KEY POINTS:
Contact Energy wants the electricity industry to cut greenhouse gas emissions by 40 per cent within seven years - mainly by forcing the coal-fired Huntly power station owned by its competitor, Genesis, to close down.
It wants the Government to introduce a carbon charge that would make Huntly uneconomic to run.
But Genesis says the plan is too aggressive and would threaten security of supply.
Contact's ambitious plan, which forms the thrust of its submission on the Government's energy strategy, was revealed to investors in Taupo yesterday.
Thermal electricity generation produces about eight million tonnes of greenhouse gases a year.
Unchecked, increased demand would push that to 11.5 million tonnes by 2014. But Contact says the industry should aim to cut the figure instead, to just under five million tonnes.
The company said its recently announced $2 billion renewables investment programme and construction of the gas-fired Otahuhu C plant - which has been postponed - would achieve at least half the reduction.
Central to Contact's plan is the introduction of carbon pricing by 2009.
"Pricing carbon is the most important policy area for the Government," the company said.
A carbon price of at least $20 a tonne would stimulate further investment in renewables and would make combined cycle gas plants more economic than Huntly.
The 1000-megawatt Huntly station is the electricity industry's single largest emitter of greenhouse gases, producing as much as 60 to 70 per cent of the total when it is at peak production.
Genesis spokesman Gordon Roberts said the emission cuts Contact was targeting were "exactly" the same as those suggested in the Government's draft energy strategy.
While the Government hadn't said it wanted Huntly out of the market, that was the only way such cuts could be achieved in such a short time.
"We believe the Government's targets on emissions reductions are overly aggressive and extremely ambitious," Gordon said.
"You're looking at more or less taking out or reducing substantially the largest power station in the country."
While Genesis accepted carbon pricing was likely, such a cost wasn't likely to make Huntly less economic than gas-fired plants for base load generation.
"Our belief is that Huntly will not come out of the market in the projected format suggested by the energy strategy or Contact.
"It will come out in a much more conservative and cautious stepped approach, meeting security of demand issues, over the next 20 years."
Gordon said Genesis was discussing Huntly's future with the Government. But Contact chief executive David Baldwin said the proposal was about "evolving" Huntly out of the market.
It would be still producing a small amount of base load and reserve generation by 2014.
He said the proposal went beyond the emission reductions suggested in the draft energy strategy released late last year.
"The energy strategy talks about reductions, but doesn't clarify how this should be done. We've laid out a path with metrics and specifics."
With a carbon charge, Contact stood to increase the amount of power it supplied through renewables or relatively low emission gas-fired plants such as Otahuhu C.
"This is clearly something that we believe is an opportunity," said Baldwin. But competition to supply electricity through low or no emission generation was likely to heat up as rivals Meridian, Trustpower and Mighty River pursued increasing investment in renewables.
What's wrong with Huntly?
* Contact Energy says the electricity industry should cut its carbon emissions by 40 per cent over the next seven years.
* Essential to this is increasing the use of renewable resources and decreasing the use of the coal-fired Huntly power station.
* Contact believes the swift introduction of a carbon charge is necessary to make this happen.
* But Huntly's owner Genesis says the power station is necessary to ensure security of supply, and its use should be phased out over the next 20 years.
Cap and trade
* Contact wants the "rapid introduction" of a carbon charge through a "cap and trade" system by 2009.
* Under a cap and trade system the Government would place limits on generators' output of greenhouse gases. They would have to either reduce emissions or buy rights to emit from someone else.
* Contact says the market should be operated by the NZX, and its prices linked to international markets.
* It believes a carbon price of at least $20 a tonne is necessary to meet the emissions-reduction target it is promoting.
