Tonight I will address why the environment, and specifically the fight against global warming, needs an energised, free-thinking and ambitious Labour Party; and I will also set out why the renewal of Labour needs the challenge, energy and idealism of the environmental movement. The modern challenge of climate change needs a re-modernised Labour Party. It is entirely appropriate, I think, that the lecture today is hosted by the Fabian Society.

The last century has shown that in Britain it has always fallen to progressive forces to respond to the injustices and inequities which free markets throw up, and use the power of collective action to harness markets for positive effects. That is our task in respect of climate change: to apply in new ways our insights about economic and social life. And over that century Labour has only ever prospered when it has drawn strength from the most dynamic currents in civil society – from the trade unions who founded the party in the 19th century, from so-called Social or 'New' Liberals after the first world war, from Keynesians in the 1930s, from movements for equal rights in the 1960s and 1970s.

The Fabian Society, throughout its history, has provided an important source of ideas but also a vital bridge between the party and civil society. That is never more necessary than today, as for the first time we debate not how to haul ourselves back from regular defeat, but how to renew ourselves after successive victories.

For Labour to justify its re-election as a party of government in 2009 or 2010, we need new ideas for Britain in 2015 and 2025, not Britain in 1997. We cannot rely on the rear-view mirror. As a matter of political substance and as a matter of political tactics, we need to be the change at

the next election.

The Conservatives will try to convince people that they will not upend the changes made since 1997; it is up to us to show how we will build on them. We need to be more radical in our goals, and more radical in the means to achieve them. That is why I say 2007 needs to be the year of idealism and the year of ideas.

The battle against global warming is a vital test case.

Climate Change is Clear and Present

There are four points that form a critical foundation for my argument. I will not dwell on them but they are the basis for what follows.

First, that the science of climate change is clear: we are in a dangerous place now when it comes to global warming, we know the proximate cause is the emission of greenhouse gases, and without correction we will be in a very dangerous place quite soon. We have fifteen to twenty years for global carbon emissions to peak and thirty to forty years to reduce them by 25 to 50 per cent.

Second, that the economics is now also clear: action against global warming has costs, but they are lower than the costs of inaction. The technology exists or is in the pipeline. It will cost between five and twenty times less to invest in reducing greenhouse gas emissions than face the consequences.

Third, the challenge is therefore primarily a political one: how to secure collective action on a global and a local scale. Countries will only take on board commitments if they know others will reciprocate; the same applies to individuals.

There is a fourth point. The political challenge is domestic and ideological as well as international and technological. The political leaders in this country now agree climate change is a big issue – but if we are honest it is a massive challenge to the policies and practices of every political party:

• it is a challenge to the Right because although there is a conservationist tradition at the heart of any party that calls itself 'Conservative', it is incompatible with a belief in free markets, a minimal state and Euro-scepticism
• it is a challenge to the Left because although there is a red-green tradition, climate change requires us to rethink how we approach questions of production and distribution
• and it is a challenge to the way we do politics because it calls for real rather than rhetorical solidarity with people around the world and people not yet born, real rather than rhetorical acceptance that governments and markets have both failed to get the answers to this problem, and real rather than rhetorical engagement with the need to mobilise people to help tackle the problem.

Today, I want to talk about how we overcome this political logjam.

The limits of deep green

Although the roots of the green movement stretch back centuries, it was in the 1960s and 70s that modern environmentalism took off. The publication of Rachel Carson's Silent Spring in 1962 warning of the impact of pesticides on the bird population, and the Club of Rome's Limits of Growth a decade later, along with James Lovelock's Gaia thesis in 1979 catapulted environmental concerns into the mainstream of political debate.

While there is huge diversity and debate within the green movement, environmentalists became associated with challenging our interest in economic growth and material progress, and advocating a return to simpler living, personal sacrifice, and spiritual rather than material progress. This gave the movement a deep but narrow appeal. By exaggerating the trade off between economic dynamism and environmental protection, between human welfare and nature, the politics of the environment failed to gain the legitimacy needed to make it a governing idea for a major party.

Arguing for zero growth, particularly to rapidly industrialising developing countries plays to the worst fears of India and China – that climate change is an excuse to cement the existing disparities in wealth and power. If we are to gain a consensus here and abroad that climate change is soluble, it has to be an ally of aspiration, progress and economic growth. Zero growth is impractical and immoral. That is why climate change must enter mainstream political parties rather than remain within a separate green culture. The Stern Report shows it is pro growth to be pro green; but equally unless we are pro growth, especially for developing countries, we will not end up being pro green.

The limits of Blue-green

If deep green is no answer, what of conservatism? The truth is that there is a tradition on which Conservatives can call, but it is a commitment to conservation of the status quo – or a return to the status quo ante - not radical change to meet a new threat. Zac Goldsmith says 'I consider myself a conservative as opposed to a radical'. The problem is that climate change is about managing radical change - a transition that will challenge established routines and institutions.

