Bloomberg News

EU's Dimas to Order Cuts in National Emissions Grants

October 23, 2006

The European Union's environment chief pledged to tighten new air-pollution caps on energy and manufacturing companies in a bid to ensure businesses pay for some allowances.

EU Environment Commissioner Stavros Dimas said most member states want to let power plants and factories emit 15 percent more carbon dioxide annually on average from 2008 than last year. The European Commission, the EU's regulatory arm, has gotten new permit-allocation plans from 17 member states.

``You have to reduce the 15 percent,'' Dimas told reporters today in Luxembourg after meeting ministers from the 25-nation EU. ``If member states put more allowances into the market than are needed to cover real emissions, the scheme would become pointless. I cannot let that happen.''

The commission wants to restore investor confidence in the EU system of CO2 quotas on 11,400 power plants and factories after a price slump this year. Under the system covering companies such as German utility E.ON AG (EOAN) and British steelmaker Corus Group Plc, businesses that exceed their limits must buy permits from companies that emit less or pay a penalty.

The commission's rulings on new allowance grants will be the first since the CO2-permit price collapse when it emerged companies had a surplus in 2005. Existing caps cover an initial period from 2005 through 2007 and the new allowance grants will be for 2008-2012.

Price Declines

Verified emissions last year in 21 EU nations were 2.4 percent less than the annual average of permits granted for 2005-2007, the commission said in May. The surplus prompted the price of EU permits for 2006 to halve to about 15 euros ($19) a metric ton around that time from an April high.

The drop in the price, which is now about 12.50 euros a ton for 2006, raised questions about how strict the commission will be to ensure allowance scarcity in 2008-2012.

``I am disappointed,'' Dimas said. ``Many of the national allocation plans we have received so far do not seem to take sufficient account of the real level of emissions from installation in the scheme. We know what the actual emissions were in 2005.''

The emissions-trading system is part of EU efforts under the global Kyoto Protocol to reduce greenhouse-gas emissions by 8 percent in 2008-2012 compared with 1990. The trading system targets CO2 because it's the main greenhouse gas.

Not Instrumental

The new permit plans risk ``failing to be instrumental in bringing Europe in line with its Kyoto targets,'' Andrei Marcu, president of the International Emissions Trading Association, said today in a letter to Dimas that was e-mailed to reporters. IETA's members include Barclays Capital, BP Plc and broker Natsource LLC.

Last year, the commission said the annual number of permits would have to fall by about 6 percent in the next trading period to keep the bloc on track to meet its Kyoto goal.

The commission will send some of the draft allocation plans back to member states for changes, Dimas said. This procedure, also used during decisions on the 2005-2007 plans, gives governments a chance to scale back planned permits to avoid an order to reduce them when the commission issues its ruling.

The commission said Oct. 12 it aimed to decide on all national permit-allocation plans by the end of the year. On that day, the commission threatened lawsuits against eight nations including Italy and Spain for failing to draft new caps for 2008-2012.

The other countries that received warning letters on the issue were Austria, the Czech Republic, Denmark, Hungary, Portugal and Slovenia.

The commission said in early October it would probably issue its first rulings on the new permit plans in November. Dimas said today that ``it will be several more weeks before we are in a position to take any decisions.''

To contact the reporter on this story: Jonathan Stearns in Luxembourg at jstearns2@bloomberg.net

To contact the editor responsible for this story: Edward Buckle at ebuckle@bloomberg.net


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