Air pollution concerns, caused by ships that must keep engines running while berthed at the terminal, have sparked a major dispute between the environmental regulator and the nation's largest cruise operator, Carnival Australia.

Fairfax Media understands the company's chief executive, Ann Sherry, has complained to the government that the attention from the Environment Protection Authority risked damaging the industry's reputation. The company has threatened to stop using the terminal.

The regulator, in turn, is due to face a parliamentary inquiry on Monday that will scrutinise what it has done about problems that have emerged since the $57 million facility opened last year.

White Bay was chosen over Barangaroo as the site of Sydney's second cruise terminal by the former Labor government to cater for up to 170 ships annually. The current government adopted the policy.

However, approval for the location, signed off by former planning minister Tony Kelly in 2011, did not mandate a ship-to-shore power source.

As a result, every cruise ship that has used the terminal, including last week's Pacific Pearl and Pacific Jewel, has kept its engines running while in port.

The vessels also use a low-quality "bunker" fuel which, under Australian regulations, can contain up to 35 times the concentrations of sulphur that are permitted in North American and European ports.

Labor's candidate for Balmain, Verity Firth, who joins the Greens Balmain MP Jamie Parker as a vocal critic of the situation, said Australia risked becoming a "dumping ground" for older, dirtier ships that were avoiding tougher standards in the northern hemisphere.

Labor's planning spokesman, Luke Foley, told the Parliament the 25-year-old Pacific Jewel, when berthed for just nine hours, emitted sulphur dioxide equivalent to the emissions of 28.5 million diesel-fuelled cars.

The EPA said it was investigating a stricter sulphur limit for NSW shipping, the use of on-board filtration systems and shore-based power after receiving hundreds of complaints about noise and air emissions at White Bay.

East Balmain residents report the fumes can be so overwhelming that some of their neighbours have already opted to move rather than endure another summer's influx of ships while waiting for the problem to be addressed.

Professor Alan Rosen, a former departmental head at Royal North Shore Hospital, is one of many residents who have written to the inquiry, raising concerns that "new asthma-type respiratory illnesses" have appeared since cruise liners begun regularly using White Bay.

"These have been well-documented medically, in some instances by a respiratory specialist, who can only attribute such impacts to the impacts of these cruise ships," Professor Rosen's submission said.

Resident Ryan Fitzgerald, whose young family lives opposite the visiting ships, said "it is a little bit scary" to think this could be Sydney's biggest cruise season yet.

"There would have been about five or six days [last year] where we had to completely shut the whole house up," Mr Fitzgerald said.

Ms Sherry said Carnival Australia was committed to retrofitting all of its ships with exhaust gas cleaning technology by 2020 and complying with "all existing environmental requirements" in the meantime.

"Increasing air quality standards in Australia will depend in part on the availability of reliable supplies and quantity of low sulphur fuel," she said.

The company added that air testing in streets adjacent to the White Bay terminal had shown sulphur dioxide readings to be well below allowable NSW limits. The EPA responded that there could still be "localised impacts".

The EPA's chief environmental regulator, Mark Gifford, said the 2020 timetable was "too far off" and industry should be moving more quickly towards a solution.

Three ministers – Ports Minister Duncan Gay, Planning Minister Pru Goward and Environment Minister Rob Stokes – declined to comment, referring questions to the EPA.

Health Minister Jillian Skinner said the local public health unit had met with residents to discuss their concerns and NSW Heath supported the efforts of the EPA.