The Stern Review on the Economics of Climate Change, released in London yesterday, warns if global warming goes unchecked, it will devastate the world economy on the scale of the world wars and the Great Depression.
The British government-commissioned report is the biggest review of the economic consequences of climate change ever undertaken.
The study, by former World Bank chief economist Sir Nicholas Stern, says the Kyoto Protocol should be a first step towards global emissions trading.
The United States and Australia signed the landmark Kyoto protocol on reducing greenhouse gas emissions, but neither went on to ratify it.
"Some countries are currently unwilling to participate in intergovernmental emissions trading, including the USA and Australia, and there are real difficulties in enforcing quota allocations between governments under international law," the report said.
And there was large scope for expanding private sector emissions trading markets, with only a small portion of global emissions currently covered by trading schemes.
The largest existing system is the 25-state EU Emissions Trading Scheme (ETS).
"If trading expanded in future, for example, to cover the power and industrial sectors in Australia, Canada, the EU, Japan and the USA, emissions trading would grow to 2.5 times the size of the current EU ETS," the report said.
"Expanding further to include all of the top 20 global emitters -- a relatively small number of jurisdictions, which together account for almost 80 percent of global CO2 emissions -- would raise coverage by almost five times."
UK treasurer, Gordon Brown, who commissioned the report, will propose expanding the EU's carbon trading market to include California, Australia, Japan and elsewhere as the basis for such a global regime, Britain’s The Times reported.
'Frozen in time'
Australia’s opposition Labor party says the report is a slap in the face for the Howard government.
Labor spokesmen Wayne Swan and environment spokesman Anthony Albanese say the climate change sceptics in the Howard government are frozen in time while the globe warms around them.
They say that rather than not being able to afford to act on climate change we can't afford not to.
Australian Environment Minister Ian Campbell criticised a similar Labor proposal for a national carbon emissions trading scheme as simply a plan for a new tax.
"They've got two policies. One is to sign up to Kyoto One, when the whole world is sitting down trying to write Kyoto Two, which Australia is a part of," Senator Campbell said.
"Secondly, they want to have a national emissions trading scheme which is a plan for a new tax."
He added: "Carbon taxes, new taxes on the economy, will constrain the potential of the world economy to do the very investment that Mr Stern noticed that we need, to put in place the technologies and deploy those technologies across the whole world".
Prime Minister John Howard told parliament the government believed climate change was occurring, but the Kyoto Protocol did not equally impose constraints on all economies, as was needed.
"I am not going to sign up to something that imposes burdens on my country that are not imposed on our competitors," he said.
Mr Albanese, said the report concluded that early action would be far cheaper than waiting until the full effects of climate change were felt.
"Perhaps five, 10 or 20 times cheaper," he said.
"It also says that we can't afford to wait any longer."
Mr Albanese said Australia must immediately ratify the Kyoto Protocol, introduce a national emissions trading scheme, increase the renewable energy target and reassess transport systems and building sustainable cities.
Greens senator Christine Milne said the report would show Mr Howard had failed to address climate change, leaving Australia economically unready to deal with it.
"The Stern report supports several Australian studies that show that acting to reduce greenhouse gas emissions now will cost far less than the consequences of not acting," she said.