Greenhouse gas emission limits would be phased in for licences in key industry sectors by the end of 2025, the NSW Environment Protection Authority says.
The limits would be "feasible, evidence-based" and help NSW meet its net-zero targets.
"Where needed, we'll require our licensees to benchmark their existing or proposed greenhouse gas mitigation controls against best practice for the sector," the EPA's draft climate change policy and action plan, released on Thursday, said.
As an early step, the agency will require all new large non-road diesel equipment in coal mines to meet US EPA Tier-4 emission standards by 2023.
Such standards are already in force in the US, European Union, India, China and Russia.
The plan would also address other regulatory measures and ensure the EPA delivers an annual statement on climate change impacts, risks and adaptations.
NSW has set a goal of net-zero emissions by 2050, with an interim target of halving emissions by 2030, based on 2005 levels.
The draft plan was an important step toward protecting the state from dangerous climate change, climate groups said.
"When this policy is implemented, NSW will lead the nation in tackling dangerous climate change," Nature Conservation Council chief executive Jacqui Mumford said.
"As surprising as it may seem, this will be the first time an environmental watchdog in Australia has regulated CO2 as a pollutant."
The EPA developed the plan after a group called Bushfire Survivors for Climate Action successfully argued in a state court that the EPA had a duty to regulate carbon dioxide to protect the people and the environment from climate change.
"This is our last chance to get it right. Climate change has already begun," Environmental Defenders Office director Elaine Johnson said.
"How much worse it gets depends on how quickly we can drive emissions towards zero."
The EPA will finalise the policy after public submissions close in November.
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