Snowy Hydro has backed an emissions intensity scheme for the electricity sector to reduce carbon emissions and to provide more certainty in the National Electricity Market.
Prime Minister Malcolm Turnbull wants to give the company, which is owned by the NSW, Victorian and federal governments ,$2 billion to build a pumped hydro storage project.
The call by Snowy Hydro will put more pressure on the Turnbull government to consider an EIS after it was ruled out within days of announcing a review of its climate change policies late last year.
A growing list of companies and organisations - including BHP Billiton, Origin Energy, AGL Energy and the National Farmers Federation - have backed an EIS in recent weeks. But the Turnbull government has steadfastly refused to consider the scheme that will help cut carbon emissions in the electricity which now accounts for 35 per cent of Australia's total emissions.
The Turnbull government did not even mention an EIS in a discussion paper released on Friday on a review of its climate policies. The review will look at the Coalition's existing Direct Action policies including the $2.4 billion Emissions Reduction Fund and the so-called safeguard mechanism.
Mr Turnbull embraced Snowy Hydro earlier this month as a solution to help provide more reliability in the NEM, by committing the commonwealth to $2 billion on a new pumped storage hydro project which could begin construction as early as next year.
But in a submission to the Finkel energy review, Snowy Hydro - which is owned by the NSW government (58 per cent), the Victorian government (29 per cent) and the Commonwealth government (13 per cent) - the company said the lack of a coordinated approach to climate and energy policies had distorted the market and made in harder to invest in new generation.
While it criticised the ambitious state-based renewable targets, saying a national Renewable Energy Target was the best mechanism, it also backed an EIS.
"Snowy Hydro is of the view that a national emissions intensity scheme would be capable of delivering required cuts in emissions with minimal economic impact and should be considered as a policy option," it said in its submission.
"We note that such a scheme has wide spread support from a cross-section of market participants."
Snowy Hydro cited modelling by the Australian Energy Market Commission and the Australian Energy Market Operator to the Finkel Review found an EIS was the cheapest way to reach Australia's carbon targets.
"Snowy Hydro is therefore supportive of a detailed consideration of such a scheme," it said.
The Department of Environment and Energy's discussion paper said Australia was on track to beat its 2020 carbon reduction targets as well as towards the 2030 target of reduction emissions by 26 to 28 per cent on 2005 levels.
The report noted the electricity sector was undergoing a major transition as older coal-fired power stations, such as Hazelwood in Victoria's La Trobe Valley were shut down, saying the Finkel review recommendations would be fed into the departmental review.
Grattan Institute's energy program director Tony Wood said he was not surprised an EIS was white-washed from the department's discussion paper on the climate review.
He said industry had supported an EIS because they believed it was the most politically pragmatic solution for the Coalition government.
"Many people will express a high level of disappointment the review is not going to come up with a policy that will meet Australia's 2030 target," Mr Wood said.
"But it makes you wonder what Plan B is. They are left with extending the Renewable Energy Target and reducing baselines for the safeguard mechanism which would be less efficient than an emissions intensity scheme."
