The Turnbull government is under renewed pressure to establish an emission intensity scheme after two of its agencies said it was their preferred option for affordable, secure and lower emissions electricity generation.
In joint advice to the government, the Australian Energy Market Commission and the Climate Change Authority recommended better integration of energy and emissions reduction policies.
Doing so would help keep electricity prices as low as possible while improving power system security, they said in a report released on Friday.
It's the second report in six months to endorse an EIS, following a draft report by Chief Scientist Alan Finkel who described the scheme as having "the lowest economic costs and the lowest impact on electricity prices" of all options.
Dr Finkel's final report will be released next week.
Energy Minister Josh Frydenberg has ruled out an EIS, saying it would "push out" coal-fired power generators and destabilise the electricity grid.
Crossbench senator Nick Xenophon - who convinced the government to commission the AEMC-CCA report - said the Liberal-Nationals coalition would be "toast" at the next election unless it took action to bring down power prices and improve electricity reliability.
"This would mean cheaper prices and it would mean more energy security," Senator Xenophon told reporters in Canberra on Friday.
"Unless we solve the energy crisis in this country, expect to see tens of thousands of jobs being lost, expect to see industries leaving our shores because energy-intensive industries cannot afford gas prices doubling and tripling."
He said bipartisan support for such a policy would unlock billions of dollars in investment.
Senator Xenophon will meet with government figures next week to discuss the issue.
However, he ruled out using support for an EIS as leverage for passing budget measures through the Senate such as the schools funding plan.
Labor energy spokesman Mark Butler said it was unfortunate the government had rejected an EIS.
"It is endorsed by industry, the energy market, and experts as the way to deliver clear energy policy to stop the investment strike in new generation, cut pollution and transition to modern, clean energy," he said.
Australia is committed to a 26 to 28 per cent reduction by 2030 of emissions on a 2005 baseline.
The CCA said in the report that in the absence of government support for an EIS, a low emissions target for the electricity sector should be considered.
The target could be expressed in terms of low emissions generation or it could be set in line with a desired level of emissions intensity per unit of electricity generated.
However, the AEMC said such a target was unlikely to be as effective as an EIS.
