Governments departments urged Coalition ministers in 2000 not to reduce Australia's options on climate change action by waiting for an international emissions trading scheme.
Cabinet documents, released on Friday by the National Archives of Australia, show several departments and agencies advised against delaying a mandatory domestic scheme until an international one had started.
Records show cabinet ignored the advice and agreed to wait for an international ETS, and for the nation to ratify the Kyoto Protocol, before establishing an Australian cap-and-trade emissions reduction system.
Cabinet records also show that then-Environment Minister Robert Hill did not agree with the proposal put to ministers by Industry Minister Nick Minchin in August 2000.
In a submission to cabinet proposing measures to create investment certainty for the liquefied natural gas industry, Senator Minchin said the government must prevent greenhouse reduction objectives from inadvertently jeopardising wealth and employment.
"If industry perceives that we are prepared to render current investments unprofitable in the pursuit of our greenhouse gas emission mitigation objectives then future investment opportunities will be placed in jeopardy," he said.
Senator Minchin said a mandatory domestic ETS would impose significant costs on industry and, depending on its implementation, "will essentially be a tax".
"Thus the prospect of early introduction of such an arrangement raises considerable uncertainty," Senator Minchin said.
Publicly committing to waiting until Australia had ratified the Kyoto Protocol, and an international ETS being established, would signal the government would not impose significant and potentially unnecessary costs prematurely on industry, he said.
Government departments opposed committing to delaying a domestic emissions trading scheme until an international ETS had started.
Treasury advised the government not to rule out establishing a domestic scheme before an international one.
"In the event that Australia does ratify and the [Kyoto] Protocol enters into force, a domestic emissions trading scheme would remain one of the lowest cost methods of meeting Protocol commitments, regardless of whether there is an established international emissions trading regime," it said.
The Department of Environment and Heritage said it was inappropriate for the government to form firm views on the timing of a domestic ETS on the basis of Senator Minchin's cabinet submission.
It was possible that introducing a domestic scheme before an international one could reduce the costs of reducing carbon emissions.
"This submission appears to rule out such initiatives without carefully examining the issues in a broader context than the LNG industry," the department said.
The Australian Greenhouse Office blasted the proposal to wait for an international ETS, saying it "unnecessarily restrains the government options to meet its greenhouse obligations in that as events unfold, the range of uncertainties associated with climate change negotiations will change and appropriate policy responses may shift radically and at short notice".
"It would be unwise to tie the government's hand in responding flexibly to such possible future events," the agency said.
"It would be particularly unwise to rule out domestic emissions trading, which is widely viewed as the least cost policy framework for meeting our Kyoto commitments across a wide range of possible future outcomes."
Deciding to rule out a domestic ETS before 2008 would signal to the international community that Australia was not taking its Kyoto commitments seriously, the agency said.
Senator Minchin also proposed that the government commit that future greenhouse gas abatement policies would promote cost effective actions that would minimise the burden for business and the community, so that the liquefied natural gas sector could remain competitive.
Departments raised reservations, and some opposed another proposal from Senator Minchin to extend the same commitment to all Australian industry. The cabinet agreed to both proposals.