A quarter of the Hazelwood coal-fired power plant could be shut down within four years under a Brumby government plan to cut emissions from Australia's ''dirtiest'' power station.
The first stage of Hazelwood's closure is expected to cost hundreds of millions of dollars in compensation, with the state government to seek federal help in paying out the station's private owner, International Power.
But a complete closure of Hazelwood would only go ahead once an emissions trading scheme – or an alternative federal opposition climate plan – is in place.
The Latrobe Valley power plant was built in 1964 and is estimated to produce almost a quarter of Victoria's energy.
Government sources said closing two of Hazelwood's eight power units translates to a cut of 4 million tonnes of carbon emissions a year – just over 3 per cent of Victoria's annual emissions and 0.7 per cent of annual national emissions.
Environment groups have been running a strong campaign for Hazelwood's closure, with government sources saying the indefinite shelving of the emissions trading scheme had forced Victoria to act.
News of the planned closure comes just four months before the state election and will be seen as the Brumby government trying to boost its environmental credentials under the threat of losing crucial inner-city seats to the Greens. The staged closure of Hazelwood is expected to headline the state government's long-awaited climate change white paper.