This chapter analyses the policy implications of the climate change challenge. Are current emission reduction pledges made in Copenhagen/Cancun enough to stabilise the climate and limit global average temperature increase to 2 oC? If not, what will the consequences be? What alternative growth pathways could stabilise the global average atmospheric concentration of greenhouse gases (GHG) at 450 ppm, the level which has a 50% chance of keeping the temperature rise to 2 oC? What policies are needed, and what will be the costs and benefits to the economy? How can the world adapt to the warming that is already occurring? To shed light on these questions, this chapter first looks at trends to 2050 in GHG concentration and emissions (including from land use), temperature and precipitation under the Environmental Outlook Baseline scenario of business-as-usual (i.e. no new action). It then takes stock of the state of climate policy today. Most countries use a mix of policy instruments, including carbon pricing (carbon taxes, cap-and-trade emissions trading, fossil fuel subsidy reform), other energy efficiency policies, information-based approaches and innovation policies to foster clean technology. The chapter then looks at what further action is needed by comparing different mitigation scenarios against the Baseline. These include various scenarios to stabilise GHG concentrations at 450 ppm and 550 ppm using different technology options, e.g. carbon capture and storage, phasing out nuclear power, and increasing the use of biofuels; linking carbon markets; and various emissions permit allocation rules. The chapter concludes by outlining how limiting global warming will require transformative policies to reconcile short-term action with long-term climate objectives, balancing their costs and benefits. Timely adaptation policies to limit damage by the already changing climate will also be essential.