The state government application nominates 10 grazing sites covering 39,738 hectares of the protected alpine region.

The federal government blocked a state trial of cattle grazing in the Victorian Alpine National Park. Photo: Justin McManus

THE federal government will tell business leaders that it is putting on hold plans to devolve to the states power to deal with environmental approvals for major projects.

The decision is a major blow to business - which has claimed ''green tape'' is jeopardising projects worth many billions of dollars - and a victory for green groups that have complained about a watering down of standards.

In a bid to streamline and speed up approvals, the Commonwealth started negotiations with the states after the Council of Australian Governments meeting in April for decisions to be made under state legislation. But concern about state approaches to standards has made it difficult to get bilateral agreements that are comprehensive and meet standards.

Business leaders at the pre-COAG Business Advisory Forum will be briefed on Thursday on the decision, which follows high-profile spats between Canberra and conservative state governments over environmental approvals.

The Baillieu government is challenging in the courts a decision by Environment Minister Tony Burke to block its controversial trial of cattle grazing in the Alpine National Park under national environment laws.

Tensions have also exploded between Mr Burke and Queensland Premier Campbell Newman over the approval process for Gina Rinehart's $6.4 billion Alpha coalmine in the Galilee Basin.

The federal government says if the states failed to properly maintain environmental standards there could be legal challenges, creating business uncertainty.

States have not yet provided assurance that the Commonwealth's high standards that flow from the Environment Protection and Biodiversity Conservation (EPBC) Act would be met.

Given the problems, the federal government says bilateral agreements would cover, at most, only two-thirds of matters nationally, ranging between 25 per cent and 90 per cent across jurisdictions.

For example, proposals for accreditation would not cover all approvals, including some residential and commercial development, and approvals not involving land development. Not all state processes are capable of assessing all aspects of projects that may affect matters of national significance.

The problems would create a ''patchwork'' effect, the federal government says, with some processes accredited under the new system, others still with the Commonwealth and still others requiring co-operation between governments. The government will ask the states to do more work before talks proceed.

The government will instead introduce legislation to enact changes to the national environment laws resulting from a 2009 review headed by former senior bureaucrat Allan Hawke.

The changes include greater use of assessments of environmentally important landscapes to determine where major development should occur. The changes will also seek to reduce the time taken to make decisions if a project meets certain conditions, and amend powers over emergency listing of animals and plants for protection

On another COAG issue, the Australian Industry Group has appealed for Friday's meeting to make progress on energy reform. CEO Innes Willox said state concerns about Julia Gillard's electricity package were understandable ''but none should be a deal breaker''.