THE last thing Labor needs is another fight with the mining sector, but with the federal budget balance about to take a multibillion-dollar beating, the gloves could come off.
The government is being told it could save billions by scrapping a range of subsidies to the fossil fuel industry, and take Australia a step closer to a low-carbon future.
This option has been raised around budget time for years, but with Labor facing a $12 billion revenue writedown for this financial year alone, climate groups think the proposal might finally have legs.
The government faces the prospect its carbon tax will deliver significantly less revenue than expected from 2015, when Australia shifts to a market-based mechanism with a price set by Europe's emissions trading scheme.
Labor was banking on a carbon price of $29 per tonne in 2015, but since prices in Europe crashed to below $4 per tonne recently, its forecasts will be scaling down in Tuesday's budget.
So climate change stakeholders believe Labor could consider solving the revenue gap – and Treasurer Wayne Swan's other budget woes – by ending lucrative fossil fuel subsidies.
The so-called "silver bullet" is top of the budget agenda for several prominent environment groups, which believe there's enough motivation for Labor to take action.
The Australian Greens, using costings from the Parliamentary Budget Office, claim the government could save $13 billion over the next four years by doing away with handouts like the diesel fuel tax rebates.
Other savings estimates range from $3 billion to $15 billion, depending on the scale of the cuts.
But this would anger the mining industry, which receives a discount on fuels for off-road use and accelerated depreciation on assets and exploration.
Greens leader Christine Milne says the rebates makes "no sense whatsoever".
"You just wonder why we are spending billions supporting the fossil fuel industry when we should be on the other hand moving as quickly as possible to the low-carbon economy," she told AAP.