The federal fund for fighting climate change could be used to prop up coal-fired power stations.

The independent committee overseeing the Emissions Reduction Fund (ERF) is reviewing the Federal Government program.

The ERF funds projects like tree planting and energy-efficiency scheme to help Australia meet its global reduction targets.

The ERF’s independent Emissions Reduction Assurance Committee (ERAC) is now considering changes to the methods for assessing which projects qualify for taxpayer-funded carbon credits.

The assessment style is called ‘the facilities method’, and will allow the authorities to consider funding power generation projects, including, but not limited to, coal.

ERAC chair Professor Andrew Macintosh says the review does not automatically disqualify fossil fuels like coal or gas, as the ERF must encourage all projects that help lower Australia's carbon emissions.

The ERF’s charter says it must fund new projects that would not have happened without government assistance.

“From the top of my head, I can conceive a circumstance where activities in coal-fired power plants, or gas-fired power plants, or other generators, could be additional and have environmental integrity, and I can see hypotheticals for where they wouldn't be,” Dr Macintosh said.

“We've got to evaluate both those circumstances, where they would and they wouldn't, and make sure that the rules in the method ensure that we only capture the circumstances where the activities will result in real and genuine abatement.

“Obviously, there is a risk that if you provide subsidies for generators, you could extend their operating life, and in doing so you can displace less emissions-intensive activities.

“The method was designed with that risk in mind, and it is one of the key things we will be looking at as part of the review.”

Australian Conservation Foundation chief Kelly O'Shanassy says the scheme should clearly rule out fossil fuels.

“We would be the only country in the world to be using a climate fund to fund coal-fired power, and that would just be a global embarrassment,” she said.

“We would expect that the committee remains quite clear and quite strong that this is an emissions reduction fund and that funding coal-fired power stations does not fit into the logic of that. I hope that's what happens.

“We'll certainly be watching it very closely and contributing to the review to make sure that that's the outcome.”