Business and environment groups have expressed dismay at the federal government for scrapping consideration of an emissions intensity trading scheme in the electricity sector as part of its 2017 review of climate change policies, just a day after floating the possibility.

On Wednesday a range of experts said the abrupt backflip by the environment and energy minister, Josh Frydenberg, on Tuesday night would create further regulatory uncertainty, which was a recipe for higher power prices down the track.

But despite chalking up an internal victory by seeing off a carbon price for the electricity sector, conservatives within the Turnbull government are doubling down on efforts to limit future ambition in climate change policy.

The South Australian Liberal Cory Bernardi declared Australia should pull out of the Paris international climate agreement, which require it to reduce emissions by between 26% and 28% on 2005 levels by 2030.

The Paris agreement is the underlying architecture that locks Australia into pursuing emissions reductions, but Bernardi declared “we don’t need to be part of an international agreement that actually impedes us from making determinations in our own best interest – particularly an agreement that won’t include the world’s largest economy.”

Bernardi said Donald Trump’s campaign promise to withdraw from the Paris climate accord “should be the catalyst for Australia to do the same.”

The government’s decision to rule out emissions trading came a day after Australia’s electricity and gas transmission industry called on the government to implement a form of carbon trading in the national electricity market by 2022.

The report, which was backed by the Csiro, said adopting an emissions intensity scheme for electricity would be the least costly way of reducing emissions and could actually save customers $200 a year by 2030.

Matthew Warren, the chief executive of the Australian Energy Council – representing 21 electricity and gas businesses – was scathing about the government’s decision.

“Doing nothing is not an option any more,” he said. “We are seeing in realistic terms the warning signs about the degrading state of the electricity grid and that says everything about why we have to have this review process to deliver substantial and meaningful outcomes, because if we don’t the system starts to disintegrate.

“Old assets are reaching the end of their lives and there is nothing coming in to replace them. South Australia is already facing that now and it’ll happen across Australia if we don’t do something.

“We’re seeing the effects of do-nothing for a long time. It doesn’t make sense to limit the scope before it has begun. We need to use this opportunity to reset.”

A spokeswoman for AGL said an emissions intensity scheme would be a cost-effective way to achieve an energy transition, but it would not be enough on its own.

“It is important that the Australian energy sector has clear policy settings that are agreed by Coag and consistently implemented across states,” she said.

“The results of the AEMC and Finkel reviews and Coag processes will be important to help define future policy settings and AGL Energy encourages governments to move quickly to provide the certainty needed to give confidence to the industry to make significant investments which will improve outcomes for consumers.”

The Climate Institute’s chief executive, John Connor, said the developments this week added to the “policy chaos of the last decade” on climate change mitigation.

“Ruling out options before this review even begins is irresponsible,” he said. “It will heighten, not decrease, risks to energy security and electricity prices, because it adds further uncertainty to a sector which has already been described by the Australian Energy Council as ‘almost unbankable’ and ‘visibly deteriorating’.”

The chief executive of the Business Council of Australia, Jennifer Westacott, stopped short of directly criticising the government but stated support for bespoke emissions reduction policies per sector.

Tom Quinn, the executive director of the Future Business Council, described government’s updated position as a “big blow” to its members. “It throws certainly for the entire future business sector under the bus, especially the booming renewables sector and the entire low-emissions sector, so this is a real blow,” he said.

“The future is low-carbon, the future is renewables, and the longer Australia delays the more we miss out on economic opportunities and the more we undermine business confidence.

“Once again it means we are propping up the businesses of last century at the expense of this century’s growth stories.”

Tony Wood, energy director of the Grattan Institute thinktank, said that ignoring the sector-specific scheme would result in higher costs for end users.

“The worst of this is that the people who caused the minister to do this are going to get almost exactly the outcome they’re trying to prevent,” he said, citing less certainty in investment with knock-on effects for business confidence.

Retailer Energy Australia said it supported a national approach to cleaner energy sources with consumers in mind but resisted the move to rule out policy solutions before the review. “We encourage everyone involved in energy policy to focus on understanding the problems we face in that transition,” it said.

Australian Conservation Foundation’s Victoria McKenzie-McHarg said the new position from the government was a “startling” following a statement from the prime minister that heartened her organisation the previous day.

“By knocking out policy options this early in the review, the government is just making their task much harder, and the confidence in that process is significantly reduced,” she said.

Australian National University economist Frank Jotzo said an emissions intensity scheme for the power sector wouldn’t be perfect, but would be effective.

“It is second-best to a standard emissions trading scheme,” he noted. “But limiting the impact on electricity prices is precisely why an emissions intensity scheme has been in the discussion.”

The Minerals Council of Australia, which represent the interests of coalmining giants, was contacted by Guardian Australia but declined to comment, as did the Australian Bankers Association, which speaks for nation’s biggest banks.