The Greens could force the federal government to toughen its safeguard mechanism scheme, to prevent major polluters using accounting tricks or offsets to dodge deep emissions cuts.
The Labor government unveiled draft revisions to the scheme that effectively requires Australia's largest greenhouse gas emitters to keep their net emissions below a baseline emissions limit.
But the Greens have concerns about the design of the draft legislation and say it will allow the expansion of new coal and gas.
Acting Greens leader Mehreen Faruqi said the government was likely to need the party's backing to pass rules through the Senate.
She said the party would leverage its balance of power position to push Labor towards a more ambitious scheme.
"The package as proposed allows further expansion of coal and gas, which is completely at odds with tackling the climate crisis," Senator Faruqi told AAP.
In its present form, the Greens say the scheme will allow coal and gas companies to buy their way out of directly cutting emissions from their operations thanks to unlimited access to offsets.
"It's a recipe for failed policy and will fail to meet our domestic targets and international obligations," she said.
The Greens have pledged to work with the government in good faith.
The draft rules include the introduction of a new type of tradable carbon credit that companies will be able to earn when they are "over-performing" on emissions cuts.
The government will need to pass legislation through parliament to introduce the new tradable carbon credits.
The package, which also includes government funding for trade-exposed industries to help them transition, has been broadly welcomed by business groups such as the Business Council of Australia and the Australian Chamber of Commerce and Industry.
But like the Greens, some environmental groups are concerned the scheme incentivises tricky accounting to avoid real transformation.
The federal opposition says the extra costs will damage businesses and be passed on to consumers in the form of higher prices.
Parliament is set to resume for the year on February 6.
