally effective in pushing the stick for disclosure. Why are companies concerned about disclosing? Because they're getting questions from investors about why they are not disclosing, why can they not say what their emissions are every year.

When we talk to companies to join the Chicago Climate Exchange, that's the first question we say: What's your baseline? You'd be surprised how many companies can't answer that question. And I would say any company that can't answer that today should know that it's at a strategic disadvantage, to be at that ignorant level.

Companies are beginning to wake up: If you don't know your baseline, you don't know your mitigation costs, you are at a strategic business disadvantage. I think the moral case is very, very present, but in the environmental movement, as long as I've been involved in it, the challenge has been to demonstrate that environmental stewardship can be profitable, that there are going to be costs but it can be profitable.

The signals the carbon market is generating indicate that finally, after 30, 40, 50 years we are showing there is a payoff, and it's not just a moral payoff. People will protect what they love, but capacity, collectively and individually, for sacrifice is not infinite.

Part nine

MICHAEL HOLMES: Warwick, we've talked a lot about the ability and power of the market to act effectively. What then is the role of government?

WARWICK MCKIBBIN: This comes to Paula's point. The role of government is to create and protect property rights, and commit to very long-term horizons in the carbon context. And governments aren't really doing that, yet. They are doing it in a piecemeal way and the market is doing a very effective job of filling in the voids. It's providing the risks, it's providing a hedge.

Now, if the governments had a much stronger commitment to cuts, and a profile in the market, long term property rights of 100 year duration, like we have with real estate contracts, then that will change the nature of the market dramatically, and it will change the cost of undertaking this insurance. Because you no longer have to insure against the government policy changing, you can actually insure against the real risk, which is the climate. So the government is absolutely essential in terms of the property rights establishment.

Secondly, the market works very well in my view in giving long term signals, but in the short term in can be highly volatile, for example the European trading system. There's no reason for the carbon price in any year to be either high or low, that just causes economic loss. Again, my argument is that the government should be controlling the short-term price of carbon but letting the market control the long term price of carbon.

So there's an important roles for governments and markets in exactly the same way we bought into the formation of monetary policy.

MICHAEL HOLMES: And are governments playing that role enough?

WARWICK MCKIBBIN: Not in my view, at all. In my view they're creating ambiguity, and it's making the cost of taking out the insurance that much higher, because you're insuring not only against the climate issue, you're insuring against the government policy.

MICHAEL HOLMES: What are they afraid of, then?

WARWICK MCKIBBIN: They're afraid of governments totally changing the playing field, of major players who are in the Kyoto agreement pulling out. We have Canada, 26% above their target, Japan, 16% above. We have Russia potentially providing a lot of hot air to the market when it starts, and our property rights in Russia are ambiguous at best in many circumstances, particularly relating to energy.

So there are a lot of problems that governments are creating. We can't resolve the climate uncertainty, but we can deal with the government policy. And that's where the focus ought to be.

MICHAEL HOLMES: What's going to make them do it?

WARWICK MCKIBBIN: Increased awareness, the power of the market -- the market's already driving it, this is an important issue financially. People are aware that this is an important issue, whether for the right reasons or not. There is increasing evidence, whether in from reports like the IPCC, in Stern. As soon as the governments realize it is in their own interests then they will take more action.

My view is, let's speed that up and make it in the government's financial interests as well as political interests, and we know how to do that.

PAULA DIPERNA: In the United States, where there is no Kyoto, there's a tremendous amount of diversity of involvement. You have the states in the northeast, you have the Chicago Climate Exchange, you have individual departments of finance in states that are talking about developing products that do some of the things that you are talking about.

Voters and politicians just have a different horizon. And to think that they may be able to guarantee any kind of carbon price, or any kind of carbon policy, over more than a reasonable electoral cycle just seems impractical.

I understand the principle of monetary policy, but our learning curve is still huge.

MICHAEL HOLMES: Let's have some questions from the audience.

AUDIENCE MEMBER: I have a question for Professor McKibben. Do you think costs should just be kept down, or do you see it as a huge market opportunity? And what about China?

