THE government's chief climate change adviser, Ross Garnaut, has put himself at odds with the Gillard government, declaring unnecessary billions of dollars in compensation for coal-fired electricity generators under a carbon tax.
In his final update of his 2008 climate change review, Professor Garnaut has also found evidence that electricity distributors are gouging households, having been allowed by a government regulator to make too much money on investments in infrastructure.
Professor Garnaut proposes a loan guarantee system, instead of compensation, to ensure energy security and prevent blackouts under a carbon tax. A new energy security council would also be created, which would also look at financing problems for power plants.
Professor Garnaut later told reporters the council and loan guarantees would act as ''belt and braces'' support for the energy industry, but should not be considered compensation.
''There is no compensation proposed for reduction of asset value [in the report],'' Professor Garnaut said.
''I just don't think there is a reason for that. There will be a lot of corner stores in Australia whose value will be affected by this in one way or another and no one would think of compensating them for that.''
The government is expected to back compensation for the loss of value of existing coal-fired electricity generators under a carbon tax, citing fears that closures would threaten Australia's energy security.
Under its abandoned emissions trading scheme Labor promised $7.3 billion compensation over 10 years for coal-powered generators for the loss of value of their assets.
Amid other findings, Professor Garnaut also suggests rules set by the Australian Energy Regulator in 2006 had allowed firms controlling the distribution of power from generators to homes to make too much profit from investment in transmission infrastructure such as poles and wire.
That had led to ''exceptional'' power price increases, Professor Garnaut said, because firms overinvested in infrastructure and passed on costs to consumers. Professor Garnaut has now recommended an early and independent review.
From 2007 to 2010 electricity prices have risen 32 per cent, and Professor Garnaut said power bills were likely to continue to rise with or without a carbon price.
A spokesman for the Australian Energy Regulator said Professor Garnaut's concerns had been noted and the regulator was now examining the rules it would apply when considering investment proposals from network firms.
Neither Climate Change Minister Greg Combet nor Energy Minister Martin Ferguson commented on Professor Garnaut's report yesterday.
Greens senator Christine Milne said loan guarantees would by considered by a cross-party group negotiating a deal on carbon pricing, but added loan guarantees should be extended for solar projects.
Brad Page, chief executive of Energy Supply Association of Australia, said a loan guarantee system would be complex and bureaucratic and would not be able to act quickly enough to secure generators in financial trouble.
Professor Garnaut's report came as Mr Combet held talks with his Chinese counterpart, National Development and Reform Commission Vice Chairman Xie Zhenhua, on increased co-operation between the two countries on climate change programs.
