The Coalition has confirmed it will provide an additional $1bn to its emissions reduction fund but has also revealed that only 130 Australian companies will have any limitations on their greenhouse pollution after the carbon tax is repealed.



The government will start auctions under its “direct action” climate policy later this year, paying companies or organisations that volunteer to reduce emissions until Australia reaches its emissions reduction target of 5% by 2020.



But a “safeguards” mechanism to impose some upper limit on emissions across the board – including on companies or sectors not bidding in the auction – has been pared back and will now apply only to 130 companies that emit 100,000 tonnes of CO2 or more a year.



The penalties applying if those companies exceed their highest emission levels over the past five years remain unclear. The white paper says “the government will work with business to establish a flexible framework for complying with the safeguard in the unlikely event of baselines being exceeded”.



Releasing the final white paper design of the “direct action” climate policy on Thursday, the environment minister, Greg Hunt, said the government was not concerned that the emissions reductions it secured through its fund would be wiped out by higher emissions elsewhere in the economy because “we have presumed the highest emissions growth … We have taken the worst case scenario in terms of our emissions.”



Hunt’s hand-picked advisory group warned him he would need to offer 15-year contracts to companies bidding to reduce emissions to get the kind of big projects that could effectively reduce greenhouse emissions.



Danny Price, the economist who co-chaired the advisory group, told Guardian Australia the Coalition’s five years was “way too short” and that “contracts will need to be 15 years at least to attract the major capital-intensive projects with lifetimes of well over a decade”.



He said the issue was “one of the biggest threats” to the effectiveness of Direct Action.



The “white paper” said the government still preferred five-year contracts but would undertake “market testing” of longer contracts before the first auction. It also proposes that very large projects delivering reductions of more than 250,000 tonnes of CO2 a year, could enter into “out-of-auction contracts”. Hunt said he still believed there was “real potential” for big contracts to deliver emission reductions within a five-year contract.



And he said was absolutely confident the “direct action” scheme would achieve the 5% target, and that the new policy would become law, despite the fact that it is unlikely to win support from the new Senate, which sits from July. Hunt said the $2.55bn for the first four years of the emissions reduction fund would be included in the budget, and the rest of the scheme would be presented as legislation, but strongly hinted it could be implemented through regulation if blocked by Labor, the Greens and the crossbench senators.



Clive Palmer vowed this week that his four-vote bloc in the Senate would vote against “direct action” because the money would be better spent on pensions. Hunt said he had “just casually bumped into Mr Palmer” and was “hopeful” they could have “constructive discussions”.



The original “direct action” policy, released in early 2010 after Tony Abbott deposed Malcolm Turnbull as leader vowing to oppose Labor’s proposed emissions trading scheme, promised $300m, $500m and $750m over the first three years and $1bn a year after that. But the Coalition had only budgeted the first three years. Hunt confirmed another $1bn would be included in the fourth year of the budget estimates and said the fund had easily enough money to achieve its aims.



Many critics, including Turnbull, have insisted direct action cannot be “scaled up” to deliver bigger emission reductions in the future, but Hunt insisted it would “last the test of time” and that it would be affordable in the long term.



Turnbull explained in 2011 that continuing to use a big taxpayer-funded scheme to reduce emissions in the long term would “become a very expensive charge on the budget in the years ahead”.



Two independent modelling exercises found “direct action” allocated too little money to achieve even a 5% target.



Modelling by Reputex climate analytics, commissioned by the environment group WWF-Australia, found that the money set aside by the Coalition to buy abatement was likely to fall short by $5.9bn a year between 2015 and 2020, or between $20bn and $35bn in total. Modelling by Sinclair Knight Merz/MMA and Monash University's centre of policy studies, commissioned by the Climate Institute, which used assumptions more generous to the Coalition, found the Coalition would have to find at least another $4bn for its climate policy, or break its pledge to cut emissions by 5% by 2020 and instead allow them to increase by 9%.



The Australian Conservation Foundation said the white paper “does not give us confidence Direct Action could cut emissions by even 5 per cent, let alone higher targets recommended by scientists”.



“It would be a disaster to get rid of a carbon price that is working and replace it with a scheme that gives no certainty it will reduce emissions,” the foundation said. “The new Senate will need to stand up for the public interest by insisting on an effective alternative climate change policy before scrapping the one we have.”

And the Australian Industry group, while welcoming many of the policy decisions in the white paper, repeated its call for the government to abandon its objection to buying greenhouse abatement on the international carbon market.



“The best way to guarantee that the emissions reduction fund can meet the target, stay within its budget and avoid imposing new red tape would be to expand the policy to include low-cost international carbon credits,” its chief executive, Innes Willox, said.



“Passing the legislation needed to underpin Direct Action may not be easy. The government … should set aside a part of the emissions reduction fund to guarantee achievement of the target through purchase of international emissions reductions. We estimate this would cost only 4% of the funding committed today. The fund will be more likely to attract domestic participation if the government is open to longer-term contracts and manages the risk of under-delivery itself.”

The Climate Institute's Erwin Jackson said: "The government's own projections show emissions will grow by 30% by 2030. To meet anything like a credible emission reduction target by then we need to find 5 billion tonnes in emission reductions. A $2.5bn fund and a toothless-tiger compliance mechanism hasn't got a hope of achieving that."



The acting Greens leader, Adam Bandt, said: "The Greens have said from the start that Direct Action is a dud. There’s nothing in the white paper’s few paragraphs of new detail that makes us change our minds, and if Clive Palmer's senators maintain their resolve, this piece of greenwashing will never become a reality."

The Business Council of Australia also called for the government to consider buying permits overseas.



“In its ongoing discussions the BCA will continue to advocate for access to a credible international permits system as it is the lowest cost option to meet the bipartisan commitment of reducing Australia’s emissions to at least 5 per cent below 2000 levels by 2020," chief executive Jennifer Westacott said.

But she said the BCA's first priority was removing the carbon tax.