Nov. 10 (Bloomberg) -- The prospect of a global recession will allow governments to set lower emission targets, an investor in carbon credits said.

The U.S. and European Union can afford to set tougher limits on emissions because slower economic activity will cut greenhouse gas output and lower emission permit prices, said James Cameron, executive vice chairman of Climate Change Capital, a London fund manager with more than $1 billion to invest in credits.

``Governments should notice how relatively inexpensive it is to secure compliance and increase demand by having tougher targets,'' Cameron, a lawyer who represented a group of island countries during negotiation of the 1997 Kyoto Protocol, said in a telephone interview. Industry leaders who complain about the cost of emissions trading are either ``hopeless at managing your business or don't care about the climate-change issue.''

Power producers, steelmakers, oil refiners and other polluters may use a weaker economy to argue against stricter limits because of the expense of cutting emissions or buying allowances. Italian Prime Minister Silvio Berlusconi said last month that nine countries in the 27-member EU share Italy's concern about the cost of fighting climate change.

The slowdown may hamper progress toward a global trading system for emissions, said David Lyon, senior manager for sustainability at management advisers Arthur D Little Ltd.

`Patchwork'

``It will be a bit of a patchwork'' for many years before the world gets a global price for carbon dioxide emissions, Cambridge, England-based Lyon said by phone. ``There may be pushback on compliance'' with the Kyoto treaty, which runs through 2012, as economic growth slows over the next few years, he said. ``It depends on the depth of the recession.''

U.S. legislators and policy makers, including advisers to President-elect Barack Obama, meet this week in Washington at the Carbon Market Insights Americas conference for talks on the future of emissions trading.

EU carbon permit prices have plunged 36 percent from their July peak on concern a recession will lower energy consumption. The EU market is the world's biggest greenhouse-gas trading system. U.S. production of carbon dioxide isn't capped.

EU allowances for December fell 0.5 percent to 18.60 euros ($23.85) a metric ton on London's European Climate Exchange at 4:04 p.m. local time. They were earlier as high as 19.20 euros. EU permits reached 29.69 euros a ton on July 2, a two-year high. The current phase of the regional trading program runs for the five years through 2012.

Deeper Cuts

The economic decline, which will bring lower power prices, gives governments the chance to seek even deeper emission cuts in the eight years through 2020, Cameron said.

``If you do a `to do' list for climate change and coping with the recession, you get quite a good overlap,'' Cameron said. ``Government initiatives that boost `green' jobs make the economy more energy-efficient.''

Unless carbon dioxide emissions are cut, the world faces more floods, droughts, disease and food shortages, scientists say. Greenhouse gas reductions by developed nations won't be enough to limit temperature increases to 2 degrees Celsius (3.6 Fahrenheit) as developing nations expand, the International Energy Agency said Nov. 6.

The U.S. under Obama's leadership ``will be a willing participant in a bargain that will be struck in December 2009 in Copenhagen,'' as part of United Nations climate-protection negotiations, Cameron said.

China Cooperation

Obama, who will take office on Jan. 20, told China's President Hu Jintao on Nov. 8 the U.S. aims to strengthen its cooperation with the world's most populous nation on climate- change, the official Xinhua News Agency reported.

The U.S. will probably only agree to a UN-sponsored climate deal if it ``does not look as if it's a command to the U.S. to do something it didn't already intend to do,'' Cameron said. ``That makes me very worried about the timetable.''

The U.S. probably won't pass a climate-protection bill in 2009, said Alex Rau, San Francisco-based founding partner of Climate Wedge Ltd., an investment advisory firm whose clients include the California Public Employees Retirement System. The system known as CalPERS is the U.S.'s biggest public pension fund.

Lawmakers are likely to form a consensus ``so that the U.S. can go to Copenhagen in December 2009 and present to the world what is likely to be achievable in the U.S. congress -- and have that enacted in 2010,'' Rau said.

The Western Climate Initiative, a collaboration of seven western states including California and four Canadian provinces, has vowed to cut emissions by 15 percent of 2005 levels by 2020. ``That level of ambition is very realistic,'' Rau said.

That's less than the more than 40 percent reduction on 1990 levels that India wants from developed nations by 2020.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

Last Updated: November 10, 2008 12:09 EST