The effort to price carbon emissions has unseated prime ministers and stymied economists, but such a figure might be needed to decide how much Victorians should be paid for the electricity generated by their solar panels.
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A draft report from the Essential Services Commission recommends "a monetary value for greenhouse gas emissions" be established in order to calculate the "environmental and social benefits" of changing the way energy is generated and distributed across the state.
Chairman Ron Ben-David said the commission had developed a new system to calculate feed-in tariffs, but that it needed a figure to quantify "the value of carbon emissions deferred" by installed panels so the owners of the panels could be paid something for lowering the state's emissions.
"There's no way we can set the number. It's a policy decision," he said. It was up to government to decide what the number should be or how it should be calculated.
He said the number was required to meet the terms of reference given to the commission last September, when the state government asked for an inquiry into the "true value of distributed generation", including social and environmental benefits.
The only benefit the commission said it could quantify was the reduction in emissions that result from the installation of solar panels.
The model recommended in the draft report suggests the value of that reduction should be paid to the owners of the panels as part of a new feed-in tariff. Depending on the value given to the avoided carbon emissions, it could dramatically increase payments to homes with solar.
A spokesman for the Australian Energy Council, which represents the retailers who pay the feed-in tariff, said that assigning a "theoretical value" for environmental and social benefits, and paying that extra money to households with solar, would mean higher power bills for those who don't have solar panels.
The commission stressed that its recommendation did not require the creation of a carbon market - an even more controversial prospect - and there were a number of ways the value could be set.
"They could come up with a number or they could come up with a method," Dr Ben-David said. "If they come up with a method (rather than a number), then they have to decide who will go off and do the calculation."
Minister for Energy and Resources Lily D'Ambrosio welcomed the report, but would not comment on any of its specifics. A period of consultation of refinement will begin, which could see significant change before the final report is delivered.
The Labor government had promised the inquiry at the last election to address significant cuts to feed-in tariffs in previous years. Under now-defunct state and federal schemes to encourage the early uptake of solar panels, some households continue to receive tariffs of more than 60 cents per kilowatt-hour.
Under current legislation, anyone with solar panels that feed into the power grid who isn't on such a scheme is paid a flat tariff for the power they generate. The tariff is calculated annually and currently sits at 5 cents a kilowatt-hour.
The model recommended by the ESC includes a tiered system of tariffs that would adjust depending on where and at what time the electricity was generated.
On- and off-peak tariffs would be paid for generation in line with the on- and off-peak time charges energy users pay. Aside from that, there would be a "critical peak" tariff that could apply on hot summer days when the wholesale price of electricity soars to hundreds of dollars per megawatt-hour.
An additional payment would go to those generating electricity in areas of the state far from the La Trobe valley to account for the savings made by generating electricity close to its use.
A payment for carbon deferred would be added to those tariffs. Using a hypothetical figure of $20 per tonne of carbon, a home with a 3 kilowatt system could see about $61 a year added to their payment.
