Prime Minister Anthony Albanese has set a Christmas deadline for a crackdown on the coal and gas businesses that he promises will save Australian families from skyrocketing electricity prices.

Speaking on Friday, Mr Albanese capped off a week of speculation about what the government will do about a feared 56 per cent spike in power bills by 2024, suggesting “all sensible options” are still on the table.

It came after days of ministers and public officials being quizzed about government plans during Senate Estimates hearings.

What should the government actually do? Experts said potential solutions include limiting wholesale gas prices, and a profits tax on gas and coal companies that would fund payments for households.

Electricity prices soar

Why is the government taking action on coal and gas companies in the first place?

Government concerns come on the back of sky high prices, which are inflating corporate profits and threaten to add hundreds of dollars to family bills over the next two years.

Coal and gas account for more than half of the power that keeps our lights on, so when their prices rise it affects households and worsens the cost of living crisis.

To reduce these prices and cool public anger about the huge profits being made by fossil fuel giants, the government signed a new deal with the gas industry earlier this year to drive more local gas supplies.

But it wasn’t enough and Mr Albanese is now promising to go further, asking ministers to deliver options for another crackdown on industry.

“We know there have been some windfall gains occurring at the same time as businesses and households are under pressure,” Mr Albanese said during an interview with 2GB radio on Friday.

“We’ll work through that, and land on a solution going forward, before Christmas, to put some downward pressure on those increases.”

‘Sensible’ solutions

The government is considering what Mr Albanese calls “sensible options”.

One solution, flagged by Treasury, is a new limit on gas prices.

This would work by putting a cap on what gas producers would be able to charge local customers. It could be set based on international prices to ensure that what Australians are being charged for gas is much less.

And if power generators are paying less for gas then household bills will fall too because gas is often  – either directly or indirectly – setting electricity prices right now.

Grattan Institute energy program director Tony Wood said a cap could be brought into force through strengthening the government’s recent agreement with gas firms to include more stringent rules about prices.

“What they have to do is take money from producers and give it to consumers,” Mr Wood said.

“The companies have all agreed to provide gas to the local market, but while [the agreement] talks about price it’s not very definitive.

“That’s where the government could do something.”

Mr Wood said the ACCC could ensure the cap was temporary.

“They’d set a price that’s appropriate, that gives producers a fair profit and protects consumers from, basically, horrible costs.”

Tax and support

However, Ariel Liebman, director of Monash Energy Institute, said such a gas price ceiling carries some risks.

He said it could hinder climate action by enabling the electricity market to lean on fossil fuels rather than accelerating a switch to green energy.

Professor Liebman would prefer the government went with a tax and support model, where a profits tax on gas companies was used to fund direct payments to help households afford energy bills.

This would lower costs for families without actually changing wholesale gas prices, avoiding issues such as potentially delaying climate action because gas would not become cheaper for power generators to buy.

“The objective should be cost relief for people and businesses while ensuring the move away from gas use in residential and business purposes,” Dr Liebman said.

“That is best achieved by taxing the enormous profits being made currently by gas supply businesses, through export and [domestic sale].”

Victoria University professor Bruce Mountain agreed a tax combined with targeted support for families would be a solution to lower bills, saying such policies are already being pursued by governments in Europe.

“It would be a time-limited, suitably targeted federal scheme,” Professor Mountain said.

However, the federal government has offered mixed signals about whether it is prepared to levy a profits tax on the gas industry.

On Friday Mr Albanese said a profits tax was not the government’s “preferred” solution.