The Federal Government is pledging $500 million to encourage the local car industry to develop more environmentally vehicles capable of attracting overseas buyers.
The Prime Minister used World Environment Day telling parliament that the government would offer one dollar for every three invested by the industry toward greener cars.
Mr Rudd says the car industry needs to change.
"When all is said and done we don't just want a green car, we want a green car industry.
"An industry that provide secure high-skill, high-wage jobs by meeting the global demand for a wide range of green-house friendly technologies.
"An industry that is itself a model of clean, green production."