WARWICK MCKIBBIN: There is unambiguously going to be an income distribution, there's going to be winners and losers. If you're going to close down or completely restructure Australia's energy system, you have physical capital sitting there in place, it is not free to put in carbon capture or storage, it is not free to modify the technologies, it is not free to retrain all your coal miners in your country to do other things.

So, unambiguously, there are costs, and there are benefits. How do you transfer the benefits, take the money we generate and put it back with the people who are going to lose from the policy, to make everybody better off? To me, this comes back to property rights. If we create long-term property rights over carbon, that is wealth. You reduce risk in the economy, that is wealth.

You can then use that to redistribute, make the losers winners. You can use that to get over the hurdle of the cost argument very easily. But if you don't take that line there will be losers, within the country and across nations.

My question is -- how big is the wealth gain versus how big are the cost losses. And you can't tell me what they will be. That's why we need a system.

JAMES CAMERON: But he can tell you that it's an imperative that we reduce greenhouse gas emissions. We don't have an option, and we've got to do it across the whole of the globe.

This problem severely tests out institutions, our democracies. We are not very good at making long-term decisions. We have used independent central banks, the culture of a treasury department, as a means for getting long-term thinking into our decision-making. We need to put the carbon issue in that.

I like to have a picture of the evening news in 10 years' time, where the rather boring bits and pieces of economic data are analyzed to say, well today, the interest rates are here, the employment rates are here and carbon prices are here. I want to know how quickly we can get to that vision, and I want to see leadership in politics and business to get us there fast.

I don't think we have the luxury of debating this in an abstract or academic way, we need rapid institutional reform to create the conditions for that kind of analysis to take place.

WARWICK MCKIBBIN: There needs to be two types of information -- the short-term interest rate and the long-term interest rate, the short-term carbon price and the long term-carbon price. That is what people will worry about.

MICHAEL HOLMES: But businesses have to make a profit. So you can't make reducing emissions too expensive for them.

JAMES CAMERON: But the fact is there is money in change, there's money in transformations. Let me give you another example, Vinod Khosla, the founder of Sun Microsystems (click here for Principal Voices page about Khosla taking part in an earlier round table). The guy has a great track record. He also says he has never seen a market opportunity like this.

I'm used to taking technology risks and I'm used to taking venture risk, but in many instances in Silicone Valley my investees had to help make the market, there was a lot of doubt about what the market was and its scale. Here, there's very little doubt. That is a fantastic business agenda.

MARTIJN WILDER: If you're on the board of a business today, you're looking to the future. You know that there is going to be increasing regulation of your business, you know that eventually, coal, oil and gas will run out and there will have to be a transition.

You now have to be taking decisions about where you take your business, and you've got your investors asking what you're doing. Look at the difference between Toyota and Ford -- Toyota made the decision to invest in the Prius (click here for page about the Prius) and to push the cleaner car technology. Ford, for a long time, had very heavily lobbied against any controls on car emissions, and invested very heavily in four wheel drive platforms.

So you've got a situation where you've got a lot of companies, like Toyota, who are leaping ahead, and companies like Ford on the verge of bankruptcy. They took a position and it was wrong.

Part 10

AUDIENCE MEMBER: Apart from focusing on price, I think we should also be thinking about technologies for energy efficiency, and ways to promote this, both with investment and via regulatory measures.

PAULA DIPERNA: In terms of what companies are looking for, they have an internal and external imperative. You need governmental structures to enable people to feel certain beyond a couple of years.

But in the United States we've been able to get the second largest carbon market in the world up and running because of internal drivers. I can only imagine how things would be in the United States if there were a little more certainty.

WARWICK MCKIBBIN: The other issue which is important in the role of government is in research and development funding. That's the critical role government plays. But without a carbon price signal it's very hard to know how you allocate the R & D funding.

To pick up Martijn's point, a single policy like energy efficiency by itself can actually make things worse. You can become more energy efficient which makes you wealthier, and if you spend that wealth driving bigger cars you can make things worse. So you need a carbon constraint in the system. You need a package of policies.

