"Implementing an emissions trading scheme and setting a long-term goal for reducing emissions will be the most momentous economic decision Australia will take in the next decade," he said.

"If we get this wrong it will do enormous damage to the economy, to jobs and to the economic well-being of ordinary Australians, especially low-income households."

Howard, whose conservative government joined the United States in refusing to sign the Kyoto Protocol on limiting greenhouse gas emissions, said Australia's trading scheme would be better than those already in place in Europe.

"More comprehensive, more rigorously grounded in economics and with better governance than anything in Europe," he told an annual meeting of his Liberal Party national council.

But his refusal to set a target for the reduction in emissions until next year and the delay in implementation until 2012 drew immediate criticism.

"Climate change is not going to wait for the Liberal Party," said Australian Greens leader Senator Bob Brown. "Keeping global temperature rises to two degrees Celsius or less requires rigorous action now."

Howard attributed the delay in setting a target to a need for rigorous economic modelling, but critics noted that it also meant he would not have to announce the figure before general elections at the end of this year.

The centre-left opposition Labor Party, which has pledged a cut of 60 percent in emissions by 2050, has a strong lead in opinion polls.

Climate change has become a major political issue in Australia, where the worst drought in a century is hitting agriculture and the economy and threatening drinking water supplies to cities.

Howard said Australia, which holds 40 percent of the world's uranium reserves, would also have to set aside long-standing opposition to atomic energy and consider the introduction of nuclear power stations.

"Governments need to let the market sort out the most efficient means of lowering emissions with all low-emission technologies on the table, and that of necessity must include nuclear power," he said.

Australia also has huge reserves of coal, and the use of the polluting fuel in power stations is currently cheaper than nuclear energy would be -- but a carbon "cap and trade" system could change that.

The scheme would involve the government setting a cap on emissions and granting businesses permits to cover the amount of greenhouse gases they produce each year.

Companies wishing to emit more carbon dioxide than their allocated quota would have to buy permits from companies with a surplus, thereby creating an economic incentive to reduce pollution.

Howard's move came just days after his close ally, US President George W. Bush, said he would urge major industrialised nations at the G8 summit this week to join a new global framework for fighting climate change after the Kyoto Protocol lapses.

Environmental groups immediately criticised the plan as vague and based on non-binding limits on greenhouse gases.

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