Some of Australia's biggest polluters have cut emissions by less than one per cent over the past two years, a report has found, falling significantly short of their targets.

But major resources and industrial companies could continue to make modest pollution cuts, it said, unless the federal government strengthens laws designed to curb emissions.

The Climate Council issued the warning on Wednesday in a report into Australia's flagship industrial emissions policy, the Safeguard Mechanism, that applies to 208 facilities across Australia.

The announcement comes days after Energy Minister Chris Bowen launched a review of the regulations, and after the government announced a target to reduce climate emissions by 62 to 70 per cent in 2035.

The Safeguard Mechanism applies to facilities that emit more than 100,000 tonnes of greenhouse gases per year, including coal mines, liquefied natural gas plants, steelworks, and large manufacturers.

The council's study analysed the types of companies that fall under the scheme, and the emissions they cut over the past two years, following its 2023 reform.

It found emissions had "barely budged," with the 197 companies covered by the scheme during the period reducing pollution by 543,000 tonnes or 0.4 per cent.

Many large firms were choosing to buy carbon offsets rather than adopt environmentally friendly practices, report author and Climate Council senior advisor Ben McLeod said, as the scheme allowed it.

"We need to see some limits put on offsets because for as long as facilities are able to buy an unlimited number of offsets, they're able to shirk the responsibility for cutting their own climate pollution," he told AAP.

The greatest emission drops recorded in the scheme were due to facilities temporarily dropping below its 100,000 tonne limit, the report found, including a Queensland mine shut due to a methane explosion and the short-term closure of Darwin LNG.

Coal, gas and oil companies that remained in the scheme had increased their climate pollution over the past two years by 0.2 per cent, it found.

A redesigned mechanism should set more stringent requirements for pollution cuts from these firms, Mr McLeod said, and should align rules with the government's 2035 climate target.

"If it continues as it has been, we won't reach it," he said.

"If we're not driving (pollution) down with further steps up in ambition, whether that be the decline rate or the rules on offsets, we simply won't achieve that goal."

Other recommendations in the report include increasing the annual pollution reduction target from 4.9 to 6.8 per cent, maintaining a ban on international offsets, and setting strict limits on new developments.

The Safeguard Mechanism Review will remain open for consultation until September 18, with findings due in early 2027.