In reality climate change challenges the very basis of conservative thinking:

• It challenges the idea of national sovereignty over decision making. Climate change is the defining example of interdependence and the need to pool powers in international institutions.
• It challenges conservatives' attachment to free markets. Markets work when the price of goods reflect their value. But climate change is the defining example of market failure – where the price does not reflect the cost to the environment. The need to account for the interests of future generations trips up even thoughtful free marketeers.
• It challenges conservatives' dogmatic distrust of the state. Climate change cannot be addressed by purely voluntary action alone. It requires the power of the state – to regulate and tax, to subsidise if necessary, and to define and enforce property rights. This is why David Cameron's language of social responsibility cannot deliver the substance of national action – it is simply not enough to implore greater responsibility from individuals for a problem that needs organised collective action.

Red-green

I believe, therefore, it is plausible to argue that unless parties of the centre-left address climate change, it will not be addressed.

• It is a progressive project to use government to shape markets – and that is vital in the battle against climate change.
• It is a progressive project to put social justice at the heart of politics – and an equitable balance of rights and responsibilities as the defining test of a civilised society.
• And it is a progressive project to recognise the importance of internationalism in an age of interdependence.

However, Red-Green must be more than a marriage of convenience. We need to show that red and green traditions can challenge but enhance each other.

The vision of New Labour in 1997 got a lot right. It has helped rehabilitate collective action and re-frame debates about the economy, public services, national culture. But the vision of 1997 is not sufficient for 2007 – when the science has moved on, when popular concerns have moved on, when we as a party have moved on.

I believe there are four areas where we need especially to up our game. The symptoms of global warming are environmental, but the causes go to the heart of economic policy, social policy, foreign policy, and even our vision of democracy itself.

First, climate changes requires a different vision of political economy. As Gordon Brown has set out, in 1997 we made economic stability and high employment our top priorities, but in 2007, we need a third ambition, to redress the imbalance between the natural resources we consume, and the natural capital we reinvest. A kind of "golden rule" to ensure we do not mortgage the futures of our children in an unsustainable ecological debt. That is the significance of the Climate Change Bill – a reform that ensures the UK is the world's first country with a legislative timetable for becoming a low-carbon economy.

As many businesses, including the CBI have said, we need to give certainty not just about public finances and low inflation, but also the carbon-priced environment in which we want business to operate. This means leading the economy not just managing it.

In 1997, we said we wanted to extend the power of choice and voice that exist in the private sector to public services. Today, we need to extend market mechanisms to public goods. We need to put a price on carbon dioxide and use the power of the market to find the lowest cost emissions.

In 1997, we said we wanted to raise labour productivity. In 2007, we must focus as much on today's scarcity issue – natural resources – and commit to raising natural resource productivity.

In 1997, we introduced the idea of Best Value to improve the efficiency, equity and effectiveness of local services. Today, we must always build in the need to tackle climate change when we commission and provide services.

In 1997, we regulated to protect labour standards – signing the social chapter and the minimum wage. In 2007, regulation must focus on environmental standards, from zero carbon homes to phasing out energy inefficient light bulbs and appliances, with the UK acting as the champion of reformed EU regulation.

Finally, in 1997, we focused on macro-economic stability and active labour market policy. Old style industrial policy, sector by sector was condemned as micro-management. But like Eastern Europe after the cold war, we are now a 'transition economy'. The lessons are clear. Too much government and you stifle the power of the market. Too little and you have a free-for all.

A low-carbon economy will have a new market at its heart: a market in carbon, with the vast majority of the economy covered by carbon trading. Getting there will require a mix of measures: regulation, tax, subsidy, planning, procurement, the transformation of markets, all to accelerate change. It will require a stronger role for government as leaders of change – helping the complex system of public and private organisations that affect our travel, our housing and waste – adapt to a new economy. And it will require a new confidence – not to pick winners but to transform markets so that they price out the high-polluting losers.

The second area where climate changes tests our capacity for new thinking is in respect of social justice.

This will test us philosophically and politically. Theories of social justice have often struggled to grapple with inter-generational injustice. John Rawls famous 'veil of ignorance' asked us to consider what position we would take if we did not know which of the current living generations we were born into. Climate change requires us to thicken the veil and consider how we should act if faced with the possibility of being born far into the future.

Without a clear theory of how environmental burdens and rewards can be shared fairly between nations and generations, we will not secure a global deal between developing and developed countries, and we will not sustain the moral authority to drive change at home. We take as our starting point 'common but differentiated responsibilities'. In essence, this means recognising that developed countries need to show leadership, help bridge the gap between high carbon and low carbon paths of development, and support the adaptation to the climate change already in train due to industrialised countries emissions. In return it means developing countries must recognise the need to play their part in developing low-carbon economies.

But climate change will also challenge our notion of social justice domestically. The application of a 'polluter pays' principle involves distributing resources based not just on need but desert; a recognition that resources should be linked to fulfilling citizenship responsibilities.

So while in 1997, our conception of citizenship was social, economic and political, today it must also be environmental. Just as in 1997, we developed a New Deal for the unemployed – and provided more help, training and financial rewards conditional on people taking up work opportunities – today we must look at providing more help and incentives for people to save energy and recycle in return for citizens sharing responsibility with the state for maintaining the environment.

