The EU is proposing an average 7% cut in the CO2 emission allowance for the 2nd period standing in 2008 through 2012 compared to the first period. The EU is nevertheless still waiting for the Czech Republic, Poland, Spain and Italy’s decision on their country allocation proposal.
Our view: Given excess of granted CO2 credits in 2005 making coal-based electricity production relatively cheaper, the cut in allocations has been expected.
We expect that the allocation to Czech Republic for the 2nd period would be also reduced given lower capacities compared to the 1st period. For CEZ, we expect its position to be balanced given higher utilization of the nuclear power plants and renewable of the current coal portfolio starting in 2008.