Poland proposes "caps and floors" for EU ETS

BRUSSELS (Reuters) - Poland will propose on Tuesday setting upper and lower limits to the price of permits to emit carbon dioxide in the European Union's flagship Emissions Trading Scheme (ETS).

Over 40 percent of EU greenhouse gas emissions are currently covered by the ETS, which sets a steadily reducing limit on CO2 volumes but no ceiling on the price of permits to pollute.

The EU is currently reviewing the ETS for its third phase running from 2013 to 2020, and Poland fears plans to start making power generators pay for all their emissions permits will create heavy costs for its highly polluting coal-fired plants.

"Given the high probability of significant CO2 price volatility post-2013, there is a need to introduce some kind of safety mechanism," said a Polish document circulated to finance ministers meeting in Brussels on Tuesday.

"Such a safety mechanism, if well designed, will enable European companies to plan long-term CO2 abating investments and will alleviate the burden imposed on European economies."

A price floor would give certainty to renewable energy companies, allowing them to invest in the knowledge carbon prices will not collapse and they will retain a certain competitive advantage over fossil fuels, it added.

A price cap could reassure energy intensive heavy industries that the cost of carbon would never rise so high as to make them uncompetitive versus rivals in less regulated states, which might force them to relocate abroad.

The Polish text had been prepared for a meeting of finance ministers on October 7, but was never discussed due to the urgency of dealing with the financial crisis, but it is set to be discussed later on Tuesday, EU sources said.

The proposal will not lead to any swift changes, as the ETS is the remit of environment ministers and not finance ministers. But Poland is hoping to have the financial implications of the scheme recognized to help in its campaign for changes.

(Reporting by Huw Jones, writing by Pete Harrison)