Prime Minister John Howard says the Federal Government will introduce a new "cap and trade" emissions trading system.

Mr Howard made the announcement in a video message posted on the Prime Minister's website.

The Government will increase spending on measures to tackle global warming by $627 million.

Mr Howard says the new emissions scheme will help Australia substantially lower greenhouse gas emissions at the lowest cost.

"Australia will more than play its part to address climate change but will do it in a practical and balanced way in full knowledge of the economic consequences for our nation," he said.

Federal Environment Minister Malcolm Turnbull says the carbon emissions trading scheme will be comprehensive.

"It will cover 80 per cent of all emission outside agriculture and about 55 per cent of total emissions in Australia," he said.

The scheme is set to be up and running by 2011.

The Federal Government has also committed $12.5 million to develop nuclear power as part of its global warming package.

Australia sits on 40 per cent of the world's uranium deposits and Mr Howard says it would be an economic and environment folly not to develop nuclear energy.

In addition, the Government will set-up an emissions regulator to track industry emissions and provide $1,000 to 250,000 to households to help install solar water heating.

Mr Howard says the Government wants to introduce legislation this year to set-up a process for monitoring greenhouse emissions.

But the Opposition says the Federal Government is just playing catch-up on climate change.

Mr Howard also told the Melbourne Press Club the Government will set a target next year for cutting emissions, but the Opposition says people should know what the target will be before the election.

Schools

Mr Howard says the Government will spend $336 million on improving energy efficiency in schools.

"Stabilising atmospheric concentrations of greenhouse gases will be difficult, but not impossible," he said.

"We do not have to sacrifice our economic prosperity to tackle the problem."

The funding scheme means every school in Australia will be entitled to a voucher of up to $50,000 to help install rainwater tanks and solar hot water systems.