Australia’s 20 biggest polluters will be able to significantly increase their greenhouse gas output despite being covered by the Abbott government’s so-called “safeguard mechanism” and will wipe out most of the emission reductions the government intends to buy from other sectors, according to new analysis which brands the Coalition policy “untenable”.

The environment minister, Greg Hunt, says the “safeguard mechanism” – to be imposed on 150 big emitters and announced in detail later this month – will ensure that emissions reductions purchased through the $2.55bn emissions reduction fund (ERF) from things like avoided land clearing or energy efficiency are not displaced by a significant rise in emissions elsewhere in the economy.

But the RepuTex market analysis firm has found the proposed curb on electricity generation and industrial emissions is so “lenient” that only about 30 companies, such as airlines and transport firms, will be forced to reduce their emissions at all, and then only by a relatively modest 29m tonnes between 2016 and 2025.

Over that same timeframe the biggest emitters, including the dirtiest brown coal-fired power stations such as Loy Yang A and B, Hazelwood and Yallourn, will be able to increase their emissions by 150m tonnes – cancelling out most of the emissions reductions achieved in other parts of the economy by the government’s policy.

“In light of the ineffectiveness of the scheme, it is untenable for government policy to stay in its current form, particularly with the steepest increase in Australia’s emissions to occur in the next four years. Moreover, it is counter-intuitive to let emissions grow while at the same time implementing a more ambitious post-2020 target,” the research says.

“The safeguard mechanism is expected to fail to ‘safeguard’ the ERF investment, with abatement purchased by the ERF expected to be fully displaced by a significant rise in emissions elsewhere,” it says.

The government is set to announce deeper post-2020 emission reduction targets when parliament resumes, but has not said how it intends to meet them.

Hunt has, on occasions, said the safeguards mechanism could be tightened to force electricity generators and industry to reduce emissions more.

But doing that would set up a baseline and credit emissions trading scheme, imposing costs on industry and generators that would be passed through to consumers – cutting across the government’s attack on Labor’s promise to re-introduce an emissions trading scheme.

“Ahead of the release of Australia’s new post-2020 emissions reduction target, the report places further pressure on the government to explain how it will curb emissions growth,” said Reputex’s executive director, Hugh Grossman.

“It is inevitable that tighter baselines, or a cap on emissions, will ultimately be set, particularly given the significant abatement task we are likely to face to meet our new emissions target,” said Grossman.

But in internal government discussions the prime minister, Tony Abbott, and his office have been very concerned the safeguards mechanism could never turn into a de facto carbon price or a cost burden on emitting industries.

When the details of the safeguards mechanism were released, the independent senator Nick Xenophon, who provided one of the six votes the government needed to get Direct Action through the Senate last July, said it had been “neutered” and accused the government of reneging on promises it made to secure his vote.

“Direct Action has no point if it does not have an effective safeguards mechanism, and what the government has released seems like a try-on,” he said. “It goes against what they promised me in the discussions before the vote. I was assured this safeguards mechanism would have real teeth.

“There is no point in the government spending $2.55bn if there is no requirement to cap or reduce emissions from industry.”