Josh Frydenberg has offered an olive branch on the national energy guarantee, telling state energy ministers the emissions reduction target can be reviewed after five years – stepping back from an ambit claim that it be locked in for a decade.

The concession is flagged in a commonwealth paper circulated to the states late on Tuesday night. It sets out the Turnbull’s government’s position on how emissions reduction in the Neg will work.

The new paper, seen by Guardian Australia, says the target should apply for a decade, but it also flags a review in 2024.

This means the current target of reducing electricity emissions by 26% on 2005 levels by 2030 could be scaled up mid-way through the scheme after a review of the latest demand forecasts, and an analysis of the costs.

“In the first half of 2024 the government will conduct a review to ensure targets from 2025 to 2030 remain appropriate,” the paper says.

“The government intends to consider energy market conditions including price, reliability, as well as Australia’s international obligations when setting future targets.

“The review will include public consultation and a report of the review will be published by 30 June 2024.”

The peace gesture from Frydenberg – which could meet resistance from conservative opponents of the Neg inside the Turnbull government – comes ahead of a make-or-break meeting of the Coag energy council in August.

It could provide reassurance to state governments that have expressed concern about the Neg on the basis the emissions reduction target is too low to see Australia meet its international commitments to reduce greenhouse gas emissions.

As well as the general concerns, there have been specific objections from state and territory energy ministers – any of whom can torpedo the policy – to Canberra’s proposed ten-year lock-in period.

The concern from the states about the lack of ambition will be heightened by new calculations circulated by the Energy Security Board this week.

The ESB’s final design paper on the Neg confirms the policy as currently envisaged will add very little to Australia’s efforts to reduce emissions over the decade to 2030.

The Neg will only deliver additional emissions reduction of 38m tonnes between 2020-21 to 2029-30 relative to a scenario without the guarantee. The ESB paper says emissions in the national electricity market are expected to be 24% below 2005 levels by 2020-21 – the first year of the scheme.

The Turnbull government’s target for the decade is a 26% reduction on 2005 levels by 2030.

The latest commonwealth paper confirms the 26% target and confirms that target will be set by legislation – which makes it harder for any future government to adjust it because that requires support in two houses. It also confirms that emissions-intensive, trade-exposed businesses will be exempt from the emissions requirement of the guarantee.

Referencing the period beyond 2030, the paper says the commonwealth will set emissions reduction targets in 2025 for the financial years 2031 to 2035, and will set an additional five years of targets every five years thereafter “to provide ongoing investment certainty”.

The paper also clarifies the position on the use of offsets in the scheme. Offsets allow big emitters to buy abatement rather than produce it themselves.

The commonwealth paper flags that the use of offsets will be limited to 5%, and only domestic credits will be able to be used, not international units.

It says “market customers will be able to use Australian carbon credits units (ACCUs) to meet up to 5% of their individual requirements under the emissions element of the guarantee”.

In an effort to persuade the states to agree to the scheme, the ESB has told energy ministers they can sign on to the policy mechanism in August without endorsing the Turnbull government’s low emissions reduction target.

The ESB also contends the Neg will reduce wholesale electricity prices by 20% over the decade from 2020 to 2030.

“The average national electricity market-connected household is estimated to save around $550 dollars a year (real $2018) on their retail bill over the 2020s relative to 2017-18,” the ESB paper says. “Of this, nearly $150 per year (real $2018) is forecast additional savings as a result of the guarantee.”

A separate analysis by energy market analysts Reputex, funded by Greenpeace and released last week, suggests a Neg with a low emissions reduction target would increase power prices to 2030 because the policy as currently drafted locked in coal and gas over the decade, and a lower proportion of power generated from renewable sources.

The Reputex modelling suggests under a more ambitious emissions reduction target of 45% wholesale power prices would fall by a quarter to around $60 per megawatt hour (MWh) by 2030 as more renewables entered the energy mix. In contrast, under the Neg, power prices would be just over $80/MWh.

The ESB has appealed to the states to sign on. “In short, the uncertainty about climate change policy has severely damaged the electricity industry and its household and business consumers.

“This cannot continue.”