German CO2 storage bill arises from political ashes

* Germany to resurrect carbon storage bill

* Key ministries give green light for new technology

BERLIN, July 14 (Reuters) - Germany said on Wednesday it would resurrect a carbon dioxide storage bill killed before federal elections last year following strong public opposition in areas earmarked for storage facilities.

The economy and environment ministries said the carbon capture and storage (CCS) law, planned for approval by the cabinet in September and parliament by the year-end, would pave the way for further developing technology aimed at cutting pollution from coal-burning power plants.

"It is an important step to protect the climate of Germany, a base of industry," said Environment Minister Norbert Roettgen, adding that the bill aimed to promote new technology while keeping safety as the top priority.

Conservatives in the previous government delayed a vote on a similar bill last year before amending and then scrapping it.

The original bill faced fierce opposition from residents in regions where the waste would be stored, although sponsors say it would address local concerns more closely.

The technology, which aims to hold CO2 indefinitely in underground storage facilities, would be a boon to operators who use coal, since it would allow them to avoid costs incurred for releasing greenhouse gas.

A few industrial-scale capture projects are already in operation, including in Norway, Canada and Algeria, but none tests all parts of the capture process.

By mapping out a future for coal-fired plants, the law would mesh with Germany's new national energy strategy, due for presentation by late August or early September, which will also clarify plans to extend the life of nuclear power plants.

Germany derives 50 percent of its power from coal but without CCS will not be able to keep this up in the next few years, as stringent EU laws aimed at discouraging CO2 emissions set rising financial penalties on conventional coal burning.

A statement released by the ministries said the bill will allow testing on a smaller scale than previously planned, while increasing compensation for regions that host storage and requiring operators to set aside money to insure against future risks.

It also envisages an expert evaluation of the technology in 2017 so that a new law could be drafted for its expanded use after parliamentary approval.

"Our agreement gives German industry a chance to develop this key technology rapidly and to exploit new export possibilities," Economy Minister Rainer Bruederle said.

The law would give a green light to Sweden's Vattenfall [VATN.UL] to run a test plant outside Berlin in which it plans to invest 1.5 billion euros.

Besides electricity producers, industries that produce high levels of CO2 -- such as steel or cement manufacturers -- also stand to profit from the law if it is passed as planned. (Reporting by Brian Rohan, Markus Wacket; editing by David Stamp)