Output / Commentary
The Archimedes Compact
How Europe can turn climate finance it has already promised into the largest emissions cut on the table, and why it pays
Summary
- Global emissions are no longer driven by Europe. Over the last ten years, five countries in South and Southeast Asia accounted for 115 percent of their growth. Over the next decade, four of them, India, Indonesia, Vietnam and the Philippines, will decide whether the world’s emissions turn down.
- The Archimedes Compact is a European offer to these four countries: introduce a national carbon market with a real, falling cap, and Europe will co-finance your energy transition. The tighter the cap, the more Europe pays. Payments are released against independent verification.
- The money largely exists. EU institutions and member states provided €31.7 billion in public climate finance to developing countries in 2024. The Compact attaches a condition to it. At its ceiling, the offer would cost Europe about €50 billion a year, the equivalent of a $10 rise in the price of a barrel of oil.
- The return is large. By our conservative estimate, the Compact would avoid around 40 billion tons of CO₂ over twenty years. Valued at the German Environment Agency’s own cost of carbon, that is about €14 trillion in avoided damage, roughly fourteen euros for every euro spent.
- Nothing here requires the consent of 197 states, or of Washington and Beijing. It requires Europe to move first, and Germany to lead.
What Antalya will not solve
What decides whether the world’s emissions fall? Not the ambition of a pledge, and not the length of a conference text. Europe and India have both signed the Paris Agreement. Europe’s emissions have fallen for three decades; India’s are on course to double again by 2040. The difference is not commitment. It is incentives.
When the 31st UN climate conference opens in Antalya, hosted by Türkiye with Australia presiding over the negotiations, it will do what these conferences do. It will review national pledges that do not add up to the Paris goals, and it will adopt by consensus of 197 parties whatever text the least willing party can accept. Conferences built on unanimity can keep a process alive. They cannot share a burden.
The arithmetic of that burden has changed. In 2000, China emitted as much CO₂ as today’s 27 EU member states. Today it emits 4.8 times as much, and 65 percent more per head than the average European. The EU now accounts for about seven percent of global emissions, Germany for about one and a half. Europe must keep cutting at home; a European still emits more than the world average. But the climate responds only to the total, and the total is being decided elsewhere.
China, by expert assessment, has reached or is close to its emissions peak. The United States has been reducing its emissions for two decades. The growth now sits in India, Indonesia, Vietnam and the Philippines, which are expected to account for well over half of global emissions growth in the coming years. India alone, at 1.7 tons per head, is building coal-fired power stations that are likely to run until 2070. According to the International Monetary Fund, India’s emissions would more than double by 2040 under current policies. With moderate carbon pricing, they would stay below today’s level while the economy keeps growing.
That gap, more than three billion tons a year by 2040, is larger than the entire annual emissions of the European Union. It is the largest single lever in global climate policy, and no one is pulling it.
Thirty years without incentives
The reason is structural. In the Rio Declaration of 1992, the world committed to the polluter-pays principle. The Kyoto Protocol of 1997 then imposed obligations on industrialized countries alone, leaving emerging economies without limits but also without any reason to grow on a cleaner path. The Paris Agreement of 2015 replaced obligations with voluntary pledges. Kyoto offered obligations without incentives. Paris offers pledges without incentives. The result is visible in every emissions chart since 2000.
The Archimedes Compact would be the first attempt to work with incentives.
The Compact
The mechanism is simple.
The offer. The EU offers India, Indonesia, Vietnam and the Philippines co-financing for their energy transition, on one condition: each introduces a national emissions trading system with a fixed, annually declining cap.
Sovereignty stays at home. Each country sets its own cap and keeps all revenue from selling permits. No limit is imposed from outside.
Payment follows ambition. Europe’s payment rises the tighter the cap and the closer the national carbon price comes to the level the Paris goals require. A token market earns a token payment.
Verified delivery. Funds are released only after independent verification that emissions were measured and permits surrendered, and they are earmarked for grids, storage, renewable generation, early coal retirement, industrial efficiency and social compensation for households facing higher energy prices.
Built to grow. Once the first stage shows measurable results, Japan, South Korea and Canada, which like the EU have cut emissions over long periods, extend the same offer to further Asian economies. In a third stage, national markets are linked with each other and with the EU Emissions Trading System once their prices converge. China, and eventually the United States, will have to respond with offers of their own.
Why a carbon market, and why it works
Europe is not proposing an experiment. It is exporting its most successful climate instrument. Since 2005, every power station and industrial plant covered by the EU Emissions Trading System has needed a permit for each ton of CO₂ it emits. The number of permits falls every year, permits trade freely, and emissions are therefore cut wherever cutting is cheapest. In the covered sectors, emissions have fallen by about half.
A cap-and-trade system has three advantages over a tax. It fixes the quantity of emissions, so the reduction path can follow the science rather than guess at price responses. Once agreed, it is harder to bend to short-term economic policy. And it generates revenue that can fund the transition and protect low-income households.
Europe also did not get it right at the start. It began with power and heavy industry, allocated permits generously, saw low prices, and tightened the system over time. China runs regional trading schemes and India has launched pilots, but so far these cover too few emitters, create too little scarcity and set prices too low to steer an economy away from fossil fuels. The Compact pays for exactly the step these systems have not yet taken.
The ledger
We have kept the estimates conservative and the assumptions visible.
