The Victorian Government will ask Treasury to conduct a thorough examination of the impact of the carbon tax on Victoria in the coming months.
It says Victoria's reliance on brown coal for electricity means it will be hit the hardest by the tax.
Victorian Treasurer Kim Wells says while households will be compensated, the state budget will take a hit.
Mr Wells says the tax will increase the cost of power for schools, police stations, hospitals and public transport.
He says a full analysis of the impact will be conducted later this year.
"All departments have been given contingencies to deal with the carbon tax but we'll have a better understanding of how much the carbon tax and the impact on the power bills will have on the Victorian budget in the next three to four months," he said.
Mr Wells says increased power prices will also hurt to the state's already struggling manufacturing sector.
But Mark Wakeham of Environment Victoria says the Government is running a scare campaign.
He says Victoria is receiving the most compensation in the country to balance Victoria's reliance on brown coal.
"Our power generators in the Latrobe Valley are receiving nearly a billion dollars a year in compensation which is not being received by generators around the country," he said.
"The aluminium smelters are receiving very large amounts of compensation.
"In fact Victoria has largely been protected from the impact of the carbon price in the early years.
"I think people are starting to get sick of the fear campaign and will judge for themselves."