THE Rudd Government's own climate adviser has lashed its compensation deal for heavy polluters in the climate change white paper as "over the top".

The Weekend Australian reports that Ross Garnaut, who carried out extensive research on the shape of a carbon pollution reduction scheme for the Government, said the deal could outstrip collections from the emissions trading scheme and force taxpayers to foot the bill.

Professor Garnaut described deals that provided compensation for industries such as LNG as "political". He said they could be difficult to unwind in the future and posed potential risks to the federal budget.

His warning comes as new calculations reveal the full burden placed on the rest of the economy by decisions to shelter trade-exposed industries, with the Climate Institute estimating the Government's promised 5 per cent emission cut by 2020 will force emission reductions of 18 per cent in the unshielded parts of the economy.

Professor Garnaut expressed concern that the compensation deals for industries such as LNG, petrol refining, aluminium and cement were based on "a political process" rather than clear principles or criteria, making them difficult to unwind.

The Weekend Australian has learned the Rudd Government took an explicit decision to shield the LNG industry, despite early calculations showing it did not meet the original compensation criteria. But it decided that coalmining would not be offered free permits, despite at least sections of the industry clearly qualifying.

Unveiling the Government's politically cautious ETS last Monday, Kevin Rudd said he was confident it would remain "self-funding", with promised compensation paid entirely from the revenue raised by auctioning pollution permits.

But Professor Garnaut, who presented the Government with his final advisory report in September, said there was a strong risk the Government's numbers would not "add up".

"There are substantial budgetary risks in the structure of payments to trade-exposed industries ... there are a number of budgetary claims and the numbers just don't add up for the scheme to remain self-funding if trade-exposed industries grow faster than the rest of the economy, or if the Government shifts towards larger emission reductions," he said. "There are substantial risks the scheme will not be self-funding over time."

The Government has promised to extend compensation of either 60 or 90 per cent of freepermits to all new trade-exposed industries to avoid losing new investment and jobs to countries that do not yet impose a carbon price.

The Government conceded this could mean it was giving away 45 per cent of all available pollution permits by 2020, if no global deal was struck by that time and the trade-exposed industries grew more quickly than the rest of the economy.

But the Prime Minister said he remained confident the scheme would continue to be self-funding because other promised compensation would be wound back over time. In 2013, the Government will review its decision to offset the effects of the scheme on petrol, for example, and is offering compensation to coal-fired power stations for only the first five years.

But Professor Garnaut said he was worried there was no clear mechanism to wind back the free permits for heavy industry. "It will be difficult to avoid these turning into open-ended budgetary commitments because there are no clear economic principles guiding the payments," he said.

"Sound principles would mean these payments would phase out automatically as other countries adopted emissions pricing, but under the Government's plan it is an entirely political process, which means there are no logical limits on either the time frame or amounts paid to trade-exposed industry."

Analysis by Innovest Strategic Value Advisors for the AustralianConservation Foundation has calculated the value of thefree permits and who will receive them. It reveals that the largest recipients in 2010 will be Rio Tinto ($462 million), Bluescope Steel ($174 million), Alcoa ($170million), Norsk Hydro ($116million) and Alumina Ltd ($113million).

By 2015, according to the analysis, the top five recipients will beRio Tinto ($620million), Bluescope Steel ($233 million), Alcoa ($228 million), Royal Dutch Shell ($186 million) and Chevron ($173million).

ACF is planning to join the ACTU and community and welfare grops to campaign against the Government's scheme in the new year.