The Australian government has released a discussion paper outlining radical changes it wants to introduce from 2010 in a bid to reduce greenhouse gas emissions.
Petrol excise would be cut for the first three years of an emissions trading scheme in an effort to soften the impact on motorists.
A one-off rise in the cost of living of 0.9% would be offset by an increase in government benefits.
About 1000 of Australia's biggest companies would need permits to pollute but 20% - those most affected by the scheme - would be given their permits for free.
Agriculture would not be included until 2015.
AA opposes tax cuts
New Zealand's Automobile Association says Australia's plan to cut petrol taxes should not be emulated.
Spokesperson Mike Noon says it opposes cuts to petrol excise because it would reduce the money available for building roads and improving public transport.
A spokesperson for Finance Minister Michael Cullen says he has consistently ruled out cutting petrol taxes.