Uncertainty can hamper the stringency of commitments under cap and trade schemes. We assess how well intensity targets, where countries' permit allocations are indexed to future realised GDP, can cope with uncertainties in a post-Kyoto international greenhouse emissions trading scheme. We present some empirical foundations for intensity targets and derive a simple rule for the optimal degree of indexation to GDP. Using an 18-region simulation model of a 2020 global capand-trade treaty under multiple uncertainties and endogenous commitments, we estimate that optimal intensity targets could achieve global abatement as much as 20 per cent higher than under absolute targets, and even greater increases in welfare measures.

The optimal degree of indexation to GDP would vary greatly between countries, including super-indexation in some advanced countries, and partial indexation for most developing countries. Standard intensity targets (with one-to-one indexation) would also improve the overall outcome, but to a lesser degree and not in all cases. Although target indexation is no magic wand for a future global climate treaty, gains from reduced cost uncertainty might justify increased complexity, framing issues and other potential downsides of intensity targets.

The Industrial Revolution accompanied a dramatic change in energy systems, away from locally gathered, traditional fuels such as biomass to commercially traded fossil fuels. For nearly 2 billion people in the world today, this commercial energy transition is yet to occur. We review the literature on the causes and consequences of this transition and the effectiveness of policy instruments aimed at accelerating or directing the transition. Income is the main driving force, but other factors-such as population density and the availability of rival fuels-affect energy choices. Although correlations between the energy transition and economic growth are high, cause and effect relationships have proved difficult to establish.