Australia's parliament approved a controversial pollution tax on Tuesday, after years of bitter debate over the reform which is aimed at lowering carbon emissions blamed for climate change.

Cheers and applause broke out as the upper house Senate passed the Clean Energy Act, requiring Australia's coal-fired power stations and other major emitters to "pay to pollute" from July 1 next year.

Prime Minister Julia Gillard said it was the culmination of a "quarter of a century of scientific warnings, 37 parliamentary inquiries and years of bitter debate and division."

"Today Australia has a price on carbon as the law of our land," she said as the tax, which scraped through the lower house last month, was approved by the Senate in a 36-32 vote.

"Today we have made history -- after all of these days of debate and division, our nation has got the job done."

Gillard said the scheme -- which will levy a price of Aus$23 (US$23.80) per tonne on carbon pollution before moving to an emissions trading scheme in 2015 -- would begin to address "the devastating impacts of climate change".

She said the reforms, which include investments in renewable energy sources, would result in Australia cutting its carbon emissions by 160 million tonnes in 2020 -- equivalent to taking 45 million cars off the road.

The government hopes the levy will create economic incentives for the biggest polluters to reduce their emissions but acknowledges that businesses will factor the carbon price into the cost of their goods and services.

To offset this, much of the revenue raised from the tax in the first three years will provide for higher family payments, pension boosts and income tax cuts to help pay for the higher cost of living.

Only New Zealand and the European Union have taken comparable economy-wide action by introducing cap-and-trade schemes, and the tax will put mining-driven Australia at the forefront of efforts in the Asia-Pacific.

"This is a big achievement, coming at an opportune time," said Professor John Quiggin, an economics and tax specialist from the University of Queensland.

"With South Korea planning to follow suit, momentum towards carbon emission reductions in the Asia Pacific is starting to build."

Tuesday's senate vote caps a tumultuous period in Australian politics, largely centred on how the vast nation, which is among the world's worst per capita polluters, should tackle carbon emissions linked to global warming.

Former prime minister Kevin Rudd harnessed an unprecedented wave of popular support for climate change action in 2007, winning elections in a landslide after campaigning to ratify the Kyoto Protocol and take other green measures.

But his plans were frustrated by entrenched conservative opposition which led to him shelving a proposed emissions trading scheme, damaging his credibility. He was ousted by Gillard in a Labor party-room coup in 2010.

Gillard went to the subsequent election promising there would be no carbon tax, but later backflipped, saying it was a necessary first step towards a flexible carbon pricing scheme.

Australia is heavily reliant on its coal exports, and thousands have rallied against the levy which they argue will raise living costs, cut jobs and ultimately prove ineffective.

Industry associations says Australia's scheme is punitive and priced far higher than the European Union system.

Earlier media projections indicated that mining giants BHP Billiton, Rio Tinto and Xstrata would be liable for a combined $380 million annually at an earlier price of $20 a tonne.

Elsewhere in Asia, South Korea is pursuing a "cap without trade" scheme involving some 450 companies from next year in preparation for a full emissions trading scheme (ETS) from January 2015, but Japan shelved national ETS plans late last year.

China is considering a pilot ETS programme in some provinces and while there are sub-national schemes in some parts of North America no broad-scale action has been taken in the United States.

The timing of the vote is significant, representing a firm commitment ahead of high-level UN climate talks in South Africa later this month that are being called a "make or break" meeting for legally binding carbon emission reduction targets.