Prime Minister Julia Gillard has proposed putting a price on emissions of carbon, a key element of gases blamed for global warming, from July 2012, in a scheme that will effectively initially operate like a tax.
Under the proposal, a fixed price would be placed on carbon emissions for the first three to five years before moving to a full cap and trade scheme under which the price would be linked to international carbon markets.
Gillard's ruling Labor party twice failed to implement an emissions trading scheme due to stiff opposition from conservative lawmakers and big business in a damaging episode seen as costing her predecessor, Kevin Rudd, his job.
Similar opposition is mounting to her carbon tax plan, with the heavyweight Australian Coal Association (ACA) warning it would cost jobs and send investment overseas unless coal miners were exempt or heavily compensated.
The scheme would tax emissions from the coal mining process, rather than the product itself.
But ACA chief Ralph Hillman said of industry negotiations with the government: "The industry didn't ask the minister yesterday for more compensation, it really asked him to go back to the drawing board.
"The European Union's managed to do this in a way which does not negatively impact the competitiveness of its trade exposed sectors, why can't we do that too?"
Australia is the world's worst per capita polluter, largely as it relies heavily on coal-fired power, and also exports millions of tonnes of the fuel every year to Asian electricity companies and steelmakers.
It is home to the world's largest coal export port, with total 2010 shipments worth Aus$43 billion (US$45 billion).
Hillman said the carbon tax was based too closely on the failed emissions trading scheme and even though coal was eligible for exemption as a trade-exposed industry the government had told him they "didn't want to" do so.
"No other country in the world" that was taxing polluters included emissions from coal mining, he added, "because they are too hard to measure and there is no available abatement technology".
"This is going to impose an Aus$18 billion cost on the coal industry over the next 10 years. So you'll see a diminution in the growth of the industry and you'll see jobs lost," Hillman told ABC radio.
"But you won't see any impact on global emissions because the coal will be mined in other countries and the emissions will go up just the same.
Gillard's fragile coalition government holds power by just one seat and reviving the carbon debate could prove a stiff challenge, with the opposition condemning the pollution levy as a "great big new tax".
But failure to act could be equally destabilising, with the eco-minded Greens party a key partner in her rule.