The Abbott government has proposed a major concession to the heavy-polluting electricity industry in its Direct Action climate change policy by exempting individual companies from caps on emissions.

The government is beginning public consultation for the so-called safeguards mechanism for its $2.55 billion Emissions Reduction Fund, which will pay major polluters to reduce their pollution.

Hazelwood: Australia's most emissions-intensive major power plant. Credit:Reuters

With the first auctions for the fund only three weeks away, companies are yet to see what penalties they would face if they increased emissions.

The office of Environment Minister Greg Hunt said on Thursday the "safeguard mechanism will ensure that abatement achieved under the emissions reduction fund is not offset by rises in emissions elsewhere in the economy".