The Federal Government on Wednesday ruled out an Emission Trading Scheme (ETS) and a $130 million home insulation plant in New Castle, New South Wales.

A spokesperson of the German-based Knauf confirmed that the wool insulation plant for New Castle's Steel River industrial site is deferred indefinitely.

Stuart Dunbar of Knauf said its shareholders are worried over the Federal Government's decision on the ETS and energy effective schemes.

He said it was so sudden that the Rudd Government would suddenly cancel the home insulation program wit h little notice.

Despite the bad news, Mr. Dunbar said the company already exhausted $10 million on the design of the New Castle project and will reevaluate its position once the federal election is over.

Peter Shinnick, a spokesperson of the Hunter Business Chamber said he is not surprised on Knauf's indecisiveness on the current situation.

"So that situation needs to be sorted, we need [the] Government to clearly state what it's doing on emissions trading so big companies can make investment decisions like Knauf want to make," he said.

Knauf is a family-owned corporation in Iphofen, Germany, known for manufacturing drywall gypsum boards.

Knauf originally founded in 1932 and exports its products worldwide.