The emissions trading model - developed by Australian National University's Warwick Mckibbin and Peter Wilcoxen from Syracuse University - would involve long and short-term emissions permits.
According to the model, the amount of emissions covered by long-term permits would be less than the total national emissions to create tradable value, while an unlimited number of short-term ones would be sold annually by the Commonwealth.
Mckibbin and Wilcoxen argue this would provide financial incentives for emissions reductions without imposing a specific target.
“Although the policy is more complex than an emissions tax or conventional permit system, it would provide an excellent foundation for the large private sector investments in capital and research that will be needed to address climate change," the paper, which was released last year, said.
“Key aspects of the system would be coordinated across countries but the permits would be issued and traded solely within national borders.”
Federal Environmental Minister Malcolm Turnbull praised the model last month.
But last week social think-tank The Australia Institute released its own critique of the scheme, which it said would lead to a gross over-allocation of permits and not substantially lower emissions.
Prepared by institute executive director Clive Hamilton and University of NSW Professor Frank Muller, the report said the model was outdated, heading in a different direction to the rest of the world and would lock local firms out of the international system.
"(The) approach is at odds with best practice elsewhere in the world and could leave future governments with a massive compensation bill… as climate science necessitates deeper cuts in greenhouse emissions," Hamilton said.
The report stated: "The hybrid model's annual permits are neither limited in supply nor internationally tradable. Its perpetual (long term) permits confer an ongoing right that does not exist and could not be recognised under the EU (Emission Trading Scheme) or Kyoto Protocol."
It also criticised the omission of a target, or limit to the amount of CO2 emissions allowed each year, arguing it gave too much freedom to polluters.
