A COALITION Government would create a $1 billion fund that would be used to purchase initiatives aimed at reducing Australia's greenhouse gas emissions, Opposition Leader Tony Abbott has announced.

Mr Abbott unveiled the Coalition's new climate change policy ahead of the Government's third attempt to have Parliament approve its planned emissions trading scheme, already twice rejected by the Senate.

"Our policy will be simpler, cheaper and more effective than the Government's," he said, adding it would rely on incentives, not penalties.

He committed the Coalition to the same carbon reduction targets as the Government, but at a much lower cost.

A Liberal source said the plan was "credible" and was a lot cheaper than Labor had been claiming.

Former opposition leader Malcolm Turnbull, who lost the leadership over climate change, is understood to have addressed  a meeting to Coalition party members where Mr Abbott revealed his plan.

r Abbott said the criteria by which the Coalition would judge the bids for spending would fall into four categories.

It must involve a reduction in emissions and it must improve the environment.

"Third, there must be no increase in cost to consumers," he said.

"(Prime Minister Kevin) Rudd has been out there this morning saying our policy is no good because it doesn't involve compensation.

"Well you don't need compensation if you aren't slugging consumers with high prices.

"Finally, there must be no cost to jobs."

Under the $3.2 billion plan, an emissions reductions fund would be established to provide direct incentives to business and the agricultural sector to cut emissions.

Mr Abbott took the policy to the Coalition joint partyroom this morning where it was broadly supported by MPs and senators.

Mr Abbott said the scheme was designed to reduce greenhouse gas emissions by five per cent by 2020.

"Incentive-based approach provides practical and affordable environmental benefits as well as reducing carbon emissions," he said.

Mr Abbott said the policy would protect Australian jobs and was carefully costed and capped.

Under the plan, businesses that cut emissions below a baseline level will be able to sell their carbon abatement to the Government.

"Businesses that emit above their business-as-usual levels will incur a financial penalty," he said.

The scheme will begin in 2011-12 with an initial allocation of $300 million.

The size of the scheme will grow to $1 billion in 2014-15.

Among the initiatives to promote abatement, will be biosequestration, solar energy and additional tree planting.

Mr Abbott stressed his proposal was a market-based system based on rewards, not penalties.

"We will go to the market and say give us your lowest cost environmental improvements and reductions in emissions," he said.

"This is a market-based system alright, it's just not the giant money-go-round market-based system that the Government wants to put in place."

Mr Abbott was unable to say from where the funding would come for the plan.

However, the $3.2 billion cost over the forward estimates compared with Labor's $40 billion "money-go-round".

Over 10 years, the Coalition's plan would cost $10 billion as opposed to Labor's $114 billion carbon pollution reduction scheme.

"We have to find $3.2 billion over four years," Mr Abbott said.

"We will be upfront with you about where the money is coming from in good time before the next election.

"We think we can find it from the budget."