EU Nears Climate Accord With Concessions to Industry

By Jonathan Stearns

Dec. 12 (Bloomberg) -- European Union leaders inched toward a breakthrough on legislation to fight climate change by easing the costs for energy and manufacturing companies at the insistence of Poland and Germany.

French President Nicolas Sarkozy, holder of the EU’s rotating presidency, proposed delaying plans to end after 2012 the free allocation of allowances on which carbon-dioxide emission quotas are based. The aim is to help eastern European electricity producers that rely on coal as well as to aid steel, paper and other industries across the 27-nation bloc that face an economic slump.

With the main plan to reduce the CO2 quotas uncontested, Sarkozy proposed giving eastern European utilities until 2020 to prepare for the end of free permit grants and said energy- intensive manufacturers should face 70 percent auctioning that year. The European Commission, the EU’s regulatory arm, had proposed full auctioning for all power producers as of 2013 and for manufacturers starting in 2020.

“We’re making progress,” Sarkozy told reporters late yesterday after the first round of negotiations at a two-day summit in Brussels. Polish Prime Minister Donald Tusk said his country’s views had been “taken into account on almost every aspect.”

An accord would put the finishing touches on draft legislation that underpins the EU’s goal to cut greenhouse gases including CO2 by a fifth in 2020 compared with 1990. The compromises put forward by Sarkozy seek to balance worries about job losses and a desire to persuade the U.S. and China, the world’s biggest emitters, to sign on to a climate-change treaty that would succeed the Kyoto Protocol after it expires in 2012.

CO2 Permits

The new EU rules center on the European emissions-trading system, the world’s biggest greenhouse-gas market, which requires companies that exceed their CO2 quotas to buy permits from businesses that emit less. The new EU law would reduce the annual quotas for electricity, steel, paper and other industries now in the trading system by 11 percent on average in 2013-2020 compared with 2008-2012.

In that context, the political tussle is over the extent to which the EU should add to the costs for industry of reducing CO2 emissions by using government auctions to allocate the allowances that make up the shrinking quotas. Most allowances are now granted for free to fill the quotas.

Under Sarkozy’s proposals made at the start of the summit, allowance auctions for existing eastern European utilities would start at 30 percent in 2013 and rise to 100 percent in 2020. All other EU power producers would face full auctioning as of 2013, as proposed by the commission.

In seeking to replace the goal of 100 percent auctioning for manufacturers beginning in 2020 with a 70 percent requirement that year, Sarkozy endorsed the 20 percent auction rate for them in 2013 that the commission proposed.

He also pushed to increase the share of EU emission allowances that will be redistributed mainly to the poorer eastern European nations to compensate for the scaling back of auction plans for manufacturers. The redistribution level for permits slated for auction would be 12 percent instead of 10 percent.

U.K. opposition to the original 10 percent level may complicate Sarkozy’s proposal for an increase.

Asked whether the summit would run into the weekend, Sarkozy said: “No weekend here, at least not this weekend.”

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