Australia is thought to be especially vulnerable to climate change
An Australian government advisor on climate change is calling for a national emissions trading scheme to be set up to combat global warming.
In a draft report, economist Ross Garnaut says the scheme should set limits on the amount of greenhouse gas a company can emit.
Companies which want to go beyond their limit would have to buy emission rights from those which have polluted less.
The scheme would mainly apply to the energy and transport sectors.
Professor Garnaut suggests that the troubled agricultural sector, which is struggling with the worst drought in 100 years, should initially be excluded.
His 600-page report also recommends that companies should be compensated if their overseas rivals do not also curb their emissions.
The BBC's Nick Bryant in Sydney says the suggestions, if adopted, could lead to one of the biggest reforms in Australian history.
The draft report will form the basis of a public consultation exercise on how Australia should respond to climate change.
The final report, to contain specific recommendations on emissions targets and carbon pricing, is due at the end of September.
Australia is the world's largest coal exporter and some industry groups have expressed concerns that an emissions trading scheme might badly damage the economy and drive up costs for consumers.
But Mr Garnaut warned that if action is not taken now, Australia's rural heartland will be threatened and standards of living will inevitably drop.
"Without early and strong action, sometime before 2020, we will realise that we have indelibly surrendered to forces that have moved beyond our control," he said.
Business groups have complained that a tough trading scheme could put them at a significant disadvantage compared to competitors overseas.
Electricity companies have warned of blackouts, bankruptcies and spiralling bills.
Prime Minister Kevin Rudd, who signed Australia up to the UN's Kyoto Protocol on climate change as his first official act in government, is committed to adopting an emissions trading scheme by 2010.