We Would be Fools to Banish Global Business from the Great Climate Battle

Think about climate change long enough and you soon realize that it's more than our lightbulbs that we're going to have to change. Colleagues have already argued on these pages this week, as delegates gather in Bali to hammer out a global accord to avert this catastrophe, that a much more fundamental overhaul will be required, a war on carbon as fierce as the 1940s war on fascism. Madeleine Bunting suggested a return to wartime rationing, in order to curb a hyper-consumerism that is palpably unsustainable.

One could go further, arguing that it is not just excessive consumerism but capitalism's very nature that makes it incompatible with the survival of our planet. For capitalism requires constant economic growth, yet the Earth's resources are finite. Capitalist logic says we must buy, sell and consume more and more each year. Nature's logic says we can't.

Two possible political consequences flow from this, pointing in opposite directions. One scenario would see a reopening of an ideological debate that has remained all but dormant, at least in the west, for nearly two decades. Since the fall of the Berlin wall in 1989, the prevailing assumption has been that capitalism faces no serious rival; no viable alternative system is on offer. Even self-described progressives have been wary of challenging the core tenets of free market economics for fear of looking like outdated leftovers from the socialist past. But now, armed with a plea not only to combat grotesque inequality but to save the human race's only home, progressives could start making the fundamental case against capitalism anew.

The other scenario is that capitalism could fight back, containing not, as the Marxists predicted, the seeds of its own destruction, but perhaps the seeds of its own - and therefore the Earth's - salvation.

That's certainly the impression the capitalists themselves are keen to project. Last week, the Confederation of British Industry put out a report pledging to do "what it takes" to tackle global heating - "warming" is misleadingly gentle - and to play its part in reducing Britain's carbon emissions. Days later chief executives from 150 leading global corporations, Coca-Cola, Shell and British Airways among them, issued a pre-Bali communique calling for a comprehensive, binding UN framework on climate change. Its message to world leaders: rein us in, please!

Now, the grounds for scepticism here are obvious. Most CEOs realized long ago that looking green has become a necessary part of corporate PR. So the CBI makes the right noises even as its signatory companies continue to lobby for more roads and bigger airports. They talk big but promise to cut their current, collective carbon emissions of 370m tonnes by a measly 1m tonnes over the next three years.

Yet some in business are clearly determined to do more than printing the company reports on green-scented, recycled notepaper. Some are realizing that last year's Stern review was right, that business stands to lose more through inaction on climate change than action will cost. In the words of one boardroom chieftain quoted last week: "We mustn't kill our customers."

And the smartest understand that, as in every crisis, there is money to be made. Witness the cash now swilling around the cap-and-trade market in carbon, which grew threefold last year and which the World Bank now estimates is worth at least $30bn. Here's how it works. On January 1 2005, the EU put a cap on how much carbon companies are allowed to emit. If Company A gets an allowance to pump out 1,000 tonnes but only emits half that, it can sell the right to emit the remaining 500 tonnes to Company B, which would otherwise overshoot its allocation. The beauty of the scheme is that it at last puts an economic value on carbon which, until now, cost nothing - even though it literally costs the Earth. This way, runs the theory, companies have a direct financial stake in keeping down their emissions, so that they don't have to pay for credits (or fines) if they breach the cap.