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The blunt truth about the politics of climate change is that no country will want to sacrifice its economy in order to meet this challenge."

Tony Blair, speaking at the G8 Climate Change Conference on November 2, confirms what many of us suspected: the Kyoto agreement to cut back on greenhouse gas emissions is dead.

It is unworkable, expensive, politically divisive and ineffectual.

Unlike many who oppose Kyoto, I do not think all its supporters are insincere or motivated purely by a wish to secure funding for their research programmes.

The evidence that the climate is changing is strong and getting stronger, and there is no question that it could have catastrophic effects. It also seems likely that anthropogenic greenhouse gas emissions are a cause.

But that doesn't mean cutting back emissions is the best way to prevent or mitigate climate change.

In their efforts to get the absurdly unworkable Kyoto agreement off the ground, its proponents have squandered precious political capital, and set back the cause of those looking for realistic alternatives.

Perhaps some, including a few in the New Zealand Government, knew Kyoto would never fly, so could support it safely. They would thereby be demonstrating their immense care and compassion for humanity, knowing all along that Kyoto would come to nothing and they wouldn't have to sacrifice anything themselves.

This seems to apply to the European Union. The EU had pledged to reduce its total greenhouse gas emissions to 8 per cent below 1990s levels by 2008-2012, but by 2002 they had dropped only 2.9 per cent - and carbon dioxide emissions had risen slightly. Only four EU countries are on track to achieve their targets.

And the EU is economically stagnating. Any significant economic growth would probably end any prospect of its meeting the Kyoto targets.

Kyoto suffers from the same flaw as many of our other environmental and social policies: it assumes that government knows the best way of achieving our goals.

Kyoto is focused entirely on reducing net greenhouse gas emissions. But with climate change the biological and physical relationships involved are many and complex.

Even specialists in climatology disagree about the degree to which the multitude of biological and physical variables cause climate change.

We need to recognise explicitly that we don't know all the answers. Achieving a stable climate will mean investigating a wide range of diverse approaches that don't have anything to do with greenhouse gas emissions - but Kyoto will do nothing to encourage such research.

Reducing greenhouse gas emissions or sequestering carbon might turn out to be helpful and cost-effective.

But what if new science tells us either that greenhouse gases are not as important as originally thought, or that there are far more cost-effective ways of achieving climate stability?

Kyoto would grind on, with its expensive and futile controls on greenhouse gas emissions.

Our objective should be to achieve climate stability. A successful policy would encourage those who help stabilise the climate, however they do it.

My suggestion is that governments collectively issue climate stability bonds. These would be sold by auction, and redeemed for a fixed sum only when the climate has achieved an agreed and sustained level of stability. In this way there is no need for the targeting mechanism to make assumptions as to how to stabilise the world climate - that is left to bondholders.

Climate stability bonds would not bear interest and their redemption date would be uncertain. Bondholders would gain most by ensuring climate stability was achieved fast.

Once issued, the bonds would be tradeable on the free market. As the climate became more stable, so the bond price would rise.

Bondholders would have incentives to co-operate with each other to do what they could to achieve climate stability, then to sell their bonds at a higher price.

Governments would decide only on the degree of climate stability they wanted, not on how to achieve it. That would be left up to investors in the bonds, who would have every incentive to maximise the taxpayer's benefit per unit outlay.

Unlike Kyoto, a climate stability bond regime would stimulate research into finding cost-effective ways of achieving climate stability.

Kyoto is flawed because its focus is entirely on net greenhouse gas emissions. We need instead to look at solutions, such as climate stability bonds, that have as their goal the achievement of climate stability. There is too much at stake to rely on the fossilised science of Kyoto.

* Ronnie Horesh is a Wellington economist.