NSW Treasurer Mike Baird was prepared to join the Western Australian government and run the gauntlet of the federal government by making the rise in royalties only apply to companies subject to the federal minerals resource rent tax.

Royalties now ranged from 6.2% for deep underground coal and 8.2% for open cut coal and would be increased after negotiations with mining companies and once the legislation was finalised this year, Baird said.

This will reduce income to the Commonwealth government, which has promised to reimburse miners for their state taxation royalty payments.

''In the absence of an alternative proposal from the federal government, NSW is left with no other choice," Baird said.

The state government claims the carbon tax will lead to reduced dividends from its electricity generators, which its estimates at about $700 million over a four year period, and a $3.6 billion drop in the value of the assets.

NSW Premier Barry O'Farrell said the NSW government had to seek compensation because of the direct impact of the carbon tax on the state’s economy.

''So far the Commonwealth has refused to discuss the impact of the carbon tax on our budget, income and assets and we think this is simply unacceptable," he said.

NSW’s decision follows that made by WA premier Colin Barnett in May to increase royalties in WA in response to the carbon tax.