Driven by the NSW and Victorian governments, the scheme will cap the total volume of industrial greenhouse gases emitted, then divide the cap into one-tonne carbon dioxide permits which can be traded between companies.
The goal of the scheme is to significantly cut greenhouse emissions, by up to 60%, by penalising companies that do not cut their emissions outputs.
No time frame has been set for the introduction of the scheme or the exact limits that will be set but the premiers have committed to a report that will lay out the plan in detail later this year.
Victorian premier Steve Bracks said a trading scheme would drive investment and the development of technology while changing attitudes to greenhouse gas emissions.
But federal environment minister, Ian Campbell, said the state scheme could be very inefficient and ineffective and would divert important investment away from technologies that could reduce greenhouse gases.
Campbell said that instead of capping the amount of greenhouse gas released into the environment, then putting a price on each tonne of gas, the states should invest in cleaner technology.
"The best thing for the global environment is to ensure that, as we build [new] power stations, they have the very best emissions technology built in to them," he said.
Campbell claimed that the states' scheme could increase power bills by as much as 27%, adding an average of $239 per year to household electricity bills.
But the Australian Conservation Foundation (ACF) has praised the move in the face of federal refusal to join other nations in upholding the Kyoto Protocol Agreement.
"Of course, in an ideal world it would be good to see the Commonwealth and states moving together as this is an issue requiring a unified national approach,” said ACF executive director Don Henry.
“A well designed emissions trading scheme will help reduce greenhouse pollution by encouraging industry to reduce emissions and invest in clean technologies such as solar and wind power. It will also help unlock Australia’s innovative spirit and create thousands of jobs in new clean industries.”