Just as in 1997, we introduced political citizenship education into schools, today we must think how our education system can nurture environmental citizenship, and how our schools can become exemplars of energy efficiency and micro-generation.

Third, New Labour was right to challenge the Euro-scepticism that had dogged both the major parties. But today the European project has stalled: the constitution rejected, its raison d'etre in question. Now is the time to recognise that in an interdependent world we need a Europe that works, based on a new mission for the EU - taking the carbon out of the Single Market. We must be prepared to make the case for a powerful EU in return for institutions that are more transparent and more accountable.

So what would a new EU – an Environmental Union – focus on?

It would agree to a 30 per cent cut in greenhouse gas emissions by 2020.

It would extend the European Union Emissions Trading Scheme to aviation, and potentially surface transport; link the scheme to emerging carbon markets to form the basis of global trading scheme, and secure its long term future as the biggest delivery vehicle of our 2020 and 2050 targets.

It would use the size of the single market and intra-European trade to ensure higher environmental standards without competitive disadvantage, whether through mandatory tradeable emissions standards for car manufacturers, tougher energy ratings for products, or regulating out of existence high polluting electrical equipment and household appliances.

It would reform the CAP and refocus the programme on environmental public goods rather than subsidising food production.

It would develop a major technology and R+D programme aimed to supporting innovations in energy and transport, and transferring innovations to developing countries.

It would use the power of negotiating as a single block to forge an ambitious post-2012 international framework.

If we do so, the prize is bigger than many imagine. Reducing the dependence of the world economy on oil is at the heart of Middle East Peace challenge. Preventing Climate Change would avoid the disastrous migrations and conflicts over natural resources. Creating a robust Global Carbon Market would see more transfers from North to South than the development policies of all of Europe put together. Climate Change is a security issue, a migration issue and a development issue.

New Politics

Finally, climate change will challenge our way of thinking about politics. Our conception of politics has too often been Whitehall and Westminster based. It has allowed management to have a greater role than mobilisation, governing not campaigning. It has been based on active government but not active enough citizens.

Climate change shows how out-dated this is as a model. People want to do their bit to tackle climate change. They don't want the dilute and remote influence of lobbying their representatives through the occasional tick in the ballot box. They want to be players not just spectators.

However, they lack the information on what changes in their lives would make a difference, get confused by the welter of contradictory messages on what car to buy or whether offsetting makes any difference, but most of all, worry that their actions will not be reciprocated by others either here or abroad, and therefore wont make a difference.

We can only tackle this sense of powerlessness by creating a unique combination of collective action through the state, and individual action through markets. Government must create the framework – establishing through legislation the pathway to a 60 per cent reduction in Carbon emissions by 2050. Government must show we are doing our bit directly in achieving this, whether this is ensuring all new homes are carbon zero, making the government estate carbon neutral, or factoring in sustainability into public procurement. But Government must also create the tools for others to take action.

The implications are most far-reaching in the idea of personal, tradeable carbon allowances, about which Defra published an issues paper on Monday.

44 per cent of all emissions are by individual households, most of which comes from four transactions: electricity and gas in our homes and car and air travel. Under a PCA system the government defines the overall carbon budget and allocates carbon allowances to each individual or household in a fair way. Individuals through their own actions and through trading find ways of living within these limits: those who are environmentally thrifty are financially rewarded; those who don't pay.

PCAs combine the evidence from science, government embodiment of collective will, and individual initiative. That is what New Labour – or new New Labour – needs to be about.

If we are to engage citizens in tackling climate change, we must be the party prepared to show that radical problems need radical solutions; we must be the party that creates a link between everyday politics and Westminster politics.

Conclusion

Let me conclude where I started – with the needs of our party as well as the needs of the planet. We should be proud of our record. But elections are not about thanks; they are about vision and change; and we need to show that we have the desire and the ideas to be the change. To take forward a progressive vision of political economy, a progressive vision of social justice, a progressive vision of international action, and a progressive view of politics.

It's not enough to say we have the right values. Now we have to show they can be re-applied.

History gives us a warning. 100 years ago we had a dynamic social movement, led by trade unions, struggling to find a political home. Many within the labour movement, including Keir Hardie, began their life as Liberals. But the failure of the Liberal Party to open itself up to new ideas, to a new movement resulted in the creation of the Labour Party, the end of the liberals as a party of government, and a fatal division between progressives.

Today, there are parallels with the environmental movement. It is a growing force in civil society, searching for a home in mainstream politics. The party that succeeds will be the natural party of government. At the next election, environmental credibility will be a threshold issue, alongside national security, economic policy and public service investment. Flunk on any of these and you are unelectable.

But to win the argument we need more than policies. We must make it a defining mission for the party – something that recruits and inspires the next generation of Fabians and labour members. We must never fail to remember that climate change is about people not just nature, a social issue not just an environmental one. Al Gore's movie warned us of a 'planetary emergency'; in fact, it is also a warning of a humanitarian crisis.

Sidney Webb did not get everything right. But he did say the following:

"The community must necessarily aim, consciously or not, at its continuance as a community. Its life transcends that of any of its members…

That is why this issue is so important – not just for the future of the planet but for the future of our government.