The International Monetary Fund (IMF) is warning that Australia will fail to meet its obligations under the Paris Climate Accord to reduce greenhouse gases even if it slaps a steep tax on carbon emissions.

The IMF's new report says the most cost-effective way to reduce emissions is with a carbon tax.  But because of Australia's heavy reliance on coal-fired power generation, the IMF report says retail energy prices in Australia would rise by 75 percent with a carbon price of US$75 a ton.  

"Whereas a US$25 a ton price would be more than enough for some countries (for example, China, India, and Russia) to meet their Paris Agreement pledges, in other cases (for example, Australia and Canada) even the US$75 a ton carbon tax falls short," according to the report.

The report suggests that heavy regulation would have to take place alongside the carbon tax as well as rewards for entities that drastically reduce their carbon output.

But overall, The Australia Institute's climate director Richie Merzian insists that the IMF report shows that "carbon prices work" and would have little impact on the economy.

"In just two years under the Clean Energy Future carbon price, Australia reduced emissions by 2 percent, grew the economy by 5 percent, and added 200,000 jobs," he said.  "If there is one clear message for the Australian government, it is get your act together.  Australia's emissions are increasing, not falling, because there is no credible climate and energy policy."