Australia must do more to compete with subsidies available to low-carbon industries in the United States and Europe, investors warn.
The scale of support overseas has increased the urgency for new policies here, the Investor Group on Climate Change (IGCC) said in a report released on Thursday.
Generous incentives for renewable energy and clean hydrogen projects demonstrate the US and European Union aim to build a lead on other countries and economic blocs, according to the report commissioned by advisory group Pollination.
One of Australia's main roadblocks to greater investment in industrial transition has been the small scale of economic activity in sectors beyond renewable energy generation, the report found.
But IGCC chief executive Rebecca Mikula-Wright said Australia should not attempt to match the scale of clean subsidies emerging globally.
"The nation can't out-spend the US and others but we can outsmart them and use our unique resources to realise our competitive advantage," she said.
The resource-rich Australian economy has historically struggled to allocate capital to build new industries, which has resulted in emissions-intensive industry, exports and investment markets, the climate innovation report found.
The Standard & Poor's Global Clean Energy Index tracks the performance of the world's 100 largest clean energy businesses, and none originate from Australia.
The beefed-up safeguard mechanism to reduce emissions by Australia's biggest polluters was a "starting point" that needed to be expanded, the report said.
But government policies to encourage industries to transition to net zero emissions go beyond carbon pricing.
"With the right policy settings in place, Australian companies and investors could utilise the demand for clean solutions - created by the US Inflation Reduction Act and Europe's Green Deal - to create new growth industries in Australia," Pollination managing director Zoe Whitton said.
"These policy settings will leverage Australia's potential in clean industries and materials, helping to mobilise capital to reduce emissions, and will lay the foundations for Australia's ongoing economic success," she said.
In the short-term, demand could be stoked by tax incentives for customers buying new goods and services, government procurement rules, greater industry subsidies and favourable fiscal policy.
Creating long-term markets could be achieved through industry targets, product standards such as vehicle efficiency standards, and investments in enabling infrastructure including electric car charging networks.
A favourable business environment would also include cutting red tape for business registration, intellectual property filings and tax regime requirements, and access to finance, the report said.
The federal Clean Energy Finance Corporation and the Australian Renewable Energy Agency should be able to invest with a greater risk appetite for new ideas, the report said.
Australia is also in urgent need of national industrial development priorities and specific industry plans for transport, agriculture, manufacturing and other sectors to unlock capital.
Increased support for the CSIRO and climate Cooperative Research Centres (CRCs) is also recommended.
Investors stand ready to provide capital but the "innovation ecosystem" needs encouragement, Ms Mikula-Wright said.
