"The scheme will be national in scope and as comprehensive as practicable, designed to take account of global developments and preserve the competitiveness of our trade-exposed, emissions-intensive industries," Howard told a meeting of the ruling Liberal Party's Federal Council.

The centre-left Labor opposition, well ahead in opinion polls before an election due later this year, has pledged to cut emissions by 60 percent by 2050.

Howard emphasised that the onus would be on the free market to curb emissions and warned that it would mean higher energy costs for business and households.

"The market will sort out the most efficient means of lowering emissions, with all lowering emissions technologies on the table and that must include nuclear power," he said.

Carbon trading involves putting a price and limits on pollution, allowing companies that clean up their operations to sell any savings below their allocated level to other companies.

"MOMENTOUS"

Howard said dealing with climate change would be the most momentous economic decision Australia would take in the next decade and the scheme would have to last the whole century.

"This is a great economic challenge for Australia as well as an environmental challenge," he said. "If we get this wrong it will do enormous damage to the economy, to jobs and to the economic wellbeing of ordinary Australians."

This marks something of a turnaround for Howard's conservative coalition government which has spent much of the past 11 years in power playing down the risks of global warming.

But opinion polls have shown that up to 80 percent of voters want the government to do more on climate change.

With elections looming, polls show Howard's government would overwhelmingly lose a vote held now and the prime minister is desperate to turn opinion around.

Howard set up an inquiry into carbon trading six months ago to find ways of pricing pollution without hurting Australia's economy or its standing as the world's leading coal exporter.

The report, compiled by government officials and business leaders, stopped short of setting a specific price for carbon emissions, but recommended setting guidelines for a carbon price, with the ultimate figure left to the market.

The report also said an Australian trading scheme should be able to link up eventually with other global schemes.