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EU utilities profit on delay in emissions rules

The European Commission, which oversees a compulsory carbon dioxide trading regime, hasn't yet set a cap limiting production of the greenhouse gas for the five years through 2012. Representatives of governments including those of the US, the UK and China meet next month in Nairobi, Kenya, to discuss curbing emissions beyond 2012 without hurting the economy. „The uncertainty is an excuse for utilities to sit on their hands and exert market power,” Citigroup's Peter Atherton said yesterday, according to slides of a speech given in London to a conference held by Environmental Finance, a publishing group. Emissions trading „has been great for utility profits.” Emissions trading helped boost power prices because utilities need to buy extra permits when they win new customers. Most of their permits for the three years through 2007 were granted for free from the 25 European Union governments. UK baseload power for the six months through March 2008 has risen 60% in the past two years, according to prices from broker ICAP on Bloomberg. The European Commission is examining proposals from EU national governments to allocate carbon-dioxide emissions permits to power plants and factories from 2008 through 2012. The commission on October 4 had received plans from 15 member states out of 25. The deadline for submission was June 30.

Not knowing how the European regime will evolve means new power stations „will take longer and be more expensive,” Atherton said. Emissions trading „has been a tax on consumers. It is a highly regressive tax falling mostly on poor people.” The Citigroup team was ranked No. 1 for European utility industry research in the 2006 Thomson Extel survey of institutional fund managers. Atherton wasn't immediately available to comment further. Emissions trading may encourage the construction of nuclear plants, which don't produce carbon dioxide to make electricity, Atherton said. Mostly, it does not seem to have changed utility plans for investment. „Pretty much the same plant that would have been built without the emissions trading scheme will still be built,” the analyst said. Trading has „done nothing to curb emissions.” RWE AG, a German utility that's the region's biggest emitter, is proposing to build new coal-fired stations. Coal produces about double the amount of carbon dioxide for each unit of power generated compared with natural gas. RWE shares reached a record high yesterday of €78.24, valuing the company at €43 billion ($54 billion). (Bloomberg)