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Cost to Europe, ceiling
Twenty-year horizon: €50 billion a year, about €1 trillion in total. A large share is climate finance Europe has already committed; the Compact redirects it and adds a condition.
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Emissions avoided
Twenty-year horizon: About 40 billion tons of CO₂. Our estimate, based mainly on the IMF’s India scenarios; the other three countries add to it.
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Avoided global damage
Twenty-year horizon: About €14 trillion, valuing each ton at the German Environment Agency’s recommended cost of carbon (€345 per ton today, rising to €485 by 2050). With no discounting of future generations, the agency’s alternative value, the figure is about €40 trillion.
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Return per euro
Twenty-year horizon: Roughly 14 to 1; up to 40 to 1 without discounting.
Not all of this lands on European balance sheets. Three returns do.
Damage Europe is already paying. Weather and climate extremes cost the EU an average of €45 billion a year between 2020 and 2024, according to the European Environment Agency, and losses are rising by about 3.4 percent a year. Europe is already paying, every year, roughly what the Compact would cost at its ceiling. The question is only whether it keeps paying for the consequences or starts paying for the solution.
A smaller oil bill. Europe imports around 13.5 million barrels of oil a day. Every dollar off the price of a barrel saves Europe about $5 billion a year. Falling demand lowers prices, as 2009 and 2020 showed, and South Asia is where future oil demand growth is concentrated.
Room to move at home. Every regional carbon market runs into the limits of competitiveness as long as competitors pay nothing. Once the economies Europe competes with price carbon too, a steeper European cap becomes politically possible, carbon border measures become easier to defend, and linking the markets becomes realistic. That is industrial policy as much as climate policy.
Beyond the ledger lie returns we do not attempt to price: the stability of regions where heat and water stress will push millions to move, and the strategic weight Europe gains by offering partnership where others offer dependency. They are real. They are simply not needed to make the case.
Objections
“There is no money.” The money has largely been promised. At COP29 in Baku, industrialized countries committed to raising climate finance to $300 billion a year by 2035. The Compact does not ask Europe to find new billions first. It asks Europe to make the billions it already spends buy something measurable.
“The money will be wasted.” It is a fair concern. Two decades ago, we argued that aid can do more harm than good where governance is weak, and that one of the essential duties of a well-governed state is to internalize external costs, so that no producer can shift the cost of pollution onto the public. The Compact builds both lessons in. It pays only for a working carbon price, which is internalization in practice, and only after verification. Recipient countries will call this a loss of sovereignty. But they would have a strong financial reason to accept it, and there is a precedent: most developing and emerging economies accepted far-reaching inspections under the Non-Proliferation Treaty. That there are counterfeiters is not a reason to abolish money.
“Nothing works without China and the United States.” A global carbon market, with revenues distributed per head, would still be the best and fairest solution. With Washington and Beijing, it is not available today. The Compact is the second-best solution Europe can start alone, and it is designed to make the first-best possible later.
A common good with a price
Mariana Mazzucato argues in The Common Good Economy (2026) that the common good should be a goal economic policy is designed around, and that public money should shape markets toward it. The atmosphere is the clearest common good there is. For decades it has been used free of charge, and most heavily by those with the economic power to do so. The Compact applies that principle where it matters most: public money, with conditions, building a market that puts a price on the use of a shared resource.
What Berlin should do
Germany carries a particular responsibility. The UN climate secretariat was placed in Bonn in the 1990s because the world expected ideas for the global problem to come from Germany. The coalition agreement of 2021 named a global emissions trading system as a goal; nothing followed, because no one asked for it.
The Federal Chancellery can change that with four steps:
- Announce at COP31 that Germany will champion an EU carbon-market partnership with India, Indonesia, Vietnam and the Philippines.
- Put the Archimedes Compact on the agenda of the European Council and task the Commission with a design proposal for the first stage within twelve months.
- Condition a defined share of German bilateral climate finance on verified carbon pricing in partner countries, as a model for the EU.
- Report to the Bundestag annually on Germany’s strategy to reduce global, not only national, emissions.
None of these steps needs the agreement of 197 states. They need a European Union willing to move first, and a public that asks its government one question: what is our strategy for bringing down global emissions?
Archimedes asked only for a place to stand and a lever long enough. Europe has both.
Philipp S. Müller is a Fellow of Practice at the TUM Think Tank lectures on technology and corporate governance, including at TUM. Friedemann Müller worked for many years on international climate and energy policy at the Stiftung Wissenschaft und Politik in Berlin and co-chairs Klima Global e.V. (klima-global.org). The authors first wrote together at SWP in 2002, on the essentials of good governance.
Sources
- International Monetary Fund, Country Focus: India. India Can Balance Curbing Emissions and Economic Growth, 7 March 2023
- Umweltbundesamt, Empfehlung zu Klimakosten (Methodenkonvention 3.2), update of 6 July 2026
- European Environment Agency, Economic losses from weather- and climate-related extremes in Europe, indicator, 2025
- Council of the EU, EU climate finance figures for 2024 (€31.7 billion public, €11 billion private mobilized)
- Friedemann Mueller and Philipp Mueller, The Essentials of Good Governance, Belfer Center for Science and International Affairs, Harvard Kennedy School, 2002
- Nicholas Stern, The Economics of Climate Change, Cambridge University Press, 2006/07
- Mariana Mazzucato, The Common Good Economy, 2026
- Friedemann Müller, Zur Geschichte der nicht gelungenen Klimapolitik, 2023
