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The UN conference now under way in Bali represents a watershed in the history of climate negotiations. The Intergovernmental Panel on Climate Change warns that global emissions must peak by 2015 and then decline if we are to avert catastrophic climate change. The Kyoto Protocol was merely a warm-up match. Its successor will be the main game. And it will have to be concluded by the end of 2009 if the new treaty is to come into force after the expiry of the Kyoto commitment period in 2012.

Two central challenges face the Bali negotiators. The first is to persuade developed countries to move towards robust targets in the next commitment period, such as the European Union's proposed 30 per cent cut below a 1990 baseline. The second is to engage the emerging big emitters from the developing world, such as China and India, in serious mitigation efforts. Whatever the outcome, it will build on the architecture of the Kyoto Protocol.

The Rudd Government also faces a diplomatic challenge if it stands by its campaign backflip that it would only commit to a post-2012 agreement if both developed and developing countries accept binding commitments. What might these commitments be, given that it is clear that neither the US nor China will agree to mandatory targets in the second commitment period?

Australia must work creatively with, rather than against, the architecture of the Kyoto Protocol. This includes the basic burden-sharing principles of equity and "common but differentiated responsibility", which requires developed countries to take the lead on the basis of their greater historical responsibility for emissions and their greater capacity to absorb emission cuts. This is precisely why only developed countries in Annex B of the protocol were required to take on mandatory emission reduction targets in the first round, a point consistently and conveniently ignored by the US and Australia in recent years.

No agreement was reached at Kyoto as to when developing countries might be expected to commit to binding targets in the future. Nor is it clear on what basis they might graduate to Annex B. It is patently clear that developing countries are not ready to take these steps in the next commitment period, and for good reason. There is a fundamental difference between subsistence and luxury emissions.

One of the biggest flaws of the Kyoto negotiations was the failure to develop a formula for the fair allocation of emission targets. Developing countries were partly to blame for this. In refusing even to broach the subject of targets at Kyoto they were unable to shape a debate about a fair formula to serve their future environmental and development needs. The upshot was the developed country targets were negotiated on the basis of political expediency. Australia emerged with a windfall target of an 8 per cent increase on 1990 levels (compared with the Annex B average of a 5 per cent cut), and a baseline inflated by the inclusion of emissions from land clearing.

If Kevin Rudd wishes to play a creative leadership role at Bali he faces two choices. The first choice is to accept that developing countries should not be asked to adopt binding targets in the second commitment period. This will require supporting strong targets for developed countries of at least 30 per cent. It will also require engaging big emerging emitters such as China and India on voluntary but effective mitigation measures.

For example, Australia could push for the creation of a multilateral fund (following the model of the Montreal Protocol) that will finance the incremental costs of mitigation measures by developing countries. It could also support the idea of voluntary targets for developing countries that provided no sanctions if they underachieve but significant rewards if they are met, and the option of selling their carbon credits if they overachieve.

But if Australia insists on targets for all then it should support an equitable formula for allocating differentiated emission targets that takes account of historical responsibility and capacity. One such model is EcoEquity's Greenhouse Development Rights. This model provides a threshold for graduation to Annex B that safeguards the rights of those living in poverty to reach a dignified level of sustainable human development. On this model, Singapore and South Korea would be expected to graduate to Annex B, while other developing countries would remain exempt until they reached the trigger. The targets of Annex B countries would be scaled according to responsibility and capacity.

Another option is the Contraction and Convergence model of the London Global Commons Institute. Under this model, world aggregate emissions must contract to a safe level within an appropriate time, and each country's per capita emissions must eventually converge to that safe level. This effectively gives each citizen of the world the right to pollute up to a certain safe level. Countries with high per capita emissions must contract towards the safe level, while countries with very low per capita emissions would be given room to grow. The adjustment would be facilitated by global emissions trading.

Finally, Australia's credibility as an international negotiator will turn on the extent to which the Rudd Government is prepared to move Australia towards a low carbon economy.

Professor Robyn Eckersley a professor of global politics at the University of Melbourne.