The company employs about 1200 people state-wide, with the workforce split between Portland Aluminium and the Point Henry smelter near Geelong.

Its general manager of climate strategy and federal government relations, Tim McAuliffe, told a Senate select committee inquiry into carbon tax pricing mechanisms that Alcoa faced extra costs of $40 million per year if the tax was introduced.

A $9.2 billion assistance package to help the manufacturing sector adjust to a carbon price assumes companies will have to pay for one tonne of carbon per megawatt hour of electricity (MWh) used.

Mr McAuliffe said Alcoa expected to pay for 1.25 tonnes of carbon for each MWh as part of new contracts with Loy Yang Power.

"It is correct to say that the combination of the above situation, adverse foreign exchange and high input costs are a significant threat to the future viability of both the Victorian aluminium smelters," he told the Senate committee.

South West Coast MP Denis Napthine said the federal government needed to reconsider the assistance available to Victorian industries heavily dependent on brown coal-fired electricity.

"If Alcoa pulled out of Portland it would be absolutely devastating for that community," he said, adding that Portland Aluminium had been a strong corporate citizen.

Dr Napthine said he was aware of job loss fears among the 600-strong smelter workforce and associated contractors.

"The last thing Portland Aluminium needs is extra lead in their saddle-bags when they're competing against industries overseas," he said.

"(Workers) are frustrated and angry that the future of Portland Aluminium could be jeopardised by this carbon tax."

Alcoa's Victorian manufacturing operations general manager John Osborne said the company was focused on overcoming its challenges.

"Aluminium smelting is a cyclical business and in over 40 years of operation in Victoria, Alcoa has faced significant challenges before," he said.

"The high Australian dollar relative to the US dollar is driving down revenues for any manufacturing industry in Australia that sells product internationally for US dollars.

"Input costs are also high, and a potential carbon price presents another challenge, but the outlook for aluminium remains positive and we're confident that with the help of our workforce we can meet the challenges before us."

Wannon MP Dan Tehan said the Australian manufacturing sector was in a vulnerable position.

"The real risk is that (a carbon tax) will lead to jobs and industries going offshore," he said.

"Alcoa are concerned that $40 million will come off their bottom line - if that's their assessment then we need to take this issue seriously.

"We shouldn't be trying to put any additional costs on our manufacturing businesses."

Climate Change Minister Greg Combet this week said the carbon tax would drive productivity and innovation across the Australian economy while also providing certainty for investors.