Energy Policy for the Future? Government or Markets?

No matter whether one belives climate change is a major threat to humanity or a minor bump on the road to global prosperity, most Western governments have set clear goals for how much they aim to reduce greenhouse gas emissions. Given the political situation, the question is how to find solutions that produce the most bang for the buck. From an economic point of view, any answer is about striking the right balance between reducing emissions the most at  the lowest possible cost while minimising the disruption to human society.