Independent advisers say the government should set up an emissions trading scheme for the electricity sector, where generators are penalised for polluting above a set baseline.
The Climate Change Authority on Wednesday released its third and final special review on Australia's climate goals and policies.
The report came just as the Turnbull government tabled in parliament the Paris agreement on climate change, which it hopes will be ratified by the end of the year.
Australia has a 2030 target of reducing emissions by 26 to 28 per cent below 2005 levels, but wants to achieve this without driving up electricity prices.
The CCA report says it is in the interest of policy stability and certainty to keep the current renewable energy target in place.
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But the authority recommends an emissions intensity scheme, a type of market mechanism to reduce emissions, be introduced in the electricity sector in 2018.
"The scheme would set an emissions intensity baseline for the sector, which should reach zero well before 2050. Generators could purchase credits from energy efficiency projects to help meet their baseline obligations," the report said.
In the transport sector, emissions reduction standards should be put in place for light vehicles and a study commissioned into heavy vehicles.
Research into low-emissions technology by the CSIRO and universities should be bolstered and regulation of waste and synthetic greenhouse gases stepped up.
To guard against higher than expected emissions growth, the authority also recommends the government sets up a fund to buy international emissions reductions.
