Prime Minister Julia Gillard has announced the government's carbon pricing plan, saying now is the time to for change.
"History teaches us that the countries and the economies who prosper at times of historic change are those who get in and shape and manage the changes," Ms Gillard said.
"The time is right and the time is now.
"We can't afford not to move to a clean energy future," she said.
Ms Gillard said the plan was based on the fact that putting a price on carbon would make people think twice about emitting it.
July 2012 start
A fixed carbon price would start on July 1, 2012, before moving to a cap-and-trade emissions trading scheme within three to five years, the PM announced.
One year before the end of the fixed price period, a review would consider if there were any reasons to delay moving to a cap and trade scheme.
"The hard-wired mechanism here is to move to cap and trade," Ms Gillard said.
"But there would be a review one year in advance to assess whether there were any real reasons not to take that step."
Market efficiency was the right mechanism to use in pricing carbon, she said, stressing that economists had backed it as the best way to reduce emissions.
Ms Gillard said she had no intention of taking a backward step in the debate on carbon pricing, but that she was expecting the opposition to complain her plan constitutes a new tax.
"We are committed to a carbon pricing tax that will begin in 2012," Ms Gillard said, flanked by Greens leader Bob Brown and Climate Change Minister Greg Combet.
Labor would aim to get full support for its plan, she stressed.
Key independent MP Tony Windsor stood by the PM as she made the announcement, but later told reporters that did not mean he backed the plan.
Rob Oakeshott, another independent MP whose support the government will need, said he may support it.
Previous plan scrapped
The government abandoned its previous emissions trading scheme last year after it failed to get it through the Senate.
The Greens sided with the coalition to vote against an emissions trading scheme, arguing the carbon reduction targets were too low and industry compensation was too high.
The abandonment of the ETS breached a promise by former prime minister Kevin Rudd to tackle climate change and was blamed for his fall in opinion polls and eventual toppling by Ms Gillard.
The opposition has said it will block any new "carbon tax", so the government will rely on the votes of the independents and Greens to secure the passage of its legislation.
Agriculture exempt
Agricultural emissions will not be included in the carbon pricing system.
"The measures and mechanisms for counting agricultural emissions are simply too complex," Ms Gillard said.
"But we do want to work with farmers with our agricultural community to make sure that they get the benefits of changing practices and changing carbon."
Ms Gillard said the carbon price would be fair.
"Every cent raised from pricing carbon will go to assisting households, helping businesses manage the transition and funding climate change programs," she said.
"And the government will always support those who are in need of assistance with cost of living pressures."
Ms Gillard said more work needed to be done on the details of industry assistance and household compensation.
The government's failed carbon pollution reduction scheme had already achieved some good work in that area, she added.
"It's not my intention to just put that work to one side," Ms Gillard said.
"But there are discussions to come and there will be some difficult conversations to come."
Compensation
Matters of compensation would be worked through with the multi-party climate change committee.
Greens leader Bob Brown said his party would be lobbying to get a good deal for householders.
"It isn't just a matter of compensating industry - particularly polluters," he said.
"What we want to do is compensate those people who are suffering the outcome of long term carbon pollution of the atmosphere."
Greens climate change spokeswoman Christine Milne said there could only be a price on carbon because the Greens held the balance of power in the federal parliament.
"It's exciting (and) it's happening because we have shared power in Australia," she said, adding majority government would not have delivered the outcome.
"It is because the Greens are in balance of power working with the other parties to deliver not only the aspiration but the process to achieve it."
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