The report by the Australia Institute said airlines were a threat to climate because of the increasing amounts of greenhouse gas pollution generated by a growing travel market, Fairfax newspapers reported.
The industry is growing so quickly it could account for half Australia's total emissions by 2050, said the report's authors, Andrew Macintosh and Christian Dowie.
Aircraft gases excluded
But because non-carbon dioxide greenhouse gases and greenhouse gases generated by international travel are not included in the greenhouse gas inventory, airline pollution could wipe out the effects of cuts in emissions in other sectors, they said.
"We are going to have to fly a hell of a lot less and it is going to cost us more," Mr Macintosh said.
A task force of business leaders, including outgoing Qantas chairman Margaret Jackson, is expected to deliver recommendations on a trading system to the government next week.
But it is expected to exclude aviation from any pollution penalties.
Scale of problem
Mr Macintosh welcomed recent measures to cut aviation emissions such as improved fuel efficiency and air traffic control sequencing but said the government failed to understand the scale of the problem.
"In terms of where we need to go, the government hasn't done anything like near what needs to be done," he said.
In Australia, domestic and international air travel is expected to grow at 4.6 and 5.1 per cent respectively a year between 2005 and 2020, ensuring a doubling of passenger numbers in 15 years.
The authors calculated airlines currently contributed between three and five per cent of total emissions.
However, if they were allowed to continue polluting without penalty and Australia adopted a target of cutting emissions to 60 per cent below 2000 levels by 2050, airlines could account for as much as 51 per cent of the total allowance.
"Irrespective of which policy instruments are implemented to curtail aviation emissions, Australians cannot expect to fly more than they currently do today," the report said.