Australia should gradually shut down all coal-fired power plants by 2035 and put a "realistic" price on carbon to avoid severe economic shocks, a new report recommends.

A policy package designed to meet Australia's global climate change obligations would also need tools to encourage renewable energy and a focus on energy efficiency.

The Climate Institute report found delaying a transition to cleaner energy until 2030 would cause sudden unemployment in some communities and drive up electricity costs.

A "modest" carbon price of $40 per tonne by 2030 alone would not be enough to mitigate the need for fast, deep emission cuts, the modelling found.

That price would achieve the Turnbull government's 26 to 28 per cent target by 2030 but would also mean a 60 per cent collapse in projected clean energy growth from 2020, the report found.

"It would require emissions reductions after 2030 that would cause severe electricity system disruption and large economic and social costs," chief executive John Connor said.

The majority of coal-fired generation would then have to be shut down in less than five years - causing major shocks to the energy network and communities that rely on the plants for employment.

The institute mapped scenarios against an electricity sector carbon budget based on the amount the industry can emit to stay in line with last year's binding Paris climate agreement.

In December, 196 parties agreed to limit global warming by two degrees.

The report, released on Friday, found in order to be meet that goal a carbon price alone would have to reach $70 per tonne by 2020 and $100 per tonne by 2030.

Labor's scrapped carbon tax initially imposed a price of $23 per tonne on big polluters, increasing to $24 the following year with a plan to morph into a market-based trading scheme.

The institute says Australia must plan a well-managed transition to a "modern, smart and clean" electricity sector in the next two years, with the aim of reaching net zero emissions by 2050.

It recommends a package of policies, including a 50 per cent renewable energy target by 2030 and a 45-year operating lifetime limit for existing coal generators - supported by funding for communities.

Combined with a weak carbon price, that would reduce electricity emissions by 45 per cent by 2030 and more if coupled with energy efficiency strategies.

The government has promised to next year review its direct action policy, which pays polluters from a $2.55 billion taxpayer funded kitty not to pollute.

Labor is developing its promised emissions trading scheme while consulting on emissions reduction targets of 45 per cent by 2030 and net zero emissions by the middle of the century.

The party also wants 50 per cent renewables by 2030.