AUSTRALIANS should brace for an era of much higher electricity prices.

The Garnaut review has warned that increasing demand for gas-fired power - which emits less carbon than its coal-fired counterpart - could force gas prices to rise towards the price of exported gas and to remain at that level in the longer term.

Plans to export liquefied natural gas from several projects being developed at Gladstone are expected to exacerbate the price rise. At today's gas prices, export parity could mean a fivefold rise in the cost of the fuel.

"A major part, if not all, of the costs faced by electricity generators will be based down the chain from electricity generators, distributors, retailers and finally to householders through higher prices for electricity," the report said. "This will reduce households' real income and purchasing power."

Australia's east coast currently enjoys some of the cheapest gas prices in the world - about $3.50 a gigajoule. In comparison, the US domestic gas price is $US13.50 ($14.05) a gigajoule and the spot liquefied natural gas price is about $US20 a gigajoule.

But power plant operators are betting that will soon change. Origin Energy's managing director, Grant King, said yesterday his company expected east coast gas prices to rise to at least $6 to $8 a gigajoule within three to five years.

He noted competitors appeared to be factoring in even higher gas price rises. "There's no question that electricity prices will rise," he told the Herald . "It will cost more for consumers."

The report proposed the Federal Government return half the revenue from the sale of carbon permits to the household sector, concentrating on lower-income families and encouraging energy efficiency.