The Tasmanian Opposition leader Will Hodgman is backing Tony Abbott's plan to scrap the carbon tax, despite warnings it will cost the state up to $70 million a year.
The federal scheme has significantly boosted Hydro Tasmania's yearly revenue, fuelling projections the state-owned company will return about $1 billion to the state over the next five years.
Treasury's latest budget update warns any change to the current carbon pricing arrangements could significantly reduce the amount of return to the cash-strapped Government.
But Mr Hodgman said Tasmanians should not be paying the tax.
"Whatever you call it, it's coming out of the pocket of Tasmanian households and out of small businesses," Mr Hodgman said.
"We believe that they are entitled to relief when it comes to increasing costs of living and cost of business pressures." The state Opposition leader said it was an unfair imposition on Tasmanians because the state already relied on clean energy.
"Small businesses don't get any compensation under the federal scheme," Mr Hodgman said.
"Tasmania is a renewable energy state so we should not be unfairly penalised.
"We should be rewarded for generation of investment in hydro infrastructure."