Australia’s new carbon emission target of 26 per cent by 2030 will cost the economy up to $4 billion a year.
But Prime Minister Tony Abbott says it will mean Australia does its fair share in tackling climate change.
"This is fairly and squarely in the middle of comparable economies," he told reporters in Canberra.
The target - which could be scaled up to 28 per cent on 2005 levels - was not quite as high as the European countries at 34 per cent, but was "vastly better" than South Korea's four per cent target and China's 150 per cent rise.
"This is a good, solid result. It's a good, solid economically responsible, environmentally responsible target," he said.
The government's emissions reduction fund would cost about $200 million a year to operate, he said.
But modelling for the target would cost the economy between 0.2 and 0.3 per cent of GDP in 2030 - or between $3 billion and $4 billion in current terms.
"This is certainly not without costs but the costs are manageable," Mr Abbott said.
Australia will halve its emissions per person over 15 years - the best result in the developed world of those countries that had declared their targets ahead of the United Nations summit in Paris in December.
Foreign Minister Julie Bishop, who will attend the summit, said the target meant Australia was "doing our bit".
Environment Minister Greg Hunt said the target would be achieved without pushing up power prices.
"What we have done is crafted a position for Australia which shows that we ... do the right thing by the planet, we also do the right thing by families," he said.
While international emissions permits won't be used, Mr Hunt and Ms Bishop said their use in the future would remain "on the table" to be available to business as early as 2017.
However, Mr Abbott said any emissions cuts should be "domestic reductions in emissions rather than instantly rushing off to try to get them from other countries".
Climate action groups immediately criticised the announcement as failing key tests.
The target failed to be scientifically credible or economically responsible, Climate Institute chief executive John Connor said in a statement.
"This target is bad for the climate and bad for our international competitiveness," he said.
The Australian Chamber of Commerce and Industry says the target is a reasonable one that balances the need for action to contain emissions with the need to minimise damage to jobs and economic growth.