France eyes CO2 opt-outs for industry

LUXEMBOURG (Reuters) - The European Union's French presidency sought on Thursday to defuse mounting opposition to EU climate goals by offering opt-outs for some industries and countries that fear economic damage, angering environmentalists.

Some eastern European states have assembled a blocking minority to carbon dioxide curbs they fear will stunt economic growth, while Germany is fighting hard to protect its industry from added costs.

But France recommended opt-outs for industries facing competition from unregulated overseas rivals and for some countries' power sectors, prompting environmentalists to accuse President Nicolas Sarkozy of back-sliding.

The European Union has ambitious plans to cut carbon dioxide (CO2) emissions by a fifth by 2020, compared with 1990 levels, partly by making power generators and heavy industry pay for permits to pollute in its emissions trading scheme (ETS).

But some eastern European states have threatened to derail the proposal, saying it puts a costly burden on their highly polluting communist-era coal-fired power stations.

Heavy industries, such as steel, aluminum and chemicals have also raised opposition, saying they will lose out to rivals in neighboring regions that have less environmental regulation and therefore lower costs.

BusinessEurope, which represents 20 million European businesses, called in a letter to French ecology minister Jean-Louis Borloo on Wednesday for the most efficient factories to get all their permits to emit CO2 for free until a global deal has been reached.

POLLUTION

France sought on Thursday to defuse industry's opposition, preparing a draft paper -- which is still under discussion -- to present to EU leaders at a summit in Brussels next week.

"Sectors or sub sectors exposed to the highest risk, must be able to receive 100 percent of emission quotas for free," said the document seen by Reuters.

That would give sectors like steel an easier deal than proposed by EU lawmakers on Tuesday, when they said factories should start paying for 15 percent of the permits in 2013, increasing to 100 percent by 2020.

France has failed to match the ambitions of lawmakers, said Tomas Wyns of Climate Action Network Europe, a coalition of environmental groups such as Greenpeace.

"At the start of his presidency, Sarkozy presented himself as a climate leader -- now he is prepared to dump effective climate policy for the sake of protecting some polluting industries," he added.

France also sought to ease the concerns of eastern European states that fear their economies will suffer from soaring electricity prices when power generators are forced to pay for all their CO2 permits from 2013. "Derogations limited in scale and time may be granted when specific situations linked notably to an insufficient integration into the European electricity market justify it," said the document.

France is keen to sign-off the climate legislation by the end of this year, but Poland has assembled a group of East European states backed by Greece that threatens to delay it into next year if their fears about power prices are not dealt with.

"We are working really hard to work this climate package into something that would not be a dramatic problem for the whole of our economy," Polish Foreign Affairs Minister Radoslaw Sikorski told TVN 24 television.

The EU is hoping other nations will follow its lead by agreeing on an international deal, mindful of U.N. warnings that climate change will lead to more droughts, flooding and rising sea levels.

A Polish diplomatic source told Reuters the French concessions did not go far enough.

"This is just the beginning, we are not satisfied with the French Presidency's draft conclusions of the summit," said the source.

(Reporting by Pete Harrison, editing by Matthew Lewis)