The European Union’s recent deal on the reduction of greenhouse gas emissions puts the region’s energy security at risk, according to RWE Power.

The head of the German utility says that the agreement reached at December’s European Council in Brussels to cut emissions and strengthen the EU’s Emissions Trading Scheme (ETS) puts coal at a disadvantage and raises the risk of a power shortfall.

“Security of supply calls for a diverse energy portfolio,” said Dr. Johannes Lambertz, CEO of RWE Power. “The EU has failed to create a level playing field and has greatly weakened Germany as a centre of energy production.”

The 27-nation bloc has agreed to cut emissions of greenhouse gases by 20 per cent over 1990 levels by 2020 and has also made a clear commitment to increase this cut to 30 per cent if an international climate agreement is secured at UN talks in 2009. The cuts will be achieved by a variety of measures, including a tighter cap and increased auctioning of allowances in the ETS.

RWE argues that coal is indispensable to a diverse generating portfolio and that full auctioning of emission allowances under the ETS from 2013 will “seriously curtail” coal’s prospects. The utility expects that plans for new coal capacity or for the modernization of existing coal capacity will be put on hold in favour of natural gas-fired generation.

Most emission allowances in the ETS are currently allocated free to polluters. Forcing utilities to pay for them will encourage investment in renewable and low carbon technologies.

In a statement, RWE says that, “If faced with a lack of sufficient incentives to build modern coal-fired power plants, energy companies will have no choice but to keep older plants with much higher carbon emissions on the grid.”

“That will benefit neither the climate nor the economy,” said Lambertz.

RWE has, however, welcomed the decision to help finance the development of carbon capture and storage (CCS) technology from auction revenues. The company is investing heavily in CCS development, including construction of the first industrial-scale power plant equipped with CCS near Cologne, Germany.

The utility is also participating in the UK’s CCS demonstration competition.

According to the agreement reached in December, national governments will provide 300 million allowances from the surplus of the ETS to subsidise construction of 12 CCS demonstration projects.

The agreement on the climate and energy package also limits access to international carbon credits to ensure that at least half of the reductions required take place within the EU. At least 60 per cent of EU ETS allowances are to be auctioned by 2020, while all allowances for the power sector are to be auctioned from 2013 onwards.

The climate change agreement still requires the approval of the European Parliament.