A ruling from Western Australia's environmental watchdog that new emissions-intensive projects should be carbon neutral is "crazy", the federal government's most senior member from that state believes.

The WA Environmental Protection Agency on Thursday released updated guidelines on mitigating emissions from new or expanding projects, saying it would recommend the state government require proposals with emissions higher than 100,000 tonnes a year be fully offset.

"Over the past two decades the EPA has recommended greenhouse gas abatement measures for around 40 proposals however more needs to be done to limit global warming, consistent with the Paris Agreement," agency chair Tom Hatton said.

But federal Finance Minister Mathias Cormann says if the state adopts the recommendation, it would do nothing but hurt WA's economy.