A think-tank report published this week recommends a radical overhaul of the tax system, proposing inefficiency charges on products that waste energy and water and new fiscal incentives to reward consumers for making greener choices.

As part of the tough regulations, people should be forced to fit water meters and pay taxes on products such as disposable batteries and cameras, garden sprinklers and incandescent light bulbs, says the report.

Commissioned by environmental think-tank, Green Alliance, the research carried out by the Policy Studies Institute says that measures to reduce energy consumption will not work unless accompanied by tougher policy measures. Domestic households currently account for 28% of the UK's greenhouse gas emissions, more than half our water consumption and ten per cent of waste.

The report recommends council tax reductions for householders installing insulation and energy conservation measures and the nationwide introduction of water meters. Local authorities should also experiment with variable waste charging, says the report, which would enable them to charge for the amount of unsorted rubbish households currently throw out.

Describing the measures as a Green Living Initiative, report authors say that the aim is to restrain demand for energy and water as a compliment to increasing the efficiency of our homes and the products we use.

Saying that refurbishment has the potential to be environmentally and socially preferable to new-build, the report said a new 5% VAT rate should be set for all new houses and for major refurbishment meeting the code's standards.

Currently there is no VAT on new homes, but 17.5% is chargeable on refurbishment of properties.

Report author Rebecca Willis said, "People are concerned about the environment but don't know what they can do to help. Government needs to set the framework to take the pain out of being green and the tax system has a crucial role to play in making that happen."

"The Green Living Initiative would make the link between people's awareness of environmental problems such as climate change, and their understanding of what they can do about it in their own home."