The federal government's $2.55 billion pool to slash carbon emissions will need more cash before the next election, research shows.
Environment Minister Greg Hunt hailed the first auction of the emissions reduction fund a "stunning success" after 47 million tonnes of carbon emissions abatement was purchased.
The fund is the centrepiece of the coalition's direct action policy, which pays polluters not to pollute.
The government spent $660 million - about a quarter of the total pool - on those contracts, most of which were existing farming and land projects that fell under the defunct carbon farming initiative.
Reputex, which analyses energy and emissions markets, believes the taxpayer footed fund will be fully exhausted by the next election and will require more funds after 2016.
Its forecasting shows the large payout in the first auction will encourage big polluters to rush in to win their slice of the pie over the next year - quickly gobbling up the final three quarters.
If more money isn't pledged, or a new buyer for emissions reduction credits found, the domestic carbon market will grind to a halt, the group says.
"Ironically, the success of the first auction has created this problem for the government by highlighting the underfunding of the scheme much sooner than expected," executive director Hugh Grossman said.
"If the current scheme is unable to extend beyond next year the government may need to find a more sustainable solution, sooner rather than later."
A major component of direct action, known as the safeguard mechanism, will cap emissions of big polluters to historical levels and will be introduced mid-next year.
If designed appropriately, Reputex believes the mechanism could create a secondary market whereby big polluters could purchase abatement to offset emissions.
It could create enough demand to fund the primary market, however Reputex is concerned high caps and exemptions could undermine any secondary market.
Mr Hunt maintains the policy will be enough to "meet or beat" Australia's five per cent emissions reduction target by 2020.
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