Australia and the United States are the only two countries to have failed to ratify the agreement, which imposes targets for reducing emissions of the greenhouse gases blamed for global warming.
Prime Minister John Howard led strong government defiance of renewed pressure to ratify Kyoto in a rowdy session of parliament, saying China and India were major polluters who would not be curbed by Kyoto.
"The reason we will not sign Kyoto in its present form is that it does not comprehensively embrace all of the world's major emitters," he said.
"And you cannot have an effective response to global warming unless you have all of the culprits in the net.
"Kyoto does not impose the obligations it would have imposed on Australia on countries like China and India."
Mr Howard's comments on the two Asian powerhouses were echoed throughout the day in radio and television interviews by government ministers.
Former World Bank chief economist Sir Nicholas Stern said in a report commissioned by Britain that the economic fallout of climate change could be on the scale of the two world wars and the Great Depression of the 1930s.
Stern estimated that worldwide inaction could cost the equivalent of between five and 20 percent of global gross domestic product every year.
By contrast, the cost of action would be equivalent to one percent of GDP, a "manageable" increase equivalent to a one-off one percent goods price increase, Stern said.
"There is still time to avoid the worst impacts of climate change, if we act now and act internationally," he said as he launched the report in London.
Australia, rich in the fossil fuels such as coal which are blamed for global warming, is the world's worst polluter on a per capita basis, but is responsible for a tiny fraction of global greenhouse gas emissions.
"The United States is not a member of Kyoto and if you add the US, India and China together you have virtually half the world's greenhouse gas emissions," Howard told parliament.
Despite refusing to ratify the agreement, Australia was doing better than most industrialised countries in meeting the targets set by Kyoto, he said.
Resources Minister Ian Macfarlane said Australia would be "the only country in the world without nuclear energy that will reach the Kyoto target".
Australia had committed two billion dollars to lower greenhouse gas emissions and had last week announced major environmental projects, including a huge solar power station, he said.
Treasurer Peter Costello said there was "no point in Australia meeting its emissions target if you're going to have major emitters such as China and India" increasing their emissions.
Opposition Labor Party leader Kim Beazley said, however, that if his party came to power it would sign the Kyoto protocol, engage in emissions trading and focus on renewable energy and the development of clean coal technologies.
Australia has ruled out taxing carbon emissions, but a top government scientist and executive director of the Global Carbon Project, Pep Canadell, said such a tax was essential.
"If there is not a price signal for polluting carbon, for using fossil fuel, it is not possible that any industry or government would change what they've done until now," he said.
Labor: Polluting driving green investment offshore
Labor MP Peter Garrett echoed Mr Beazley's concerns by accusing the government of driving hundreds of millions of dollars in investment offshore because of its failure to increase Australia's mandatory renewable energy target.
But Prime Minister John Howard denies companies are pulling out of Australia because of a lack of opportunities to invest in green energy.
Mr Garrett highlighted the case of an Australian company which was behind a wind farm in China opened recently by Environment Minister Ian Campbell.
Roaring Forties abandoned two wind farm projects in Australia earlier this year over the government's refusal to increase green energy targets beyond two per cent.
"Isn't it the case that the Australian company Roaring Forties, involved in the Chinese renewable energy project, abandoned $550 million of projects in South Australia and Tasmania because the government has not increased the mandatory renewable energy target?," Mr Garrett asked Mr Howard during question time.
Mr Howard said Roaring Forties could have had any number of reasons for discontinuing the wind farm projects in Australia and investing in China.
"As I'm sure the member for Kingsford Smith will know, companies have a variety of reasons for the investment decisions they take," he said.
"I'm not going to try and superimpose mine or yours on this company's decision."
Earlier, Throsby MP Jennie George asked Mr Howard: "Isn't it the case that Australian companies are being forced offshore because of our isolation from the markets being created by the Kyoto Protocol?".
Mr Howard replied: "Well, Mr Speaker, in precise answer to the tail end of the question - no."