Energy policy architect plays down carbon price fears

An architect of the government's new energy policy has played down suggestions the scheme represents a carbon price.

And the lobby group representing electricity wholesalers and retailers, the Australian Energy Council, has provided cautious approval for the Turnbull government's National Energy Guarantee, while warning significant design work was still required and that a carbon price is an inevitable outcome of the scheme.

The council, which represents wholesalers and retailers such as AGL, Energy Australia and Origin Energy, said the proposal was "a considered attempt to deal with the issues of reliability and emissions reduction at least cost".

On Thursday, Energy Security Board member John Pierce declared that "we are not pricing carbon. What we are pricing is reliability, what we are pricing is the ability for the mechanism to be dispatched."

The push back from Mr Pierce - echoed by Prime Minister Malcolm Turnbull in question time - came after some electricity sector experts suggested the guarantee would, effectively price carbon.

Buried in the detail of advice presented to state and federal governments is a mechanism to be added to the National Electricity Market in two stages in 2019 and 2020 that could produce a default carbon price.

"Some electricity retailers will not be able to meet the required emissions profile, while others will overachieve," it reads. "Therefore a secondary exchange will occur between retailers to balance their portfolios."

That "exchange" will also be open to those underachieving retailers to buy a yet-to-be-determined portion of any "emissions guarantee" shortfall using Australian carbon credit units or international units, the briefing note says.

Labor has strongly criticised the guarantee but has not ruled out supporting it. In Parliament, it attempted to drag an admission out of Mr Turnbull that the National Energy Guarantee would put a price on carbon.

Pricing carbon has been politically toxic within the Coalition - despite support from the business community and economists - since 2009, when former prime minister Tony Abbott snatched the Liberal leadership from Mr Turnbull.

Mr Turnbull said the guarantee was "the mechanism that can end the climate wars and deliver affordable, reliable energy for Australians and meet our emissions reduction obligations".

"The trading is trading of physical energy, it is trading of electricity, it is not trading of permits, there are no certificates, there is no permit, it is trading of physical energy which ... happens all the time," he said.

Environment and Energy Minister Josh Frydenberg sent the states a draft copy of a letter he wrote to Energy Security Board chair Kerry Schott on Thursday afternoon to request her input on more detailed modelling to confirm the claimed $115 household energy saving from the proposed policy.

Labor and the states have been sharply critical of this lack of detail, which was a flashpoint on a testy phone hook-up between Mr Frydenberg and his state counterparts on Tuesday evening.

The more detailed modelling will be shared at a Council of Australian Governments energy ministers meeting on November 24 and will examine the impact on prices for a business as usual scenario, versus if the guarantee is implemented.

Meanwhile, the Australian Energy Council's wholesale policy manager Duncan MacKinnon said "we're optimistic enough to think that we can make it [the NEG] work".

"It's critical to get it started ??? then the wrinkles can be ironed out".

Mr MacKinnon said a price on carbon "becomes implicit in what retailers will pay for the generation".

This story Energy policy architect plays down carbon price fears first appeared on The Sydney Morning Herald.