The Government wants to replace Labor's carbon tax with its direct action plan, which would provide financial incentives for polluters to reduce emissions.

The Government has released a white paper that details how the centrepiece of the policy - the Emissions Reduction Fund - will operate.

The Emissions Reduction Fund is budgeted to cost $2.55 billion over four years, starting on July 1, 2014.

Both the Coalition and Labor support a reduction of Australia's emissions to 5 per cent below 2000 levels by 2020.

While both Labor and the Coalition agree on the same reduction target, they disagree on the mechanism.

Coalition policy key points Keep the 5 per cent emission reduction target

Keep the 5 per cent emission reduction target Scrap the price on carbon and associated corporations

Scrap the price on carbon and associated corporations Establish a $2.55 billion fund to pay businesses for emission reduction projects

Establish a $2.55 billion fund to pay businesses for emission reduction projects Create a 15,000 strong Green Army to conduct conservation work

Under Labor's carbon pricing, the country's biggest polluters pay for the amount of pollution they produce, giving them an incentive to reduce emissions.

Compensation is paid to taxpayers to help mitigate any price increases, such as the cost of electricity, that have been passed on.

But under the Coalition, businesses will compete to win tenders and be paid to undertake emission reduction projects.

The Government argues that this is the cheapest method to reduce emissions and is better for the economy than a nationwide "electricity tax".

In late 2013, Environment Minister Greg Hunt said the amount of emissions reduction needed to achieve that target would be less than first thought due to the closures of a number of manufacturing businesses and coal mines.

The Government's white paper, released on April 24, 2014, said Australia faced "a cumulative emissions reduction task of 591 million tonnes of carbon dioxide equivalents in the period to 2020".

Australia accounts for about 1.3 per cent of global greenhouse gas emissions and is the 15th largest emitter in the world.

The largest contributor to Australia's emissions is electricity generation, accounting for 35 per cent of total emissions.

A graph showing the breakdown of sources for Australia's greenhouse gas emissions. ( Supplied: ERF White Paper )

How the Emissions Reduction Fund works

The main feature of the direct action policy is the creation of an Emissions Reduction Fund, which will cost $3 billion over four years.

The fund will call for businesses to submit tenders for projects that will either lower emissions or offset them.

It will operate as a reverse auction, where businesses compete and undercut each other to win a contract and with it, the Government's money.

Auctions will be run by the Clean Energy Regulator and are set to begin in the second half of 2014. They will take place quarterly.

The Government says the scheme will ensure a reduction of emissions for the best possible price.

The reverse auction method mirrors the existing National Water Market, which conducts water buybacks to increase river flows.

A chart shows how the auctions for the Emissions Reduction Fund works. ( Supplied: ERF White Paper )

Emission reductions will be achieved through a range of projects, such as cleaning up power stations, capturing landfill gas, reforesting marginal lands or improving soil carbon.

A project needs to meet two criteria to win a contract from the fund:

The emission reductions must be additional measures and not just business-as-usual

The emission reductions must be additional measures and not just business-as-usual The reduction estimates must be credible and verified

Measures that are already required to be carried out by businesses under government regulations cannot be used as projects for the fund.

Only the projects with the lowest cost per amount of abatement will be taken on by the reduction fund.

The fund is capped and Prime Minster Tony Abbott has previously indicated it will not be increased if the 2020 emission reduction target is not being reached.

The Government will review its international emission reduction target in 2015 in line with other countries.

As well as this, operational elements of the Emissions Reduction Fund will be reviewed near the end of 2015.

Green Army

The Coalition aims to build an environmental workforce made up of 15,000 young people to undertake conservation projects.

The "Green Army" will carry out projects such as re-vegetating sand dunes, cleaning up riverbanks, weed control and regenerating local parks.

The workforce will work with and complement local groups such as Landcare, catchment authorities and councils.

Projects will be tailored to local environmental priorities.

Participants in the Green Army (initially only 17-24 year olds) will be paid a training allowance and the Government expects young people to gain valuable work skills from the group.

The training received will count towards the requirements for a Certificate 1 or 2 in land management, park management, landscaping or horticulture.

Full-time projects will run for up to 26 weeks in groups of 10 - nine participants and a supervisor.

Teams will be given money to pay for equipment and materials needed to undertake a project.

The program will begin in 2014-15 with 250 projects, which will be scaled up to 1,500 projects and a 15,000 strong workforce in 2018-19.

It is expected to cost $50 million in its first year and then $300 million over a four-year period.

What is the emission reduction target?

The Government is committed to reducing greenhouse gas emissions to 5 per cent below 2000 levels by 2020.

There is some debate over whether the target is ambitious enough to keep up with action by other countries.

In October 2013, the Labor-initiated independent climate policy advisor, the Climate Change Authority, said the target was inadequate.

The authority, which is to be scrapped under the Coalition Government, said in a report that a higher target would mean Australia would not need to drastically catch up later to fulfil its fair international role.

It recommended either a 15 or 25 per cent reduction by 2020.

But the Government says its target will not be modified until it sees the outcome of the 2015 Climate Summit in Paris.

What is the Renewable Energy Target?

The Coalition is reviewing the Renewable Energy Target (RET), currently set at 20 per cent by 2020, and which is required by legislation to be reviewed every two years.

The target was supported by Labor.

The Coalition has committed to axing the $10 billion green loans bank, the Clean Energy Finance Corporation, which invests in clean energy projects by co-financing with the private sector.

Solar panel rebates will be given to low-income households under the Coalition, with a cap on 100,000 rebates a year.

Sources: Emission Reduction Fund green paper & white paper. Graphs from ERF white paper.