A little-noticed part of Labor’s climate policy could push up retail power prices by between 8% and 25%, economist Danny Price has claimed, with price hikes in Victoria exceeding the impact of the former Labor government’s carbon tax.

Price, who helped devise the Coalition’s climate policy, told Guardian Australia last week the main plank of Labor’s policy – a new style electricity emissions trading scheme – was exactly what he designed for Malcolm Turnbull in 2009 and mirrored what the Coalition’s Direct Action plan would almost certainly have to become to meet Australia’s greenhouse targets. He said the price rises under that scheme would be “minimal” for many years.

But Price has now modelled a second plank of Labor’s policy – a scheme under which big brown-coal generators, near the end of their operational life, would submit bids for how much money they would need to receive to shut straight away and deal with the community and employment fallout. The cost of the winning bid would be paid for by all the other generators in the market, who would enjoy higher prices because of their competitor’s closure.

The academics who first proposed the idea, Frank Jotzo and Salim Mazouz, estimated it could cause a one-off rise of between 1% and 2% in retail power bills, while recent modelling by analysis company Reputex found the impact could be even lower – between 0.2% and 1.3% – or that perhaps there would be no price rise at all.

“For residential electricity bills, falling network costs may completely offset any cost impact of the new policy, with retail energy prices expected to fall out to 2020,” said Bret Harper, associate director of research at Reputex.

“The closure of a large coal generator is likely to have a negligible impact on residential electricity bills.”

But according to Price, in a brief to clients of his firm Frontier Economics, that did not “ring true” and he modelled the example of Hazelwood, a brown coal-fired power station that produces over 20% of Victoria’s electricity and produces 3% of Australia’s greenhouse emissions, suddenly closing down under the scheme in July 2017.

He found this could cause a short term price shock adding up to 25% to retail prices in Victoria, falling to between 14% and 15% in a few years as investments in other energy sources came on line. In New South Wales and South Australia, connected with Victoria in the east coast electricity market, the retail price increases would be an initial 13% or 14% falling to 8% or 9% over time, he said.

Despite Price’s praise for sections of his policy, Labor’s climate spokesman Mark Butler said Price “helped Tony Abbott write his Direct Action policy” and “regularly rails against our policies to expand renewable energy, so I’m not surprised that he is again campaigning against our Climate Change Action Plan”.

“Labor has responded to overwhelming calls in the electricity industry for government to adopt an orderly framework around the transition from Australia’s heavy reliance on coal fired power to modern, clean energy. Mr Price’s opinion is directly at odds with modelling from the ANU and energy analysis firm, Reputex. That modelling supports electricity industry projections that average household power bills will decline in real terms over the period to 2020,” Butler said.

Jotzo, an associate professor at the Crawford School of public policy, and Mazouz, a principal at the Centre for International Economics consultancy, responded to the substance of Price’s claims.

“The key point is that without effective carbon pricing, an exit mechanism of some form is needed for an orderly transition from old coal-fired power stations to renewables. There is a broad consensus about this in the policy community and in industry. Danny Price attacks our proposal for how this could be achieved but does not offer any solutions,” they said.

Jotzo pointed out that their plan included “a safety valve in case the costs turn out unacceptably high. As we state in our paper, government would not need to go ahead with the closure scheme if the bids in the reverse auction were judged too high. And as Frontier point out, high expected price impacts would be visible through high payments demanded for exit, so the government would know what to expect.”

And Mazouz said the Frontier modelling “assumes that the market is taken by surprise by the sudden retirement of an entire plant”.

“This would not be so. The market would know the schedule for plant retirement, and indeed a plant could be phased out gradually by retiring the several units that a power station consists of one at a time. Our proposal is all about orderly transition, and any policy mechanism can be designed to be gradual and fully predictable,” he said.

Price last week said “the emissions intensity part of Labor’s plan appears to be exactly what we were proposing for Malcolm Turnbull and Nick Xenophon in 2009”.

Price modelled the scheme for Turnbull and Xenophon when Turnbull was the opposition leader and considering his response to the then Labor government’s cap and trade ETS.

Turnbull lauded it as a “cheaper, greener, smarter scheme” and said it could deliver deeper cuts to greenhouse emissions but impose far lower increases in electricity prices. But the then prime minister, Kevin Rudd, dismissed it as a “magic pudding”.

Price said the new Labor policy was “a bit light on detail but it looks pretty much the same [as the Turnbull 2009 plan]. Malcolm Turnbull thought it was a good idea then. I’m delighted the Labor party is proposing it now.”

Price – who the government recently appointed to the Climate Change Authority and who acted as an adviser on Direct Action – said the Coalition would probably have to move to a similar scheme itself in order to meet its own emissions reduction targets.

“The government’s Direct Action plan – its safeguard mechanism – could be modified to create exactly this same type of scheme,” he said. “I’ve always thought that was the most likely way for them to go after the review they have scheduled for 2017, because they are obviously going to have to make changes to meet even their existing targets and this is a low-cost way to do it.

“It is actually emerging as an idea with the potential to be adopted by both major parties.”

Under Direct Action the “safeguards mechanism” is supposed to ensure increased emissions from heavy industry and electricity generators do not undo the reductions bought through the government’s $2.5bn scheme, by setting baselines for their emissions.

At the moment the baselines are lenient, ensuring industries don’t “go rogue” but not seeking to reduce their greenhouse emissions. But many observers, including business groups, expect they will have to be tightened after 2017 to gradually reduce industrial emissions. And that would turn Direct Action into much the same scheme as Labor is proposing.