The state's main supplier of native timber received around $250 million in grants since 2020, while its hardwood division lost nearly $30 million in the last two years, according to a report released on Friday.
The research, prepared by Frontier Economics for Nature Conservation Council NSW, found the native-forest logging industry showed poor financial performance across all Australian jurisdictions and provided "little to no financial returns".
"This places an unnecessary economic burden and risk to state governments, whilst also having a negative impact upon native forests and the wildlife that call them home," it said.
Nature Conservation Council NSW chief Jacqui Mumford said the government was wasting millions of dollars propping up a dying and destructive industry.
"In what other instance is it acceptable for a company to run at an almost $30 million loss after being given $250 million in taxpayer money?" she said.
Ms Mumford urged the government to make a plan for transition similar to Victoria and WA.
The report said the state-owned Forestry Corporation NSW was facing many of the same challenges as VicForests, which recorded a loss of $54.2 million according to its last annual report.
NSW Agriculture Minister Tara Moriarty has said the state government will not be putting an end to the industry.
"Timber harvesting is not loss-making," she told a parliamentary hearing last month.
"Taxpayers have asked Forestry Corp to manage the entire estate and that does cost money."
The corporation recently came under the spotlight for failing to protect a threatened marsupial glider from logging after it was found to have surveyed for the nocturnal animal during the day.
Victoria in May said it would end native timber harvesting by 2024, four years earlier than planned, claiming the sector had become unviable due to ongoing legal action.
Western Australia is also phasing out native logging.
Forestry Corporation NSW has been contacted for comment.
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