UK's Brown calls for EU carbon bank

By Paul Taylor

BRUSSELS (Reuters) - British Prime Minister Gordon Brown called on Thursday for the creation of an independent European carbon bank to improve the functioning of the EU's Emissions Trading Scheme and help combat global warming.

He also urged international agreement among wealthy states on a World Bank fund to finance investments to help poor countries make the transition to a low-carbon economy.

On a visit to Brussels in which he contrasted his support for the European Union with the skepticism of the opposition Conservative party, Brown said the EU must lead the world in fighting climate change.

But his key new suggestion was to take the power to allocate permits to emit carbon dioxide, the greenhouse gas blamed most for global warming, out of the hands of the executive European Commission and give it to an independent body.

"We favor the creation of an independent European carbon market bank to set caps on carbon permits and establish how the carbon market should operate in the future," Brown told a news conference with Commission President Jose Manuel Barroso.

Such a move would strengthen the EU's Emissions Trading Scheme (ETS) and "promote the longer-term transparency and predictability that the market needs," he said.

A European Commission source said Barroso had told Brown privately that other member states were unlikely to support the idea.

The source recalled that Brown had proposed in the past an independent European competition authority to take key merger control, antitrust and state aid policing powers away from the Commission, but the idea had found no wider support.

A British official said an independent carbon bank would remove the risk that decisions on carbon permit allocations were influenced by short-term political pressures.

A European carbon bank would establish principles and ways to integrate the ETS into a wider global carbon market expected to emerge as countries such as Australia and New Zealand and eventually the United States move to trade emissions.

An independent bank would have the technical and financial expertise to drive scarcity in the market and sustain prices so businesses were more aware of the cost, the official said.

The carbon price collapsed in 2005 after it emerged that EU member states had issued too many emissions permits to their industries and utilities had made windfall profits by passing on to consumers the cost of permits they received for free.

The Commission proposed a reform of the system last month under which it will set the limits for emissions by industrial sectors covered by the ETS, and most permits will be auctioned.

(Reporting by Paul Taylor, editing by Dale Hudson and Anthony Barker)