Any more warnings that time is running out to stop global warming and Hollywood will have the script for a sequel to Groundhog Day. Tuesday’s report on climate change by the United Nations Development Programme sounds the latest alarm call. After the shortcomings of Kyoto, it declares, the world has one final chance to avert a disaster.

Like many blockbusters, the report’s conclusions are eye-catching. The cost of inaction will be higher than the spending needed to cut carbon emissions. A rise in temperature of 3-4 degrees Celsius could trigger catastrophe, depriving 1.8bn people of plentiful water supplies and displacing hundreds of millions more. Killer diseases could rampage through poor countries and species could become extinct. To avoid that, the report says, emissions must be cut by half. It puts the cost at 1.6 per cent of annual global output.

To their credit, the groundhogs are getting through to the politicians. Most western governments, even the sceptical administration of George W. Bush, now accept that reducing carbon dioxide emissions is vital to saving the planet. The hard part is how to achieve that. Talks on a possible successor to the Kyoto accord take place in Bali next month. Ministers may agree on the principle of cuts. That would be a good first step. But it is not enough.

To match rhetoric with action, governments will have to go much further and commit to establishing a price for carbon. There are two ways to achieve this: taxes and tradable emissions credits. Taxes, for which the UNDP sets out a strong case, would be the better of the two. Taxes would create price certainty for polluters, enabling them to invest efficiently. Revenues could be used to cut other taxes, on labour and investment for example, or to motivate the development of cleaner energy and transport fuels.

Carbon taxes are harder to sell politically than emissions trading, where credits are bought and sold. But cap-and-trade schemes have their own problems. While limits on emissions should be guaranteed by quotas, the carbon price is volatile. This makes polluters’ costs uncertain. There is scope, too, for manipulation. In the European Union scheme, power generators profited from over-allocation of free permits.

The two systems are not mutually exclusive. Indeed, a combination of the two is likely. When they meet, rich nations should remember that the end is far more important than the means. If taxes are politically unacceptable, then emissions trading, for all its flaws, is better than no system at all. In the battle to halt global warming, a credible carbon price is the valuable prize.