The Investor Group on Climate Change Australia, which represents major institutional investors in Australia and New Zealand, has called for the Turnbull government to put a price on carbon in order to unlock new investment in the electricity sector and drive an orderly transition to low emissions power sources.

The Group has used its submission to the review by Australia's chief scientist Dr Alan Finkel to argue that the government's concerns relating to network reliability, energy affordability and emissions reductions will be addressed if concrete steps are taken to unlock new investment. 

The Guardian reports that the investor group has joined a host of other organisations in arguing that the government needs to implement a price on carbon and adopt a technology-neutral approach in planning new energy infrastructure.

According to the Group, this will ensure that the grid is up to the task of supplying reliable base load power and producing emissions reductions consistent with Australia's Paris Agreement commitments.

The Group also warns that policy and regulatory uncertainty is now the key barrier to investment in Australia's electricity sector across all energy sources and technology types. 

The Group's push comes after the Climate Council's release of a new report, which argues that the heat Australia experienced this past summer, demonstrated that the energy grid was unable to cope with escalating extreme weather.

"Climate change is worsening the impacts from heatwaves and hot weather and is putting a strain on critical infrastructure," the report said.

"This summer alone has shown the vulnerability of the electricity grid to heatwaves, with power outages during peak times in South Australia during a severe February heatwave, while NSW narrowly avoided widespread outages several days later."

The report argues that the only viable approach to slowing and eventually halting the increasing trend of heat-related extreme weather is to "rapidly increase the uptake of renewable energy, and to phase out all forms of coal-fired power plants, as well as phasing out other fossil fuels".

Recently, the National Farmers Federation (NFF) reversed its strong opposition to carbon pricing and used its submissions to Dr Finkel's review to also call for a market-based mechanism to secure clean and affordable energy.

Energy Networks Australia, retailer EnergyAustralia, electricity provider AGL, the Climate Change Authority, the Business Council of Australia, and the CSIRO have also all recently made calls for consideration of a market mechanism.

The CEFC has also used its submission to Dr Finkel's review to argue the country's need of "a stable bankable policy framework to promote investor confidence and capital availability and reduce risk".

They also repeated previous arguments that new investment in coal-fired capacity would be unlikely to be financed by Australian or international capital markets because of the risk of stranded assets.

The CEFC has floated a range of potential policy options to drive decarbonisation of the electricity sector, including:

  • Pricing mechanisms such as carbon pricing or an emissions intensity target;
  • ‘Technology-pull' policies such as a renewable energy target, a low-emissions target, or reverse auctions with contracts for difference; and
  • Regulatory interventions such as regulated closures or absolute baselines.

The CEFC also note that there are now several proposals in the market for new gas-fired generators in Australia, but says that proponents are finding it challenging to find long-term domestic has supply agreements to support new investment.

This renewed push for the introduction of a carbon price or a market mechanism to reduce pollution and the drive efficient decisions in the national electricity market stands at odds with Prime Minister Malcolm Turnbull, who ruled out such measures being introduced last December.

Energy and environment minister Josh Frydenberg initially signalled that the government would look at the desirability of an emissions intensity trading scheme for the electricity sector, but later reversed his position after key government conservatives voiced their objections.