(FORTUNE Magazine) – George Bush has taken a beating for saying flat out that the U.S. will not try to meet the targets set by the 1997 Kyoto Protocol on global warming. But here's the thing: Kyoto was already dead. Bush just drove a stake through its heart.

Even before the Bush-whacking, the pact's targets were fantasies. The protocol called for the U.S. to reduce its emissions by 7% from 1990 levels by 2008. Instead, emissions continued to rise; estimates are that by 2008 they'll outpace 1990's levels by at least 20%. To meet its target, the U.S. would have to shut down half its coal plants. Now. For all its ranting about Bush's perfidy, Europe is falling behind too. Though it's true that Europeans emit about half the greenhouse gases per head as Americans, if current trends continue the EU will be spewing more emissions in 2010 than in 1990. (Kyoto mandated cuts of 8%.) The bottom line is that no nation anywhere is willing to upend its economy to make the drastic changes--banning the internal-combustion engine, say--that could really cut carbon dioxide levels.

Where does that leave Bush? With an opportunity. Just as free trade helps a country even in the absence of a formal group like the WTO, smart energy use is also an intrinsically good thing. The U.S. should be in favor of cleaner energy simply because it's cleaner; of efficiency, because it's better than inefficiency. And reasonable efforts needn't hurt the economy. Last year Finland cut its energy consumption by 1.6%, while growth hit 5.7%. Closer to home, companies like Du Pont, Boeing, Johnson & Johnson, and GM have gone to great lengths to improve their use of energy. That has cut emissions and helped the bottom line. It ain't easy being green--but it can pay.

There are a lot of sensible things America could do in this regard. Texas and Illinois, for example, should write energy standards into their building codes. Encouraging companies, perhaps through tax credits, to install cleaner power--such as combined heat-and-power plants and eventually fuel cells--reduces the need for new plants, which are incredibly difficult to build in the age of NIMBY. (Can you say "California"?) Bush should look into a short-term tax credit for buyers of hybrid cars, a promising technology whose adoption would take a huge bite out of emissions--and also of smog.

On a bigger scale, the U.S. should establish a voluntary market for trading greenhouse gases. Since the Administration of Bush the Elder, companies have bought and sold the right to emit a limited amount of acid rain pollutants. The idea, which has worked beautifully, is to provide an economic incentive to clean up. There's no reason that a greenhouse version wouldn't work too.

Why bother? Because a trading system would ease the transition toward cleaner fuels. It's worth noting that for a century, power generation has been shifting to less-carbon-intensive fuel sources, from wood to coal to oil to gas. That trend, bolstered by political pressure to reduce greenhouse gases, is not going to change. The coming reality is a "carbon-constrained world," says Carlton Bartels, CEO of CO2e.com, which brokers carbon credits for utilities and oil-and-gas companies. "Whether you believe [in] global warming or not, you need to be prepared," he notes. Exactly.