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February 03 2009, 7:34PM

Homeowners will get free ceiling insulation as the federal government takes a green approach to boosting the economy.

The insulation is expected to slash up to $200 from annual power bills for more than two million homes - and greenhouse gas emissions will drop as well.

All households who want to install insulation will get up to $1,600 as part of the federal government's stimulus package, announced on Tuesday.

The industry estimates most houses would spend a maximum of $1,400 to buy and install insulation - so it will be free.

Prime Minister Kevin Rudd said insulation was the single best way to make homes more energy efficient.

"This is a very useful thing for the planet, for greenhouse gas emissions," Mr Rudd said.

And renters won't miss out. The government is beefing up its rebate for landlords who install insulation, from $500 to $1,000.

The rebate for solar hot water heaters has also been increased to $1,600, and the income means test has been scrapped, so all households qualify.

Going solar will save between $300 and $700 on annual power bills, the government says.

The industry estimates that with the new rebate, households might be between and $1,000 and $1,500 out of pocket if they installed a solar hot water heater, although this varies across states.

Households can not get both the insulation rebate and the solar hot water rebate though. They would have to choose.

Insulation Council of Australia and New Zealand chief executive Dennis D'Arcy said almost all homes could install insulation for free under the rebate.

Only big "McMansions" might be out of pocket, he said. Many homes built before 2005 did not have insulation.

Mr D'Arcy expected the rebate would create about 4,000 jobs, and said it was easy to train more people to install insulation, requiring only a six-hour course.

He could not say if there would be long queues to install insulation when the rebate kicks in on July 1.

"It will certainly keep us busy," Mr D'Arcy said.

Homeowners who want to get in early can install insulation now and apply to be reimbursed after July 1.

The Greens welcomed the "green home" initiatives, worth $3.8 billion, but some conservation groups said the government should have done much more to cut emissions.

"Whilst it is a good baby step, it is still tinkering around the edges and it's not enough to deal with the climate crisis," Steve Campbell, head of campaigns with Greenpeace, said.

He called for more money for renewable energy, and said any emissions saved by households would be allocated to industry under emissions trading.

Damien Lawson from Friends of the Earth described the measures as "a tiny pink batt package".

Federal Opposition Leader Malcolm Turnbull said installing insulation would improve energy efficiency, but queried if the rebate was the smartest way of going about it.

"Is it being delivered efficiently?" Mr Turnbull asked.

By Cathy Alexander