The Coalition’s direct action climate plan is flawed in its design and could undermine international negotiations to reduce greenhouse gas emissions, a Senate committee into the policy has heard.

In a round of submissions to a Senate committee held in Melbourne on Wednesday, business and conservation organisations questioned whether the direct action plan, in its current form, could achieve its aim of a 5% reduction in emissions by 2020, from 2000 levels.

The Australian Conservation Foundation said a key flaw is that while there is no cap on emissions under the plan, there is a $1.5bn cap on the emissions reduction fund, which will be used to incentivise businesses to lower emissions.

“We simply can’t support direct action in its current form as it has major structural problems,” said Jamie Hanson, climate change campaigner at the ACF.

“It’ll be very difficult to scale up to achieve the higher pollution cuts that will be essential to hit the targets agreed in international forums.

“We are talking about a major policy shift from acting in concert with other nations to avoid a world that is 2C warmer to a policy that will make it very difficult to achieve a 2C warming limit.”

Hanson said Australia’s new climate policy could damage international talks convened by the UN secretary general, Ban Ki-Moon, for later this year, as a precursor to key 2015 climate talks in Paris, where a new accord is expected on emissions reduction.

“At the moment, Australia won’t be able to contribute to that process,” he said. “The 5% target is too inflexible, too low and it may even actively undermine negotiations internationally. I haven’t seen any independent modelling that shows direct action will achieve the 5% goal.

“Australia is at the bottom of the class, internationally. We are a serious drag on global efforts and we need to do much, much better.”

In its submission, the ACF said Australia should reduce emissions by 40% below 1990 levels by 2020, 60% by 2030, with net zero pollution achieved by 2050.

Committee member Anne Ruston, a Liberal senator, challenged Hanson on the 5% target goal, pointing out that this could increase to 25% based on international action. However, Tony Abbott has seemingly distanced the Coalition from this increased target.

The Australian Industry Group, along with several other bodies, said that the details of direct action were still unclear, despite the policy being formulated prior to the 2010 election.

In its submission, the business lobby group said Australian companies pay a “very high price” under the carbon pricing scheme compared to their counterparts in other countries.

But it added that carbon pricing’s replacement should allow for the trading of international carbon credits to ensure the delivery of the 5% reduction target. The Coalition has ruled this out, instead relying solely on domestic emissions abatement.

“There is a risk that abatement is not available in the volumes and prices in Australia that we’d hope for, at least until 2020,” said Tennant Reed, an AiG adviser. “As a backstop, the government could reserve UN carbon credits to guarantee the 5% target for a small portion of the funds currently committed to the emissions reduction fund, around $300m.”

Reed added that the emissions reduction fund should fund some abatement work already undertaken to avoid penalising early mover businesses that have already sought to lower their carbon output.

Submissions also touched upon the renewable energy target (RET), which is to be reviewed by the government and could be wound back. Presently, 20% of Australia’s energy must come from renewable sources by 2020.

The Clean Energy Council said the RET was having a moderating, rather than inflationary, impact on electricity prices by bringing down the cost of wholesale energy. Its analysis has found that the RET was responsible for reducing 22.5m tonnes of carbon dioxide between 2001 and 2012, as well as driving $18.5bn in investment into renewable energy, such as solar and wind.

The government has pledged to scrap carbon pricing and introduce direct action by 1 July this year.

Figures released by the government on Wednesday show that overall emissions reduced by just 0.3%





The environment minister, Greg Hunt, said the figures proved that the carbon price was inflicting “plenty of pain with no environmental gain”, with the reduction due to a decline in manufacturing and the RET.

“Families are under enormous pressure but all Bill Shorten is interested in is backing another failed Labor policy,” he said.

“When parliament returns next week Labor has the chance to do the right thing – respect the voice of the Australian people and support repealing the carbon tax.”

Labor’s environment spokesman, Mark Butler, told Guardian Australia that the previous government’s clean energy legislation was “designed to change behaviours of businesses and households to rethink their energy usage. We didn’t expect to reach our emissions targets overnight, we expect this to happen over time."

• This story originally attributed quotes by Jamie Hanson to Dougald Murray, his colleague at the Australian Conservation Foundation.