"We have still got a fair bit of budget work to do because this has to be a budget-neutral undertaking," Rudd told reporters on Sunday.
The shift to an emissions trading scheme (ETS) could begin a year early in July 2014 and see the current fixed $24.15 per tonne tax dumped in favour of a floating price that that could be as low as $5.90.
"The government is moving in this direction because a floating price takes cost-of-living pressures off Australian families and still protects the environment and acts on climate change," Rudd said.
The Australian Greens call the move cowardly, the opposition say it is fake change, while chartered accountants think its the right way to encourage sustainable practices and coal miners want the entire scheme scrapped.
Treasurer Chris Bowen will now have a harder job keeping the promised 2015/16 budget in the black surplus and has admitted the government faces a big challenge.
"There is a substantial impact on the budget of doing this, of course there is, and it is several billion dollars, but we will be financing that in a fiscally responsible way," Bowen told Ten's Meet the Press.
Bowen said a projected $150 saving for a household with an average annual $2000 electricity bill was "broadly right", adding that industry wouldn't wear the cost difference.
"We announced an industry assistance plan when we announced the original carbon price (and) of course that will be calibrated to match new arrangements," Bowen said.
Abbott, MCA, Greens slam move
Opposition Leader Tony Abbott, who has committed a coalition government to scrap any carbon-pricing regime, slammed the move as "more fake change".
"If it's bad at $23 a tonne, it's bad at $10 a tonne, it's a bad tax, you've just got to get rid of it," Abbott told reporters.
Greens leader Christine Milne added, “if you believed that climate change was the greatest moral challenge or our time, and it is, we are living in a climate emergency, you would now not be moving to have the big polluters pay less.”
The Minerals Council of Australia said shifting to a floating price one year early would "not go far enough for the minerals industry" and the government should start again on carbon policy.
However the announcement was well-received by some industry, workforce and environmental groups, which urged "careful" consideration by the government and no rushed cuts to expenditure programs.
Ai Group said it would cut costs for businesses "struggling with high energy prices and lost competitiveness", while meeting Australia's bipartisan commitment to reduce carbon emissions.
But Tony Wood, the energy program director at think tank the Grattan Institute, said a floating price might not deliver the lower prices many are agitating for, as Europe seeks to soak up excess supply.
"The economic climate is fragile so we need to ensure any new policies that cut expenditure or increase revenue don't act as handbrake for businesses that are already doing it tough at the moment," Institute of Chartered Accountants Australia boss Lee White said.
The change should be accompanied by higher caps on emissions, according to the Australian Conservation Foundation (ACF).
“Moving early to an ETS means the price on pollution will be lower for a year, but Australia’s policy on climate can still be effective if the government sets a strong target to cut emissions and continues to fully fund other policies,” said Tony Mohr, ACF’s climate change program manager.
“Australia’s wide target range of 5–25%, agreed to in 2009, is now out of date and our next government will have to decide a year earlier on a specific number within that range.
“For Australia to be taking realistic action to combat climate change, our target to cut pollution should be 25% by 2020.”
Finally, Queensland Premier Campbell Newman called for the prime minister to go one step further and also dump the renewable energy target to reduce household power bills.