JAMES CAMERON: The other thing is that regulatory detail really matters. You might have an over-arching policy that encourages, say, renewable energy, but if you have a problem in the way your power market operates then it doesn't happen.

The big picture analysis is important, the sense of urgency, all this matters. But in the end there's lots of detail and policy and regulatory framework that you need to be right before the capital flows to where it makes a difference.

AUDIENCE MEMBER: My interest in carbon sinks (click here for a page explaining this process). How important are carbon standards and carbon accounting on the evolution of the market?

JAMES CAMERON: This area has been neglected at the global level, but not here, so there's a chance for you to set the standard for better land and natural resource management.

We have an urgent need to keep healthy, viable eco-systems, because if we don't, all the rest of the work we do on reducing emissions from our industrial sector will come to nothing. Unless we can create value in the natural eco-systems that create rainfall, vibrant environments in which diverse species can thrive, we won't be getting close to solving the climate change problem.

MARTIJN WILDER: What it really comes down to is, as the market matures, and people buy carbon offsets, they want integrity in the offsets, and there are many different sets of rules. But I think that as the market develops, certain rules will take precedence over others.

AUDIENCE MEMBER: I am in local government, and we have done a lot in terms of looking at our greenhouse gas emissions. But what more can local government do?

PAULA DIPERNA: Local government is at the front end of many of these things -- especially if you take James's point about the detail being very important.

You may not have a lot of money to spend on sustainability initiatives, or on greenhouse gas reduction, but if you don't do something like, dare I say it, join the Chicago Climate Exchange, at the end of the process of deliberation you won't know where best to spend the dollars you do have.

JAMES CAMERON: You're obviously not alone, which is a good thing, and therefore there is experience to learn from others, and local government networks are really pretty good at sharing information.

MICHAEL HOLMES: Paula, you've worked in the environmental arena for a long time, what do you think I can do, is it about pressuring your local government minister, being a pro-active shareholder, is it driving less?

PAULA DIPERNA: I think it's all of the above. The individual can be in the carbon market and buy offsets. I can give up flying, but is my individual flight burden something I should spend a lot of time thinking about?

It's a question of the bang for the buck, the scale. It's wonderful to mobilize the public, changing light bulbs at home, turning lights off. But it's really about thinking: in this timeframe and at this scale, is my effort really going to be significant? Maybe it is the best use of people's time to reduce their waste and then lobby about share price, disclosure, all the things that go to the big sources of emissions.

There's no way of overstating the value of having an investor community care about carbon management as a function of strategic business. If that could be mainstreamed it would be transformational. It's far from mainstreamed today, although it's improving.

WARWICK MCKIBBIN: Underlying everything has to be the hip pocket. If people have to pay more for something carbon intensive, they will have the incentive to change their behavior. It all comes back to why you want a carbon price in the world economy.

AUDIENCE MEMBER: Do you ever see a time when individual households could have a carbon cap, and sell their credit?

JAMES CAMERON: This movement is underway in Europe, and it happens to be particularly strong at the moment in the UK. We now have a genuine discussion involving all the key stakeholders, with an environment minister who's very keen on the idea, about how best to do personal carbon trading. It may grow, it may take off. But it's a live issue.

WARWICK MCKIBBIN: I think it is too high a transaction cost, it would create the most amazing bureaucratic management system, I would expect, and that's what you want to avoid, a policy that maximizes the number of government employees.

I would be very resistant but I could imagine there could be a very good argument for it. Perhaps we should do it with water rights. But I would really go for simplicity and the macro picture before we worry about individuals.

PAULA DIPERNA: In the United States, I think a household cap is dead on arrival. But there is some precedent -- for example people who have solar power selling power back into the grid. It's the kind of crazy idea that sounds so counter-intuitive to political currents that it might take off.

MARTIJN WILDER: I think it's also about creating community awareness. Even if the idea is impractical, it does create momentum.

Thanks to the panel and audience by Michael Holmes. APPLAUSE.