The Howard government has not signed the Kyoto protocol

State leaders have drafted a "cap and trade" plan which sets emissions targets for three polluting gases.

The plan would introduce fines for companies exceeding targets but allow low polluters to trade emissions credits for money.

Mr Howard said the plan would harm the economy and lead to higher fuel prices.

Australia is one of the few industrialised countries that has not signed the Kyoto protocol, which aims to tackle global warming through a reduction in greenhouse gas emissions.

The Howard government has repeatedly said that signing the deal would harm the economy.

At the moment, the majority of Australia's energy comes from coal and Australia is also the world's largest coal exporter.

'Leadership failure'

But state and territory leaders - all members of the opposition Labor party - have come up with their own initiative to tackle climate change.

South Australian Premier Mike Rann told Australian radio that state leaders acted because of a "failure of national leadership" on the issue.

The plan, released on Wednesday as a discussion paper, sets up a national framework to cut emissions by 60% by the middle of the century through the introduction of reduction targets for carbon dioxide, methane and nitrous oxide emissions.

But Mr Howard told parliament the plan would lead to job losses and higher petrol, gas and electricity prices.

"What the Labor Party wants is for a resource rich country such as Australia to agree to an arrangement that would result in the export of investment and jobs from this country," he said.

Australia is looking at developing a nuclear power industry

The plan is not binding on state governments.

Mr Howard's government has been looking at new ways of producing energy and in June announced a study into whether the country should develop nuclear power.

In January, the meteorology bureau found that 2005 had been Australia's hottest year on record, prompting renewed fears of global warming.