How we can bring down the carbon emissions(Image - Danny Lawson - PA Wire)

Kill the cows, save the planet.

Sorry, but they have to go. Lord Stern, who wrote the 2006 Stern Review on the cost of tackling climate change, has singled them out. To put it politely, they produce too much 'waste product' (methane is a much more powerful greenhouse gas than carbon dioxide) and raising livestock consumes water and land in large quantities.

As practical solutions to the issue of climate change go, this one's not really ticking many boxes. Lots of people like eating meat. Lots of people rely on farming and selling it to make a living. We could raise meat prices, perhaps through taxes. But how much public support is that going to get? And I suspect that black market steak would become surprisingly popular.

The good news is that Lord Stern's suggestion doesn't form part of the recommendations from the latest report from the Committee on Climate Change (CCC), which was set up in 2008 to monitor how we're doing with cutting carbon emissions. The bad news is that the CCC reckons we do need to act rapidly to cut emissions faster. So how can we do it?

Before I start, this is not a piece about the rights and wrongs of climate change and whether tackling it should be as far up our priority list as it is.

Instead, I am starting from the premise that governments around the world have already decided they want to target emissions of greenhouse gases and carbon dioxide in particular.

How to cut our carbon emissions
So far, one of the key methods of attack (in Europe at least) has been carbon trading under the EU Emission Trading Scheme.

In a nutshell, the idea is that you issue a set number of carbon credits - licenses to pollute, basically - across Europe. Industries who are big polluters can either buy extra credits from other polluters or cut back and pocket the money from selling their spare credits on the carbon market.

It sounds like a great idea and it has worked in the past - a similar emissions scheme (tackling sulphur dioxide) to cut acid rain in the US in the 1990s has been widely viewed as a success.

Trouble is, our attempts so far aren't sucking carbon out of the atmosphere nearly fast enough to meet our somewhat arbitrary goal of slashing carbon emissions by 80% on 1990 levels by 2050.

Chairman of the CCC, Lord Adair Turner, reckons that we need emissions to fall by 2-3% a year, rather than the current 0.5%. In other words, we need to slash emissions perhaps six times as quickly as we are now. As the CCC put it understatedly, that's a "step change".

And that means the gloves are coming off. David Kennedy, the CCC's chief executive, said: "We've stuck with the market a long time. We don't think we can stick by it anymore."

Why isn't the market delivering?
It's pretty easy to see why this isn't working. Markets function on the basis of supply and demand. Prices go up when demand is higher than supply, which encourages producers to improve supply and thus reap the profits. So for the market to work we need to make clean energy more profitable than dirty energy.

But consumers just want plain old energy. For now, most don't especially mind whether it's low-carbon or not and it's impossible to tell from your energy bill anyway. For now, at least, it's easier and cheaper to make energy from carbon-emitting sources.

That's why the carbon market was introduced. But the price of carbon has been whacked by the recession, so it isn't high enough to make it worthwhile for power companies to take the sorts of long-term risks involved in building riskier and more costly low-carbon power sources, such as renewables, nuclear power stations or clean coal (particularly expensive and risky as it's an unproven concept which most greens object to in any case).

Meanwhile, on the energy efficiency side, people aren't buying into more fuel-efficient cars or getting their homes insulated fast enough for the CCC's liking.

So what can we do?
I'm a great believer in markets simply because I think they're the most efficient way to allocate scarce resources. And I think that greater transparency and better consumer information would help in this case.

British consumers are generally quite an ethical bunch. Organic and Fair Trade food cost more and arguably don't taste different, but British people are happy to buy them for their added ethical value.

So if energy bills were easier to understand, had some sort of carbon rating and you could more easily compare providers, I suspect consumers would become much more potent forces for change.

Similarly, if people could more easily see how much each individual appliance in their home was costing, then I suspect we'd all cut back on our usage quite rapidly. That's why I like the idea of smart grids and smart meters, to make energy consumption both more efficient and more transparent.

As for the car industry, well, it would help if the US government hadn't bailed out the least progressive car companies when they were on the verge of going bust. But with oil prices likely to stay high by historical terms, the likelihood is that consumers will start to see fuel efficiency as a far more important aspect of their purchase choice when they're buying a car.

Fiddling while the planet burns
But if we really are worried about carbon emissions, then this is all tinkering at the edges. We need to switch away from carbon-emitting power generation. And I don't see how you can persuade a private company to build a nuclear power station if a gas-fired one is cheaper.

So it comes down to making the price of carbon sufficiently expensive so that it makes sense for producers to switch out of such sources. This is where the flaw in the current carbon market lies.

If the purpose of the market is to drive down carbon emissions, then the number of permits available needs to be adjusted in such a way that carbon prices can be relied on to remain at high enough levels to encourage long-term demand for carbon-free power generation.

Recession not helping
A recession will of course cut carbon prices, but for the wrong reasons. When we come out of the recession, demand for power will rise and the proportion generated from carbon-generating sources won't have changed.

So there has to be a constant incentive to raise the percentage of our power generation that comes from carbon-free sources. That suggests that the number of permits available should be adjusted according to electricity demand, so that even when demand for power falls, prices for carbon are either stable or rising.

It's not the way a "true" market works, but carbon pricing is in reality more like a flexible tax - you are taxing "dirty" energy in order to subsidise "clean" energy.

I think it's better to do it like this rather than through a plain old tax, is because it gives individual companies more flexibility and the government can't be tempted to use "green" tax proceeds to fund unrelated causes (such as pension deficits).

Consumers paying the price
Of course, those costs will be passed on to the consumer. That'll provide an added incentive to improve energy efficiency on the one hand but it'll also mean angry consumers.

And that takes us back to the point we started with. If cutting carbon is worth us spending all this money on - and it may well be - then it would be good to get some clearer information on climate change, rather than headline-grabbing calls for a mass conversion to veganism - which, frankly, won't help anyone's case.

John Stepek is editor of Moneyweek