The draft Climate Change Bill is a landmark in environmental policy. The UK will become the first country in the world to establish a legal framework for moving to a low-carbon economy; the first country to take the idea of "carbon budgets", developed in the Kyoto Protocol, and place them at the heart of domestic policy.

The aim of the Bill is to help turn Britain into a low-carbon economy - saving us money, creating new jobs, and getting India, China and the US on board in what is a global battle. I believe, over time, it will become a piece of legislation that is replicated in other countries as the world moves from awareness about climate change to action.

The Bill establishes in law our target to reduce carbon emissions by at least 60 per cent by 2050, and by at least 26 per cent by 2020. Following advice from an independent committee on climate change, we will create statutory carbon budgets where every tonne of carbon will be counted every year over a five-year period.

To ensure citizens can hold government to account in the short term, an annual report to parliament will provide accountability over carbon reductions.

Business have said to us that they want long-term clarity about what carbon reductions are expected, but maximum flexibility over how they meet their obligations.

That is why we will set carbon budgets three at a time - for 15 years in total - providing clarity to businesses over what is expected from them.

It is also why we are creating powers that will allow us to extend carbon trading - so that emissions are reduced in the sectors and places where it is most cost-effective.

Within a decade, all our new homes should become zero-carbon. Citizens will be able to export electricity to the national grid. Existing homes should become more energy efficient.

Post-oil economy

Coal-fired power stations will be fitted with carbon-capture and storage - a technology that cuts emissions by up to 90 per cent. And in transport, we will have to make steps towards becoming a post-oil economy, with biofuels, hybrids, and, ultimately, fully-electric or hydrogen cars replacing traditional petrol cars.

So 2007 could go down as the year when politicians around the world began to address the most daunting challenge facing our generation. If we are to do that, all political parties must challenge their traditions and instincts.

It requires the Left to embrace the role of markets in carbon. But it also requires the Right to accept that carbon markets can only be created and enforced by the state. Most of all, it requires parties to avoid the comfort of isolationism.

The UK can lead the world on climate change, but only as an active partner within Europe - and only if it maintains its relationship with the US.

Last week's agreement that the EU would cut emissions by 20 per cent by 2020 will change the terms of debate internationally on climate change.

The UK can only lead by being pro-European and by demonstrating its credibility through domestic commitments. That is why the UK Climate Change Bill is something I hope all parties, businesses and environmentalists will support.

David Miliband is the Environment Secretary of Britain.