The Latrobe City Council says Federal Government budget cuts will make it difficult for the region to move away from its reliance on brown coal.
A $200 million assistance program was supposed to help communities most affected by the carbon tax to move to a low-carbon economy.
The Federal Government says it has withdrawn the money because it is no longer paying power stations to close down.
Instead, it says it has allocated $15 million for the Latrobe Valley.
However, the chief executive of Latrobe City, Paul Buckley, says that is not enough.
"It doesn't sound certainly enough to make a significant contribution to make a positive transition," he said.
Deputy Premier Peter Ryan says the money should have been left on the table.
"Very poor policy and a bit of a smack in the face for the Latrobe Valley," he said.
The region supplies about 90 per cent of Victoria's energy needs, generated from brown coal.
Meanwhile, Environment Victoria says the cuts to carbon capture and storage projects show the Government has lost patience with clean coal technologies.
Campaign director Mark Wakeham says the technologies are ill-considered and not economically viable.
"We're pleased to see that some of the funding that's been earmarked for so-called clean projects has been cut in the budget because those technologies are either likely to be polluting or don't exist yet, so there doesn't seem to be much sense to earmark large amounts of funding for them," he said.