There is no question that the current affair of livestock production is an environmental disaster. The most notable problems being greenhouse gas emissions, land usage, and water usage. These problems are very severe and the best course of action would be to drastically reduce the consumption of meat/dairy, and hence the production in the world.
But, what is the optimal system for the environment when it comes to livestock production? If everybody in the world consumed no animal foods would that be the best option? Or is some animal foods a good thing? These questions will be addressed.
But first, some of the main problems with our current situation:
1) Greenhouse gas emissions- In 2013 the Food and Agriculture Organization of the United Nations estimated that the livestock sector represented 14.5 percent of human-induced GHG emissions. Obviously, this plays an important role in the world’s climate change situation.  (But don’t be fooled, this estimate may not be a 100% accurate, in 2006, for example, they made the estimate of 18%, but this estimate had many mistakes. It attributed all deforestation from ranching to livestock, rather than logging or development. It also muddles up one-off emissions from deforestation with ongoing pollution and some of these criticisms could or could not still be made about the newer estimate. So, don’t take every estimate you see as gospel.)
2) Land use- Intensive livestock production requires large quantities of harvested feed. According to the Food and Agriculture Organization of the United Nations, livestock production accounts for 70% of all agricultural land and 30% of the land’s surface of the planet . Logically speaking, this is a very ineffective method of obtaining food, as more energy could be obtained by cutting out the livestock middleman.
3) Water consumption- Livestock needs water and quite a lot of it. Although exact estimates are very difficult to pin down and vary greatly. Personally, I have heard about estimates from (for cows) 200,000 liters per kilo of beef to just over 100 liters per kilo of beef . Now, of course, these estimates do have different methodologies and ways of calculating, with some obviously being better than others, but the range of values is stunning! However, I would probably concede and say that, on a kilogram by kilogram comparison, livestock are more water intensive than vegetation.
The environmental reasons for some animal sourced food consumption-
Obviously, a reduction in the livestock produced will reduce some of the major issues of gas emissions and water loss, and they would not be as big of a problem as they are today.
When it comes to land use, a completely vegan diet is not the most efficient in terms of land use. One study, based upon a sample of New Yorkers found that “A person following a low-fat vegetarian diet, for example, will need less than half (0.44) an acre per person per year to produce their food… A high-fat diet with a lot of meat, on the other hand, needs 2.11 acres.” (note that the authors tested varying amounts of meat (from none to 13.4 ounces daily) and fat (from 20 to 45 percent of calories) to determine each diet’s “agricultural land footprint.”), but in the end, they concluded that a vegan diet is not necessarily the most efficient in terms of land use  . This is not because less land is used in total (a vegan diet would still use less land) it is because of the type of land used. The fruits, vegetables and grains that humans eat must be grown on high-quality cropland, whereas meat and dairy products from ruminant animals are supported by lower quality, but more widely available land.
However, the author of that paper did not stop there, they conducted a different study using the same model, analysing 10 different diets for the continental United States. They concluded: “We demonstrate that under a range of land use conditions, diets with low to modest amounts of meat outperform a vegan diet, and vegetarian diets including dairy products performed best overall.” 
From these studies, we can see that vegetarian diets which include dairy were the best for land use, and that vegan diets did do worse than many diets including meat.
It is quite reasonable that the results of this study could be expanded to have the same conclusion for the world in general. This, however, is just one possible environmental reason to include animal foods in the human diet.
In his book, “Meat: A Benign Extravagance” Simon Fairlie argues that livestock, if done properly, can be good for the environment. He claims that every agricultural system produces a surplus of waste and biomass which is difficult to use, suggesting that it is best if it is kept in the food chain by feeding it to livestock, this has been seen in practice, for example, distillers’ grains, a by-product of dry-mill beverage and ethanol fuel production, were recognized as an excellent feed for dairy cattle and have long been fed to livestock . Meat or dairy produced this way has little extra environmental impact. Animals kept on small farms also produce benefits, such as fending off predators and pests and fertilizing soil . Using this logic Fairlie says in a Q&A that the most sustainable types of meat to eat are: “Pigs fed off food waste, whey and other forms of garden and agricultural waste. Dairy cows that are eating grass and clover as part of mixed-arable rotation. They have very little toll on the environment and are, on balance, benign. The way forward is to switch to organic farming. We would have to cut meat consumption by half, but our dairy intake would remain about the same.”  I would also add that small ruminants are also useful for vegetation management and killing weeds, representing a better way than herbicide use. 
Let’s talk a little bit more about waste products, unless well managed, manure and other substances from livestock operations may cause water contamination, health problems and more, but with good management, manure has environmental benefits. I mentioned fertilizing ground briefly above as waste can be used as a fertilizer to maintain land fertility, but there it can also be used as a renewable energy source, although methods to use it as an energy source can be costly.
The way we produce and consume livestock now is an environmental disaster, in order to improve we may need to reduce our animal sourced food intake drastically. The optimal system (at least of in terms of the environment) appears to be one where everybody eats a lot less meat, say about 2 or 3 ounces each day, composed of cows, pigs and maybe sheep, and some dairy.
But, there is no reason to need to strive for the “optimal” type of diet, I think there should be some wiggle room to choose what diet you want, whether that be vegan, vegetarian or omnivorous. That being said, it is important to look at the consequences diet has on the rest of world.
 Gerber, P.J., Steinfeld, H., Henderson, B., Mottet, A., Opio, C., Dijkman, J., Falcucci, A. & Tempio, G. 2013. Tackling climate change through livestock – A global assessment of emissions and mitigation opportunities. Food and Agriculture Organization of the United Nations (FAO), Rome.
 Steinfeld, Henning; Gerber, Pierre; Wassenaar, Tom; Castel, Vincent; Rosales, Mauricio; de Haan, Cees (2006), Livestock’s Long Shadow: Environmental Issues and Options (PDF), Rome: FAO
 Cornell Chronicles: Diet for small planet may be most efficient if it includes dairy and a little meat, Cornell researchers report – October 4, 2007.
 Christian J. Peters, Jennifer L. Wilkins and Gary W. Fick, “Testing a complete-diet model for estimating the land resource requirements of food consumption and agricultural carrying capacity: The New York State example”, Renewable Agriculture and Food Systems (2007)
 Peters CJ, Picardy J, Darrouzet-Nardi AF, Wilkins JL, Griffin TS, Fick GW. Carrying capacity of U.S. agricultural land: Ten diet scenarios. Elem Sci Anth. 2016;4:116.
 Fairlie, S. (2010). Meat: A Benign Extravagance. 1st ed. East Meon: Permanent Publ.
 Hoffman, L. and A. Baker. 2010. Market issues and prospects for U.S. distillers’ grains supply, use, and price relationships. USDA FDS-10k-01
 Launchbaugh, K. (ed.) 2006. Targeted Grazing: a natural approach to vegetation management and landscape enhancement. American Sheep Industry. 199 pp
 http://content.time.com/time/health/article/0,8599,2024133,00.html (Accessed 9/4/17)