The man who came up with the scheme at the centre of a humiliating backdown by Energy and Environment Minister Josh Frydenberg says its rejection shows the government lacks spine, and will be responsible for higher electricity prices and reduced energy reliability.
Having told media on Sunday and Monday that a climate policy review next year would consider emissions intensity scheme for electricity generators – a form of carbon pricing – Mr Frydenberg changed tack on Tuesday, and denied having made the comments in the first place.
It followed a public and internal outcry by conservative government MPs who said it would be equivalent to introducing a carbon tax.
Frontier Economics chief Danny Price, who advised Malcolm Turnbull on an emissions intensity scheme as far back as 2009 and who the government last year appointed to the Climate Change Authority board, said the government had turned its back on an option that would have actually reduced prices.
He said in the wake of concerns over energy security in South Australia, an emissions intensity scheme would improve reliability by helping the energy industry plan for the closure of ageing coal plants by investing in cleaner stations.
"This shows a lack of spine. The policy vacuum that it leaves will be filled by policies that will do exactly what they are trying to avoid," he told Fairfax Media.
"The government is allegedly interested in lower prices and energy security. By doing this, it means they are the party of increasing electricity prices and reduced energy security."
An emissions intensity scheme would set a baseline figure for how much carbon dioxide a power station could emit for every unit of power generated, penalising those who breached their limit and rewarding cleaner models that emitted less with free credits.
The limit would be reduced incrementally over time to make dirtier plants less commercial and encourage investment in cleaner power stations. Proponents believe it would avoid the abrupt closure of ageing coal plants without replacements being ready. Labor backed this sort of scheme before the election this year.
Bodies to have recommended an emissions intensity scheme include the Climate Change Authority, the energy transmission industry and the CSIRO. An analysis released on Tuesday by the CSIRO and Energy Networks Australia found an emissions intensity scheme could save the average household $200 a year by 2030.
Modelling suggests it would initially trigger a shift from coal to lower-emissions gas power, while also encouraging investment in clean solar, wind and biomass generation.
In a torturous media conference at Sydney's fish markets on Wednesday, Prime Minister Malcolm Turnbull said it had always been government policy not to introduce a carbon tax or emissions trading scheme, including an emissions intensity model, and said Mr Frydenberg would have to explain why he suggested otherwise.
In a subsequent conference in Hobart, Mr Frydenberg denied an emissions intensity scheme had ever been on the table, despite having told Fairfax Media and the ABC that the review would consider it.
Asked if the government had evidence that an emissions intensity scheme would reduce bills, Mr Frydenberg did not directly answer.
Australia Energy Council chief Matthew Warren, representing most electricity generators, declined to comment directly on the about-face, but reiterated substantial policy change was needed.
Energy and business leaders have called for a bipartisan plan for the future of the electricity system as it shifts to cleaner forms of generation.
Mr Warren said the energy industry would make the case for substantial policy reform next year, joining "business groups, environment groups and most other voices in society".
"The electricity system is visibly deteriorating. It is a system that requires multi-billion dollar investments and is paralysed because of uncertainty, and until that is resolved it will continue to deteriorate," he said.
"We know governments don't like raising prices, but they really don't like energy insecurity – and business really doesn't like it either."
Grattan Institute energy program director Tony Wood said an emissions intensity scheme should not be called a carbon tax because it did not raise revenue.
He said any policy to cut emissions would have a cost, but those opposing such a scheme were creating more uncertainty and higher prices.
It came as EnergyAustralia – the country's second biggest greenhouse gas emitter – announced on Wednesday plans to spend $1.5 billion on solar and wind projects.
The company's managing director, Catherine Tanna, said Australia needed an orderly shift towards a zero-emissions future. She said policymakers needed to take a national bipartisan approach that focused on the customer.
"Whatever happens, there has to be a market-based mechanism that puts a price on carbon," she said. "In coming up with solutions, I wouldn't rule anything in or rule anything out. It's far too early to be jumping to solutions."
On the policy review, Ms Tanna said: "Don't politicise it... let's sit down and have a sensible grown-up conversation when the work's done."
