The architects of the national energy guarantee have told state governments they can sign on to the policy mechanism without endorsing the Turnbull government’s low emissions reduction target. The Energy Security Board intervention in the fraught debate is an attempt to open the way for a compromise at a make-or-break meeting in August.

A final policy paper circulated to the states and territories ahead of the looming meeting, seen by Guardian Australia, appeals to members of the Coag energy council to approve the Neg mechanism even if they oppose the Turnbull government’s emissions reduction target for electricity of 26% by 2030.

The Energy Security Board has told the states and territories: “Support by the energy council for the detailed design of the guarantee mechanism, as summarised in this paper, does not constitute approval, agreement or endorsement of the elements of the emissions reduction requirement that are the responsibility of the Australian government.”

The Energy Security Board has also moved to reassure the states and territories that the emissions reduction target could be boosted beyond 26% by future Commonwealth governments without difficulty. The ESB says the policy framework will “automatically accommodate” increased ambition.

The ESB also reassures jurisdictions reluctant to sign on that the final design of the Neg “does not limit the ability of states and territories to set and meet their own emissions reduction or renewable energy targets”.

With power prices an issue of acute political sensitivity, the final analysis from 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.

The ESB has told the states the looming conversation with the federal energy minister, Josh Frydenberg, in August must end more than a decade of partisan warfare on climate change and energy, which has created myriad problems in the national electricity market.



“Fifteen years of climate policy instability has impeded long-term investments in the national electricity market and this has compromised system security and reliability,” the policy paper says. “It has also impacted electricity prices and added to affordability problems for consumers.

“As the Finkel Review noted, our energy system has been vulnerable to escalating prices while being both less reliable and secure.

“Increased market intervention has been necessary to maintain the security and reliability of the system and this has further distorted price signals to producers and consumers.

“In short, the uncertainty about climate change policy has severely damaged the electricity industry and its household and business consumers.

“This cannot continue.”

Some of the Labor states have been reluctant to sign on to the current policy because the emissions reduction target is too low to permit Australia to meet its commitments under the Paris climate agreement.

The Victorian and Queensland governments are being lobbied by the environment movement and the progressive activist group GetUp to sink the policy at the August meeting because of the low emissions reduction target.

Some renewable energy and environmental groups have told the states and territories if they sign on in August, any agreement should be conditional on the commonwealth increasing the emissions reduction target.

A number of business groups have urged all levels of government to agree on the Neg mechanism and give investors certainty.

The ESB has made a number of compromises in the final design of the policy.

Large energy users will be permitted to opt-in to manage their own reliability obligation, if they consider this is the most cost-effective and efficient approach – a concession necessary to keep big business on board with the scheme.

The ESB has also insisted that a market liquidity obligation remain in the design despite push back from the major power companies.

Pre-1997 renewable generation, such as Snowy Hydro and Hydro Tasmania, will also be part of the scheme despite concern in the working groups that it would deliver Tasmania a windfall gain in the emissions reduction component of the Neg.

The Turnbull government is yet to share with the states and territories critical details of the emissions reduction component of the scheme, such as whether offsets will be able to be used to meet the pollution target, and whether emissions intensive trade exposed industry is exempt.

Guardian Australia understands those positions will be finalised and circulated to the states and territories before the August meeting.