UPDATE 1-Exxon favours Australia carbon tax, not market

* Exxon: carbon trading scheme may lead to unstable pricing

* Says favours a revenue-neutral carbon tax (Adds details, background)

MELBOURNE, Aug 28 - Exxon Mobil Corp is concerned that Australia's proposed carbon-trading regime will lead to unstable pricing and favours a revenue-neutral carbon tax, the head of the oil major's Australian unit said on Friday.

"It's important to understand that allowing the cost of carbon to be determined by traders on a carbon exchange carries the potential to make carbon costs inherently unstable," Exxon Mobil Australia Chairman John Dashwood told a business lunch.

"A revenue-neutral carbon tax on all energy sources is the most efficient and transparent way of achiving this."

Exxon owns and operates a 130,000 barrels per day oil refinery in the southeastern state of Victoria. It is also owns oil and gas fields in Australia, including a 25 percent stake in Australia's mammoth Gorgon liquified natural gas project, which cleared its last major environmental hurdle on Wednesday.

Australia has outlined plans to tackle carbon emissions by demanding that polluters buy emission permits on open markets, but the scheme has yet to be finalised and it is still vulnerable to strong lobbying and change.

The proposed carbon trading laws were voted down in the parliament's upper house Senate earlier this month and the Australian government will now submit the package of 11 bills to the Senate a second time before year-end.

For more on Gorgon, see [ID:nSYD428849]