Monday, 4 February 2008, 01:31 GMT

If the world is to end the threat from climate change, we need to produce more with less energy, says Mark Moody Stuart. In this week's Green Room, he outlines his vision that will help society fulfil this goal.

Consumer opinion and choice is important, but it will not do the trick on its own

To address the climate challenge we need to reduce the carbon content of our energy by at least half.

But at the same time we must learn to generate a unit of GDP for about half the energy which we use at present.

Energy efficiency and carbon content of energy are equally important, but they require different approaches to achieve them.

I am a great believer in both the power of consumer choice and the market. As we come to understand the consequences, we do tend to make greener choices.

But most of us will only make those choices if they deliver the convenience and utility to which we are used or aspire; and if they do not cost more (or we can afford the luxury of choice).

Consumer opinion and choice is important, but it will not do the trick on its own. Its importance is in encouraging companies to supply the market in more climate friendly ways, and most importantly in encouraging governments (for whom consumers vote) to take the steps needed.

'Bitter experience'

So what of the market? It is an unsurpassed mechanism for allocating resources to deliver better things. Through competition, technologies are optimised or discarded, opening the field for creativity and choice. I believe in the power and value of markets.

But like most things, they have a failing. Without regulation to channel their power, markets will not deliver things which are of no immediate benefit to the individual making his or her choice, even though they may be beneficial to society.

Increased spending power must not lead to more fossil fuel power

Without regulation, markets would not have delivered unleaded gasoline, catalytic converters on the exhausts of cars or seatbelts and airbags, nor clean air to London after the killer smogs of the 1950s.

In New Delhi, regulation forced three-wheeled vehicles, taxis and buses to switch to clean gas fuel. The initial complaints were great, but everyone, including the taxi drivers, blessed the result.

These regulations were not cost free, but everyone benefited. Regulation was needed to channel the power of the market, but regulatory frameworks have to be simple and practical.

The gut opposition of business people to regulation comes from bitter experience of regulations which don't just frame the market but bind it hand and foot and tell us how things must be done.

This kills markets and takes the fun and variety out of life.

Carbon price

So what are the frameworks we need?

For carbon content, we need a mechanism which forces energy supplies in the right direction. This means putting a price on carbon for major producers (and large-scale users) of energy through a carbon cap and trade system, such as we already have in Europe.

Unfortunately, this system has been initially subject to government and business special pleading and gaming. Or it means a carbon tax.

Both are complex and should only be applied to major producers or users. Trading encourages carbon-avoiding investment where it has the most impact. It also allows the transfer, through market mechanisms, of financial resources to China and India.

I do not think we will get a more global agreement without such transfer. Taxation has the great merit that it provides a clear floor price of carbon.

So for me the preferred option is a combination - a tax, but with the ability to reduce it through trading, getting the best combination of a floor price and efficiency of investment.

Most people think that a price of something around 40 dollars a tonne of carbon dioxide (CO2) to producers would do the trick.

Market decides

Before you panic about the cost to you and industrial transport, that is only about 5p a litre on fuel - within the noise of oil price variations.

On the other hand, for efficiency we need regulatory frameworks - very tough efficiency standards on buildings, on lighting and on personal transport.

That means banning the manufacture or import of old fashioned light bulbs.

Technically, this actually just means putting a standard on the efficiency of lights so that markets decide whether the best answer is compact fluorescent lights or the newer LEDs - old incandescents would never meet such a hurdle.

Only cars that make the grade can stay, says Sir Mark

It means very tough standards on buildings. This is already having an effect in London where to achieve highly valuable planning permission, developments are already achieving energy efficiency which we thought we would not achieve for a decade or more.

And for personal transportation? That means banning "gas guzzlers" and steadily increasing the total efficiency of any vehicle sold.

You can buy the roomiest, vroomiest car, as long as it meets the efficiency standard.

My wife and I have driven a hybrid since 2001 and it is a beautiful and comfortable piece of engineering, silent and will do 100mph (we tried it, but not in England!).

That may not be the best technology - the market will find out. But we must constrain the market in an efficiency framework.

To achieve the same through taxation would mean fuel taxes at levels which would play havoc with industry, countryside dwellers and the poor who need transport.

Sir Mark Moody-Stuart is non-executive chairman of Anglo American, and is a member of the UN Global Compact and chairman of the Global Compact Foundation

The Green Room is a series of opinion articles on environmental topics running weekly on the BBC News website