The Albanese government has revealed a plan to ensure Australia’s biggest polluters do more to help slash the nation’s carbon footprint.

Climate Change and Energy Minister Chris Bowen on Tuesday announced steps to impose stricter carbon limits on companies.

Major polluters will have to reduce their annual emissions by 4.9 per cent from July, cutting 200 million tonnes by the end of the decade.

But they will get compensation under a revamped emissions ‘safeguard scheme’ set to take effect this year.

An initial $600 million will go to trade-exposed facilities to compensate them for the cost of change.

This money comes from the $1.9 billion Powering the Regions Fund.

The ‘safeguard’ mechanism was set up under the coalition government to encourage the biggest emitters to reduce pollution.

But the Morrison government’s emission limits were not fast enough for the Albanese government.

Mr Bowen said the previous governnment’s scheme had been ineffective at driving emissions reduction, which is why industry, business and scientists have been calling for reform.

The revamped mechanism is expected to cut the equivalent of two-thirds of Australia’s car emissions this decade, or 205 million tonnes of abatement.

“Overall, these changes decline emissions baselines of safeguard-covered facilities by 4.9 per cent each year to 2030,” he said.

Changes to the scheme were proposed by heavy industry and big business, including the Business Council of Australia and Australian Industry Group, and supported targets many companies had already signed up to, Mr Bowen said.

Across the economy, more than 200 industrial facilities each producing more than 100,000 tonnes of emissions a year are covered by the mechanism, which is being updated under a tight timetable.

New laws designed to encourage the biggest emitters to further reduce pollution are set to take effect from July 1, with industry involved in months of consultation under the Labor government.

The draft bill under review by federal parliament will add Safeguard Mechanism Credits, or SMCs, to Australia’s carbon market.

Smelters, refineries, manufacturers, glass and brickworks, recycling and waste disposal, transport and agriculture are among industries that must cut emissions.

Critics say the scheme masquerades as a plan for a carbon-neutral economy, but is designed to suit big emitters such as the gas industry.

Mr Bowen said the proposed reforms had been carefully calibrated to deliver the policy certainty and support Australian industry.

“A fit-for-purpose Safeguard Mechanism is critical to competitiveness in a decarbonising global economy where consumers and investors are demanding lower emissions and many of our trading partners are developing carbon tariff policies,” he said.

Further consultation begins on spending the Powering the Regions Fund, including on new clean energy industries, workforce development and carbon credit purchases by the federal government.

The government will also conduct a review to prevent “carbon leakage”, where a company moves operations to a country with less stringent rules – leading to an increase in greenhouse gas emissions.

– AAP