Crystal ball gazing and new year’s resolutions are a fool’s game. So too is trying to negotiate international climate change policy. The complexity and heartache reduced a senior United Nations official almost to tears at this month’s summit in Bali. A simpler prescription for saving the planet is needed. When talks begin on a successor to the Kyoto protocol, world leaders should unite around a single priority. They should aim to create a functioning market that puts a price on carbon.

The route map to a deal that emerged from Bali creates a framework for negotiations on a post-2012 treaty. It disappointed environmentalists who wanted to see specific targets for cutting greenhouse gas emissions. The talks, though, did achieve more than expected. There was agreement on the need for “deep cuts” in emissions and on a 2009 deadline for a deal. The 187 nations present said more money would be needed for poor countries to develop green technologies and adapt to the effects of climate change. But there was no decision on how nations should share the burden of curbing emissions. Nobody is on the hook for emission cuts. Nobody has been let off either.

Carbon pricing should not be seen as a catch-all solution to the problem of climate change. It is not. Indeed, tough regulatory action by national governments could be just as effective in setting industry standards that lead to emissions cuts. Without pricing, though, it is far from clear what economic tool can bring about the big reductions in greenhouse gas emissions that will be needed over coming decades.

There are two ways to put a price on carbon dioxide. Both have merits and drawbacks. The first is through taxation. Taxes have the big advantage of contributing to a stable and common price for carbon dioxide. They also raise public revenues that can be ploughed into incentives to promote greener energy. But, because voters dislike taxes, they are tricky to introduce politically. Nor is there an automatic transfer of revenues to poorer nations that need to invest in new technologies.

The second is through carbon trading. Emissions trading schemes such as the European Union’s set a ceiling on carbon dioxide output. Participants who want to pollute more than their quota buy permits from those who emit less. The caps help determine the price of carbon. A worldwide system of credits would allow the automatic movement of resources from rich polluting nations to developing countries.

One big disadvantage of emissions trading is that it sets a limit on the quantity of carbon dioxide produced rather than a stable price. The lesson from the EU’s scheme is that the price can be volatile, making investment decisions for big energy users difficult. A price that see-saws will delay the spending needed for long-term emission cuts.

Despite the drawbacks, emissions trading is emerging as the preferred route to setting a carbon price. Politicians believe it more likely to win acceptance than taxes because the cost burden lands on business. Consumers will feel it, but less visibly.

Given the political limitations, the UN-led effort should concentrate on ensuring emissions trading works. The coverage will therefore need to be global. Schemes in the US should be linked to Europe as soon as possible. Transport will have to be included too. Auctions must replace the free allocation of permits. And long-term emissions goals will have to be set to give business the certainty it wants. Success here, though far from a sure prediction, could provide the impetus for a much wider climate deal.