The MPs admitted the public was likely to be opposed to the move
The government should go ahead with a system of personal "carbon credits" to meet emissions targets, MPs have said.
The Environmental Audit Committee said the scheme would be more effective than taxes for cutting carbon emissions.
Under the scheme people would be given an annual carbon limit for fuel and energy use - which they could exceed by buying credits from those who use less.
Ministers said there were practical drawbacks to the proposal but they were looking at other initiatives.
The committee's report criticised the government for shelving the proposal following a preliminary study.
The MPs admitted members of the public were likely to be opposed to the move, but urged the government to be "courageous".
Their report said: "Persuading the public depends on perceptions of the government's own commitment to reducing emissions, and of the priority given to climate change in its own decision making."
It added:†"Further work is needed before personal carbon trading can be a viable policy option and this must be started urgently, and in earnest.
"In the meantime there is no barrier to the government developing and deploying the policies that will not only prepare the ground for personal carbon trading, but will ensure its effectiveness and acceptance once implemented."
Committee chairman Tim Yeo said it found that personal carbon trading had "real potential to engage the population in the fight against climate change and to achieve significant emissions reductions in a progressive way".
He said "green" taxes, such as a petrol tax, cost poor people more because everyone - "billionaires and paupers" - paid the same amount.
"Under the personal carbon trading, someone who perhaps doesn't have an enormous house or swimming pool, someone who doesn't take several holidays in the Caribbean every year, will actually get a cash benefit if they keep a low carbon footprint."
He said it could be administered by the private sector, following the model of supermarket loyalty schemes in which a complex computer system is accessed by a "single plastic card".
But Mr Benn said there were problems with the plan: "It's got potential but, in essence, it's ahead of its time, the cost of implementing it would be quite high, and there are a lot of practical problems to overcome."
Mr Benn said that the report found the cost of introducing the scheme would be between £700 million and £2 billion, and would cost £1bn-£2bn a year to run.
There would also be difficulties in deciding how to set the rations, taking into account a person's age, location and health.
Climate Change Minister Joan Ruddock said work on personal carbon trading had not been completely abandoned.
"We have simply decided not to undertake further work paid for by the taxpayer when a number of other studies are under way," she said.
Environmentalist George Monbiot applauded the scheme. "It's more progressive than taxation, it tends to redistribute wealth from the rich to the poor; it's transparent; it's easy for everyone to understand, you all get the same carbon ration.
"It also contains an inbuilt incentive for people to think about their energy use and to think about how they are going to stay within their carbon ration."
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