Prime Minister Kevin Rudd today demoted Peter Garrett as Environment Minister over the housing insulation debacle.

Mr Rudd announced in Sydney the establishment of a new stand-alone department of climate change and energy efficiency, which will be headed by Penny Wong.

Mr Rudd has appointed Greg Combet as the new Minister Assisting the Minister for Climate Change and Energy Efficiency.

This new department will be given responsibility for winding up the troubled insulation program and the roll-out of the new household renewable energy bonus scheme.