Nov. 27 (Bloomberg) -- Connie Hedegaard, named as the next European Union climate commissioner, will oversee a possible EU decision to force energy and manufacturing companies in the world’s biggest greenhouse-gas market to deepen emission cuts.

The current Danish climate and energy minister must also resolve an EU legal dispute with East Europe that has raised the regulatory risks in the European emissions-trading program, the cornerstone of Europe’s policy to fight global warming. The bloc sets carbon-dioxide quotas on power plants and factories and forces those that exceed their limits to buy spare permits from businesses that emit less.

“Hedegaard is going to have to roll up her sleeves and confront industrial and political interests in Europe that are trying to undermine the effectiveness of the EU emissions- trading system,” Sanjeev Kumar, a Brussels-based climate-policy analyst at environmental group WWF, said today. “This will be one of the most entrenched battles we are going to have.”

The EU is already on course to cut greenhouse gases including CO2, the main such pollutant, by 20 percent in 2020 compared with 1990. The 27-nation bloc is due to decide at a United Nations climate summit in Copenhagen next month whether to deepen that reduction target to 30 percent over the period.

Rich Countries

Such a step will depend on how much other rich countries including the U.S., Japan and Australia are willing to do under any new UN accord to counter the heat waves, storms and floods tied to climate change. The European Commission, the EU’s regulatory arm, will negotiate on behalf of the bloc at the Dec. 7-18 meeting, which Hedegaard will chair in her role as minister for the UN climate conference in Copenhagen.

Moving to a 30 percent reduction target would require the EU to decide how much of the extra effort should be shouldered by the electricity, steel, paper, cement and other industries in the emissions-trading system, which accounts for about half of the bloc’s CO2 discharges. The rest of the effort would come from industries such as agriculture and buildings that are outside the program.

Annual Cap

The EU approved legislation last year that will tighten the annual cap on power plants and factories now in the trading system by 11 percent on average in 2013-2020 compared with 2008- 2012. The annual cap in 2013-2020 would be further tightened under any EU move to a 30 percent emissions-reduction target.

Meanwhile, outgoing EU Environment Commissioner Stavros Dimas is scrambling to avert the threat of an oversupply of CO2 allowances in the market after a European court overturned caps on Poland and Estonia. At stake are his decisions to award 73 percent of the CO2 allowances sought by Poland and 52 percent of those Estonia requested for the five years through 2012.

Dimas says that any reassessment of those caps could justify tighter limits because of recession-induced falls in emissions and that the market needs stability. The Polish and Estonian governments won European Court of First Instance rulings on Sept. 23 overturning the limits.

The Luxembourg-based court said the commission had “very restricted” authority over national plans for allocating CO2 allowances. In deciding last year to tighten the overall EU cap as of 2013, the bloc also opted to replace the current system of national plans for allocating CO2 allowances with a centralized European one.

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

Last Updated: November 27, 2009 12:49 EST