“It [the scheme] does nothing to encourage energy security, nor the state of oil and gas industry,” Pepanz executive officer John Pfahlert said.

“Indeed, senior executives of many Pepanz members think the climate change initiatives pose significant risks, both to energy security and to oil and gas.

“Great care will need to be taken that the proposed scheme does not, in fact, discourage investment in oil and gas exploration and production.”

Yesterday Finance Minister Michael Cullen and Climate Change Minister David Parker, who is also Energy Minister, announced the Government’s long-awaited emissions trading scheme, to be phased in over a number of sectors over several years from 2008.

There will be increased costs for energy, including electricity and fossil fuels, and some other sectors.

Pfahlert said a dependable, economic and environmentally efficient electricity supply was essential to the New Zealand economy and the Government’s target of 90% electricity coming from renewable sources by 2025 was probably too ambitious.

“The industry’s efforts to provide an ongoing supply of natural gas is a cornerstone of future electricity supply,” he said.

“New Zealand will always need 15 to 20 percent of its electricity coming from base-loaded gas or coal-fired power stations.”

He warned the policy could reduce the quality and number of bids for Crown Minerals’ next petroleum blocks offer.

In addition, the structure of the proposed emissions system would mean windfall profits for totally renewable electricity generators, such as government-owned Meridian Energy, to the detriment of generators with gas or coal-fired power stations in their generation portfolio, Pfahlert said.

Meanwhile, New Zealand’s largest gas users – Contact Energy and Genesis Energy – both gave cautious approval to the Government proposals that could see the price of electricity increase by about 4-5%, and the price of petrol rise by about 4-5c per litre.

Contact chief executive David Baldwin said the announcements were significant in that all greenhouse gases and all sectors would eventually come under the emissions trading scheme.

He said Contact’s $NZ2 billion renewable investment program would be important in helping meet the Government’s 90% target for renewable electricity, provided there was “very clear direction and support” from the Government on agreeing to renewable projects.

Genesis chief executive Murray Jackson said carbon pricing would encourage further emissions reductions and provide incentive for the development of more renewable energy and new technology.

He added that the commissioning in July of the new Genesis gas-fired 400MW power station at Huntly, known as e3p, had already resulted in Genesis reducing its CO2 emissions by about 32%.

Neither Baldwin nor Jackson commented on what effect the Government’s emission scheme might have on their plans to import liquefied natural gas should domestic exploration fail to find enough gas to meet New Zealand’s projected gas demand next decade.