The federal government will not punish companies that fail to meet their emissions targets under the coalition’s Direct Action plan, but instead will offer generous and flexible compliance arrangements.

Federal Environment Minister Greg Hunt has told The Australian newspaper the government’s Direct Action scheme was not designed to be punitive.

The government’s green paper, released before Christmas, says the Commonwealth has a clear objective not to raise revenue from companies that don’t meet their carbon-reduction targets.

“Consistent with this intention, in the event that an entity did exceed its baseline, there would be flexible compliance arrangements available,” the green paper says.

“One approach that could be considered would be to set an initial transition period during which compliance action for exceeding baselines would not apply.

“This would enable businesses to make investments in emissions-reduction projects, potentially with support from the Emissions Reduction Fund.”

The paper suggests other approaches include a multi-year compliance period, whereby companies could exceed baseline emissions in one year, but maintain average emissions in a set compliance period, or by allowing facilities to purchase emissions reduction credits to reduce their net emissions within baselines.

Australia has a national commitment to reduce CO2 emissions by five per cent below 2000 levels by 2020.

The Direct Action proposal requires companies to meet individual baseline targets for carbon dioxide emissions.

Opposition environment spokesman Tony Burke told the paper the plan was “a dressed-up slush fund, which is ineffective and costly”.

The federal government’s plan will result in taxpayer funds used to purchase carbon emissions reductions, compared to the former Labor government’s carbon tax, which raises money directly from business.

Comments on the Green paper must be made before February, after which the white paper outlining the final design of the Emissions Reduction Fund will be released.