Today one the most important decisions about the planet’s future for years to come will be made.

José Manuel Barroso, the President of the European Commission, will announce the caps on emissions that it will impose on its member states from 2008 to 2012. Around the world, from California to Australia, from New York to Japan, politicians, businesses and opinion formers are watching to see whether we Europeans have the conviction to make the system that prices carbon and punishes polluters work properly.

Those who want to create their own carbon-pricing schemes are keen for the system to work but will lose political momentum if it doesn’t. Those who want to do nothing will celebrate its failure.

The EU member states have in several instances abdicated the responsibility of arguing for the essential deep reductions in the amount of carbon produced. Sometimes they have called duplicitously for greater action on climate change while submitting plans that would lead to no reductions and further profit their industry champions at the planet’s cost. Now we have the real data, we know who misled us last year. There is a rational case for reductions across the board of anything from 10 to 20 per cent off the plans that have been submitted. The plans of some countries are so flawed that they must be sent back and reworked. The Commission will have to be resolute.

By ensuring there are fewer permits than are needed, the EU will force companies to reduce emissions — and put a price on pollution. By creating a scarcity, through setting demanding targets, companies will have to cut their emissions or buy reductions achieved by someone else.

The carbon market aligns public and private interest powerfully: investors are rewarded if they allocate resources efficiently to reduce emissions. Sorting out climate change should not be regarded as an economic opportunity as well as a necessity.

As the Stern report tells us, there is little cost to our economies from doing what we know we have to; there is no serious effect on competitiveness from the modest price for carbon we have, or expect to have. But the costs of inaction are enormous.

There are some who think that individual countries, like ours, will make little difference, whatever we do. But we will make a difference. Taking the right decisions now and adding a long-term signal that there will be more to come will channel huge investment where it needs to be. A tonne of carbon taken out of the atmosphere is a tonne of carbon, whether in Burton-on-Trent, Bordeaux, Berlin or Beijing.

James Cameron is vice-chairman of Climate Change Capital

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