FACTBOX: Australia's plan for "diabolical" climate change

(Reuters) - Australia, one of the world's top carbon emitters per person, will unveil an emissions trading scheme later this year, which it hopes will help cut the country's carbon footprint.

The scheme is a major initiative of Kevin Rudd's Labor government, and is due to start operating in 2010.

Climate Change Minister Penny Wong will outline the government's options for carbon trading later in July, with the system to be finalized and laws sent to parliament by the end of the year.

The government's key climate adviser, economist Ross Garnaut, released his draft report on climate change and carbon trading on Friday, July 4.

Here are some details on how a cap and trade scheme can work.

HOW DO EMISSIONS TRADING SCHEMES' WORK?

* A national upper limit, or 'cap' for carbon emissions is set according to the country's target.

* Companies audit emissions, and reduce them to hit the target by buying permits that allow them to emit above-target levels of carbon. Companies with under-limit emissions sell permits to those unable to keep within their ceiling.

* Limits can tighten over time. Polluting businesses then migrate to cleaner technologies to cut costs, speeding the transition to a low-carbon economy. Start-ups are also dissuaded from going into carbon-heavy technologies.

WHAT SECTORS WILL BE AFFECTED IN AUSTRALIA?

* Details have not been released, but the scheme will likely include as many energy sources as possible. Government climate adviser Ross Garnaut, who calls climate change a "diabolical problem", has suggested fuel should be included, as excluding it would put a bigger burden on other polluters.

* Likely suspects, farmers, coal miners and power generators, could be asked to bid for carbon permits at auction, rather than be given free permits. The previous conservative government wanted initial exemptions for farmers and free carbon permits for the coal industry to soften the economic blow.

* Some economists say the Australian permit auction could net A$20 billion ($19.2 billion) -- money which could go towards subsidizing higher electricity and petrol prices.

WHY ARE AUSSIE EMISSIONS SO HIGH?

* In a word, coal. Australia relies on it to generate about 80 percent of its electricity. Greenhouse gases are emitted both in coal mining and when the fossil fuel is burnt.

* Cutting coal emissions is not easy -- Australia is also the world's largest coal exporter, sending more than A$26 billion of coal overseas in 2007/8, mostly to Asian neighbors.