The Climate Change Authority has told the government it would be significantly cheaper to meet obligations to cut carbon emissions by purchasing international permits.
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The Abbott government is under increasing pressure from business groups to use international carbon reduction permits to boost Australia's chances of meeting an emissions reduction target of 5 per cent on 2000 levels by 2020.
The Climate Change Authority says meeting the target with only domestic action - as proposed by the Direct Action policy - is too expensive while there is a flood of cheap international permits.
The report urges the government to reduce costs to the taxpayer and be more competitive by combining domestic emissions reduction policies with the purchase of international credits.
It finds the government could spend a fifth of its planned $2.5 billion Direct Action policy and buy enough international permits to reach an emissions reduction target of 19 per cent by 2020.
Prime Minister Tony Abbott has been a key opponent of international credits, which he described in 2011 as ''money that shouldn't be going offshore into dodgy carbon farms''. But Fairfax Media understands both the Business Council of Australia and the Australian Industry Group wrote to Environment Minister Greg Hunt and Mr Abbott urging them to reconsider.
With Tom Arup
