I mean why should the Chinese and Indians build huge numbers of coal burning dirty power plants to power their factories for their millions of poor 1 USD/ day worker who take our jobs away, while at the same time destroying the environment we are trying to protect.
A subject that I don't think gets nearly enough attention is that of imported pollution, the embedded CO2 etc in imported goods. Whilst Europe may have reduced CO2 emissions from within its boarders, I suspect Europe's global CO2 contributions haven't. Unfortunately the kind of international CO2 accounting that would be required to make progress in this area doesn't seem to exist.

It is counterproductive to export energy intensive industry from a country in Europe with relatively strict environmental legislation to somewhere like China with lax legislation. European consumers should be exposed to the costs of the marginal environmental damage caused by the Chinese factory over the European factory (including transport) and pollution based import tariffs seem a reasonable approach... if there was robust international pollution accounting.

It is worse than that. By off-shoring energy intensive manufacturign processes from Europe to India, China or elsewhere, European companies can not only reduce labour costs but also profit from selling the CO2 emissions permits they will create through reduction of allowed emissions within the EU. At around €9/mt for 2007 and €16/mt for 2008 forward, this means these companies are actually being paid to export their pollution to lower cost manufacturing bases.
Good point, so European carbon trading legislation is actively driving, incentivising even increasing global CO2 emissions? Crazy but it seems to be true.

If we accept that manufacturing a widget in China (or similar country) emits more CO2 than manufacturing that same widget in Europe (to quantify this, comparing the average CO2 per kWh of Chinese vs European electricity might be a good proxy to start with) then anything that encourages such off-shoring of widget manufacturing drives global CO2 emission.

Putting a price on European CO2 emissions of, as you say around €9/mt for 2007 and €16/mt for 2008 forward creates addition incentive on top of all the others for this CO2 increasing off-shoring. Import tariffs in excess of the local emission costs would negate this effect, at least for European consumption.

To be fair though carbon trading must also be lowering the carbon intensity of CO2 emitting activities that remain in Europe so it can't be all bad news!

I am not sure about the efficacy of carbon trading. It seems to act more as a determinant of the import/export of pollution than signifincantly to reduce it (though I do accept that there are reductions as a result of crabon pricing).

Many European companies also seek to offset their emissions through the purchase of Certified Emissions Reductions (CERs) in other parts of the world, which obviously also goes to offset to a certain degree the exported pollution of off-shored manufacturing.

There is some anecdotal evidence that not all CER schemes are actively welcomed by their host communities (small hydro schemes in India flooding valleys and forcing population relocation, for example). Furthermore, I am not convinced that saving rainforests from slash/burn agriculture or palm plantations is ACTVIE reduction of emissions, in that carbon would be sequestered in any case. That is not to say that I am not in favour of saving the rainforests, I am, hugely so.

On another note, I believe the growing need for liquid bio-fuels as petroleum replacement represents the biggest single threat to the rain-forests. Both Malaysia and Indonesia are accelerating the destruction of Borneo's forests to plant palm oil plantations, and I believe that Brazil will increasingly encroach on the Amazon when it becomes clear that US corn is both too expensive (in comparison to Brazilain sugar cane) and also increasingly required to feed both humans and farm animals.

We need to look to crops that can be grown on marginal land rather than compete for either arable or forest land. In this respect Jatropha appears to be a perfect biodiesel source plant (http://www.biodieseltoday.com/whyjatropha.htm). I calculated that we could produce 1 million barrels/day of biodiesel with "only" 24 million hectares of Jatropha plantation or approximately 0.35% of the land mass of the African and Asian continents. Clearly not a "silver bullet" solution, but surely grist to the mill and also a provider of signifincant employment and revenue in the world's poorest regions.