It was any executive's worst nightmare. On April 28, Greenpeace activists ambushed CLP Power's annual general meeting and hung a banner that read 'CLP Climate Criminal' across the facade of the Peninsula Hotel. Chairman Michael Kadoorie, 63, the third-generation head of a family business that includes both CLP and the Peninsula and a long-time patron to social and environmental causes, was taken aback. 'I'm wearing a green suit. I think some people noticed that. It was not showered with eggs so I'm rather pleased on that count.' Indeed, CLP may soon be required to dress itself in a deeper shade of green. The Environmental Protection Department is moving forward to impose emissions caps on the company's coal-fired Castle Peak power station. This means the company will have to move more quickly to find cleaner ways of producing electricity. 'There's a need for us to make changes in our operation. We have to make the gas available and we have to fit very substantial equipment to our power plant,' said Richard Lancaster, commercial director at CLP Power. 'We're working on those projects at the moment but they're going to take several years to come into effect.' CLP has multibillion-dollar plans to clean up emissions at Castle Peak and build a liquid natural gas (LNG) terminal to ensure stable supply. Both would take years to complete and neither could be finished before 2008, when the existing scheme of control, which guarantees power providers a guaranteed fixed return of 13.5 to 15 per cent on net assets, is set to expire. There is no clear answer as to who will pay for the future production of cleaner electricity. The Economic Development and Labour Bureau (EDLB), which approves CLP's spending plans, has been silent on whether the proposed equipment for Castle Peak, called flue-gas desulphurisation units (FGDs), or the LNG terminal would be included in the fixed-return arrangement. 'Under the existing scheme of control they would be happy to install FGDs,' Otto Poon, chairman of the government's Energy Advisory Committee, said. 'But the EDLB won't guarantee the return on assets. I can see the power companies using that as leverage to get the government to extend the scheme of control.' The behind-the-scenes negotiations appear to have reached a standstill. 'If the public wasn't so strongly against it the EDLB would happily sign off on a 15 per cent return,' one source close to the negotiations said. 'But they know to approve it is political suicide, and the power companies realise the winds have changed and they aren't going to get all the things they want.' In the meantime, CLP faces mounting public criticism for its heavier reliance on coal. Responding to the Greenpeace demonstrators, Mr Kadoorie said: '[I] would love to see no coal being burned. But the practicalities of what we have all judged is a first-class electricity business can only be achieved if we stand on three legs,' he explained, saying that CLP tried to use coal, natural gas and nuclear power in equal measures. 'Regrettably, coal is one of the legs to the three-legged stool.' CLP developed its three-legged policy in stages. The company began using nuclear power from Guangdong's Daya Bay in 1993 and natural gas at Black Point in 1996, and as a result has been able to burn less coal. This has helped to progressively decrease its overall emissions of pollutants to less than half their 1990 levels. However, facing a dwindling supply of natural gas and a surge in demand from the mainland, the company's annual coal burn in the past two years was more than twice the level in 1997, the first full year of operation at Black Point. Despite being on a downward trend for more than a decade, CLP's emissions of sulphur dioxide nearly doubled in 2003 and increased again last year to 53,400 tonnes. That ruffles environment officials. 'Using coal as necessary is not the same as burning more coal,' said Tse Chin-wan, assistant director of the Environmental Protection Department, which plans to roll out emissions caps for all power plants. Although factories across the border shoulder a large part of the blame, Hong Kong's power plants are the biggest local producers of pollution, a problem that 'is highly visible these days', said Mr Tse. 'Even the blind can feel the smog.' To comply with caps, it would appear that CLP could simply burn more gas. However, based on last year's consumption rates, the company will use up all the gas at the Yacheng 13-1 field off Hainan Island in about six years time. The proposed solution, an LNG terminal at either Black Point or south of Lantau on the Soko Islands, probably could not be brought online until 2011. Moreover, coal can be burned almost as cleanly as gas. FGDs, or scrubbers, remove up to 95 per cent of the sulphur dioxide that coal-fired plants produce. Between 1993 and 1997, Hong Kong Electric installed three scrubbers at its modern coal-fired plant on Lamma Island. CLP was encouraged to do the same at Castle Peak station, which was built in the early 1980s, but at the time was focused on bringing gas online at Black Point as a way to diminish its reliance on coal. Last summer, CLP included a proposal to install scrubbers on the four main units at its 4,108 megawatt Castle Peak plant among the financial plans it submitted to the EDLB, with the first set to be up and running by 2009. That project, however, is still awaiting approval, as both parties negotiate the changes to take place after 2008. The scheme of control was first introduced by the Hong Kong government in the early 1960s. At the time, Hong Kong's economy was a fraction of today's and large swaths of the territory were without electricity. Investors baulked at the risks and capital commitments involved in running power lines to the scattered shantytowns and rural villages that dotted the countryside. So the government devised a system of guaranteed return on assets of up to 15 per cent, which naturally encouraged power providers to build up capacity and invest heavily in transmission and distribution networks. The return remains among the highest for electricity providers anywhere in the world.