Market-based approaches to greenhouse gas (GHG) reduction, such as emissions trading, are increasingly favored as an alternative to 'command and control' legislation. With a focus on the Australian renewable energy (RE) industry and policy situation, this paper proposes that the development of RE technologies as a response to global warming is environmentally preferable and in the long-term economic interest of Australia. However, the Australian RE sector is disadvantaged by energy market distortions and lack of policy and program support. Under a market-based approach to GHG reduction complimentary policies will be needed to enable the uptake of RE technologies. The RE sector can also develop certain capabilities to help further the uptake of RE technologies in a market-based environment. (C) 2003 Elsevier Ltd. All rights reserved.