CO2 Emissions Row

The German government has found itself stuck between a rock and a hard place after the EU Commission dismissed its plan for cutting greenhouse gases as woefully inadequate and German utilities warned that more ambitious climate protection goals would risk jobs and the current economic upswing.

In a letter received by the government at the weekend, Germany’s leading four utilities hinted that they might have to re-examine their investments and would have to cut costs if the government gave in to EU demands. The move caused a storm of protest in a country already suffering from the highest energy prices in Europe.

Germany’s leading energy companies appear bent on twisting the arm of Chancellor Angela Merkel, using jobs and investments worth billions of euros as pawns in a power game with the EU.

Earlier this month the EU commission criticized Germany's plan for trading carbon dioxide emissions saying it would give German energy producers an unfair advantage in the emissions market.

Last week Chancellor Merkel’s cabinet reacted by raising the targets for overall emissions reduction as well as raising the prices for the emissions permits which industry can buy to allow them to produce carbon dioxide.

Ominous words from top four utility firms

Germany's four leading utilities -- RWE, E-On, EnBW and Vattenfall -- are now threatening massive consequences if the plan goes through. "If the demands raised by Brussels are met," said EnBW’s CEO Utz Claasen, "it will become impossible to invest profitably in conventional power plants. In other words, less energy will be produced, jobs will be cut and prices will go up."

The revised government plan is aimed at a substantial reduction of Germany’s overall CO2 emissions for the years 2008 to 2012. It now accepts the EU limit for Germany of 453 million tons per year and that means a reduction of about 12 million tons compared to its original plan.

In addition, energy producers will now have to pay for being allowed to pollute rather than receiving emissions trading permits for free. German economics minister Michael Glos on Monday vowed to fight higher energy prices, by putting utilities on a tighter government leash if necessary.

"The four biggest energy companies account for almost 90 percent of German energy generation," he said. "We need to look closer into their pricing policy now by strengthening cartel laws. I’m sure this will benefit not only other companies but also individual consumers."

The controversial move is even supported by the pro-business opposition party, the liberal Free Democrats. The party's economics expert Rainer Brüderle said the government should remain steadfast in view of the demands by the energy producers.

Liberals call for an end to lobbying

"The system of emissions trading is an effective mechanism to combine free market elements and climate protection," Brüderle said. "The government should no longer allow special interests and lobby groups to interfere."

Such interference however, isn't just a German problem. The EU Commission has criticized almost all of its member states for not being ambitious enough in their national emissions targets.

The EU’s plan for the period from 2005 to 2007 almost collapsed when 2005 data showed that governments gave industry more emissions permits than needed, leading to a crash in carbon prices.

Under its commitment to the Kyoto protocol, the 25-nation EU wants to cut greenhouse gas emissions by 8 percent compared with 1990 levels. So the current struggle for power in Germany may only be the prelude to a long and tough climate battle in the EU.