The German Environmental ministry is planning to allocate 15% less CO2 emission credits to power producers starting in 2008 to fight the global warming, according to a National Allocation Plan 2. This may negatively affect RWE and E.ON in particular due to higher costs because these companies would have to buy CO2 credit on the market. As a result, the lower allocation of CO2 limits should put pressure on the price of CO2 limits to increase. Note that CEZ may need to buy more CO2 credits in the future years due increasing production to meet the demand for electricity. In the short-term, the profitability of utilities may lowered before the electricity price is adjust to the higher costs base. The price of CO2 credits increased by 36% YTD. Event though the news is negative for CEZ, we do not expect it to have any significant impact on today’s trading. We reiterate our Hold recommendation.