FT Energy Source is posting a daily question for our panel of expert commentators. Below are responses from panel members Kyoto carbon markets architect Graciela Chichilnisky, Mindy Lubber of the Investor Network on Climate Risk, Jeremy Leggett of Solarcentury and Julian Morris of The International Policy Network.

Are derivatives and other financial instruments a good way to address
the political issues around financing carbon reduction in developing countries? What are the risks and how can they be avoided? This refers not only to institutional proposals such as those offered by George Soros, but also market-based instruments.

Examples are the Clean Development Mechanism of the Kyoto Protocol, a financial mechanism that was explicitly endorsed by 100 nations at an April 27-28 2009 meeting in the Palais des Nations, Geneva, convened to evaluate it. The CDM is not perfect and needs improvements – but the consensus from the 100 nations that were present was that it was working. The carbon market itself – which I have designed and drafted into the protocol in 1997 – is a financial mechanism that has been successful in financial and environmental terms as well. It is now trading $120bn in the European Union trading system and has helped decrease the equivalent of 20 per cent of EU’s emissions.

An official draft text of a possible agreement on climate change has now been published by the United Nations at the Copenhagen climate change summit.

As usual, it’s a text that will not please anyone in its entirety.

The European Union is vexed that the text does not require developing countries to make their commitments to curb their emissions legally binding. This is a big stumbling block.

Rich countries also do not want the current emissions targets in the text – 25 to 40 per cent reductions on 1990 levels by 2020 – to remain in. At present, they are in square brackets, which denotes they could be removed.

It soon will be. The UK’s Met Office forecast on Thursday that next year would be the warmest on record.

Or, rather, not quite. In a great example of hedging, the Met Office actually said it was “more likely than not” to be the warmest since records began in the 1850s, surpassing the previous warmest year, 1998.

The reason the meteorologists think next year is going to be warmer is similar to what made 1998 so hot around the world – an El Nino event. This is a moderate warming of the tropical Pacific Ocean, which has repercussions around the world.