CANBERRA: Australia should adopt a broad-based carbon emissions trading scheme that includes energy and transport but compensates industries whose offshore rivals do not adopt emissions curbs, an official report said on Friday.

The 600-page draft report, prepared by climate-change adviser Ross Garnaut in an effort to shape public policy, also urged Australia to go further than its current goal to cut greenhouse gas emissions by 60 per cent by 2050 and warned of a major dent to the economy if it avoids the hard decisions on climate change.

If Australia chose a middle-of-the-road policy, the effects of climate would still cost about 4.8 per cent of gross domestic product, or around $400 billion, by end of the century, Garnaut said in launching his report.

An effective market-based system will be as broadly based as possible, with any exclusions driven by practical necessity and not by short-term political considerations, the report said.

It will include transport and petroleum products.

Prime Minister Kevin Rudd won a huge election victory last November on a green agenda, but his plans to cap greenhouse gas emissions and reward low-polluters through an emissions-trading scheme have begun to unnerve voters and industry.

The prospect of slapping emissions limits on road transport and electricity generation has raised fears of higher fuel prices and electricity bills at a time when rising living costs are already eating into the government’s popularity.

Under the proposals, businesses that pumped out less greenhouse gas than their allowable limit would receive credits and be able to sell those credits — essentially permits to pollute — to firms that were exceeding their emissions quota.

The report conceded that a competitive emissions-trading system, due to begin in 2010, could cause big price gyrations in the early stages and accepted there was a good argument for relying initially on fixed-price permits in the first two years.