Prices will rise, with or without tax: Garnaut

Professor Ross Garnaut says a price rise from a carbon tax will be small compared to the recent surge in power prices because of an over-investment in electricity networks.

The Federal Government's key climate adviser says households on average will face a $5-a-week increase to their electricity bills.

He says with or without a carbon price, power prices will rise.

"This happens at a time when Australians are very conscious about rising electricity prices, and there's no doubt there'll be some increases in electricity prices resulting from the price of carbon," he said.

"This comes on top of very big increases over the last few years."

Professor Garnaut says low and middle-income households should be fully compensated by the Government.

"That makes the increase in electricity prices from the carbon price different from the very big increases we've had in recent years," he said.

"The other increases in electricity prices aren't compensated by tax cuts in any way."

Professor Garnaut left it to the last of his eight climate change updates to deal with Australia's largest single source of emissions - the electricity sector.

"At its heart is the story of how a carbon price can shift Australia towards low-emissions energy from its current dependence on coal," he said.

"That has to be the centrepiece of Australia's efforts to make its contribution, to do its fair share of the global effort to reduce risks of climate change."

Professor Garnaut says the report has highlighted major weaknesses with the way the electricity sector is regulated.

He has called for an urgent review of the way electricity is regulated in Australia, saying power companies cannot be blamed for making money for their shareholders, but that the current regulatory environment has lead to higher prices than necessary.

"On the face of it, it looks as if there might be a problem with our regulatory arrangements," he said.

And this, in his view, has led to an "over-investment in networks" and "unnecessarily high prices for consumers".

"They are natural monopolies and you can't blame a natural monopoly for charging all that the market will bear," he said.

"No, I don't think you can ever blame a business for using a monopoly position; that's what their shareholders expect.

"So it's up to the regulatory arrangements to make sure there's gauging, and I raise a question about whether our regulatory arrangements have been suitable to the task."

'Bold statements'

The Australian Energy Regulator is responsible for many of the concerns raised by Professor Garnaut. It is part of the ACCC and focuses on the economic regulation of electricity transmission and distribution networks.

Its chairman was unavailable to speak with the ABC's PM, but the chief executive of Energy Supply Association of Australia, Brad Page, is spokesman for the industry.

Mr Page says Professor Garnaut has made some "bold statements" and denies there has been an over-investment in networks.

"What we have seen is an independently regulated system that challenges the network businesses and centrally regulates what it is that they are allowed to do," he said.

"Now by and large we have seen growing peak demand. I think the review largely overlooks that point. They tend to talk about average demand rather than peak, growing peak demand, new connections.

"We've got a lot of new suburbs out there. We're having to add to and a lot of the equipment is coming to the end of its life.

"You will see there are major renewal programs in capital cities around underground power cables that have been in use for 30 years and which could fail soon.

"So we need to replace all of those things and the capital costs of doing those today is much, much higher than it was in the past. So all of those things feed through to higher costs. Regrettable, but it makes sure we have that reliable supply."

Professor Garnaut's final report, summarising the key recommendations with costings, will be given to the Prime Minister at the end of May.