Steel manufacturers have emerged as key winners under a AU$9.2bn compensation package for industries affected by the Australian carbon tax.

Manufacturers will get $1.2bn over four years to improve energy efficiency and invest in clean technology, while steel makers will get a five-year, $300M bonus on top of their extensive free permits to emit carbon.

The extra money for steel and manufacturing follows public campaigning for protection by BlueScope Steel and OneSteel, along with manufacturing unions and industry groups.

BlueScope chairman Graham Kraehe said in March the carbon price had the potential to shut down the Australian steel industry in its current form within two decades.

Now, chief executive Paul O'Malley said the proposed compensation ‘if implemented as explained to us, deals with the steel sector’s carbon tax issues in a significant way for the first four years’.

The combination of free permits and $300M is expected to cover the steel makers’ entire costs from the carbon price in the scheme’s early years.

The $300 million is to help ‘investment and innovation’ in the industry, but there is little detail on how it will be delivered.

High-emitting industries - such as steel, aluminium, zinc, pulp and paper makers - will get 94.5% of their carbon permits for free. Lower emitters will get 66% for free.

The free permits are guaranteed for five years, but will reduce annually. The Productivity Commission will review industry compensation needs in 2014-15.