But the plan -- aimed at reducing the greenhouse gas pollution blamed for global warming -- immediately came under fire from economists and green groups who said it shied away from tough decisions needed to tackle the problem.

Climate Minister Penny Wong admitted the government's blueprint provided a "gentle" introduction to emissions trading, including moves to minimise its impact on motorists and heavily polluting industries.

Wong said Australia, one of the highest per capita carbon polluters in the world, must face the daunting reality that it could no longer pour carbon into the atmosphere as if there was no cost.

"As one of the hottest and driest continents on earth, Australia's economy and environment will be one of the hardest and fastest hit by climate change if we don't act now," she said.

"Climate change threatens our food production, agriculture, and water supplies, as well as icons like the Great Barrier Reef, the Kakadu wetlands and the multi-billion-dollar tourism industries they support."

Wong said the scheme was as significant as the reforms that swept through the Australian economy in the 1980s, including currency deregulation and lowering tariff barriers.

"Today we point the way to a low pollution economy of the future to transform the high pollution economy of the past," she said.

Under the so-called "cap-and-trade" scheme, the government sets an overall limit on the amount of carbon the economy can produce and then provides permits to industry up to the nominated amount.

Companies can then trade their permits, meaning carbon-intensive industries will have to pay extra if they want to exceed their allocation, a scheme the government believes will provide a market-based incentive to reduce pollution.

Prime Minister Kevin Rudd's centre-left government was elected last November promising strong action on climate change after years of scepticism on the issue from his conservative predecessor John Howard.

But an emissions trading scheme is likely to cause some economic pain, which has prompted the government to include measures to offset its impact pain on some politically sensitive areas in its early years.

Petrol taxes will be cut so motorists already hit by high oil prices will not have to pay more to fill up their cars, while low-income families facing higher electricity bills will receive compensation.

Heavily polluting industries such as electricity generators and aluminium producers will also receive free carbon permits, while the drought-hit agriculture sector will be exempt from the scheme until 2015.

The Australian Conservation Foundation objected to compensation for electricity generators.

"Polluting industries that have spent the last decade doing little or nothing to prepare for a carbon-constrained economy should not get a golden handshake," ACF climate change programme manager Tony Mohr said.

The government has yet to release details of how it will set pollution levels and price carbon ahead of the trading scheme's 2010 launch, which is part of a long-term goal to reduce emissions by 60 percent by 2050.

"The devil remains in the detail in terms of whether the option put forward will achieve the twin objectives of sustaining growth while meaningfully reducing emissions," the Business Council of Australia said.

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