(Repeats to overwrite earlier version)
* EU carbon auction rule debate set for July 25, no numbers
* EU, UN carbon prices tumble as market expected more detail
* Further blow to market confidence as participants jittery
* But could give more time to pinpoint setaside number (Adds legal context, updates price)
By Nina Chestney
LONDON, July 18 A delay until September of keenly awaited details of the European Commission's plans to remove emissions permits from Europe's carbon market sent carbon prices sharply lower on Wednesday.
Three separate EU sources said on Tuesday details on how to fix a supply glut in the carbon market would now not come until after the Commission's August recess, prompting falls of up to seven percent in already low carbon prices.
Market participants scrambled to unwind long positions and Deutsche Bank cut its EU carbon price forecast for the third quarter to 6-8 euros from 6-10.
Climate Commissioner Connie Hedegaard had said she was bringing forward a review of the ETS, originally planned for next year, and would make an announcement before the Commission's August summer break.
The Commission intends to prop up weak carbon prices in its Emissions Trading Scheme (ETS) by delaying sales of new allowances in the next phase of the scheme, starting in 2013, a process known as "backloading".
A spokesman for Hedegaard has said she will make an announcement next week about backloading, but EU sources said it was not expected to include numbers on how many permits might be withheld.
Concerns deepened about the market's future.
"The macro-economic outlook does not look bright (..) I'm not surprised to see this downward correction which will likely be even worse once more permits are auctioned later this year," said Matteo Mazzoni, analyst at Italy's Nomisma Energia.
"Nobody really needs (permits) and to sell them now you need to have a pretty attractive spread. I'm still quite sceptical the market has a future at all," he added.
A document seen by Reuters showed the Commission would on July 25 debate a legal framework. EU sources said the debate would focus on "clarifying" one article relating to the auction time-table.
Many argue deep structural reform is necessary to provide lasting support for the ETS, but it would be too divisive and too slow. Full EU process can take around two years, although it is possible to move more quickly when there is consent.
Numerous sources have said nine of the 27 EU commissioners had raised objections to backloading, which is why steps to guarantee its legality were deemed necessary.
Delay was a risk, they said, but agreement in time for the next phase of the ETS in 2013 was possible, provided member states did not raise objections.
Coal-intensive Poland, which on its own could not block a decision, has repeatedly objected to anything that could raise the carbon price, as have some sections of heavy industry.
Carbon prices have collapsed to record lows under the burden of surplus supply following recession and have been very sensitive for months to news about withdrawing permits.
EU carbon permits traded 6.9 percent lower at 7.15 euros, after sinking to 6.80 euros earlier on Wednesday, above a record low of 5.99 euros in early April but well below the 20 euro level it was trading at in 2008.
Benchmark U.N. carbon credits were also dragged down, hitting a fresh record low below 3 euros a tonne as the market relies on demand from polluters in the EU scheme.
Even though market participants took a cue to sell, some environmental groups said the Commission decision to defer detail on the amount of permits to be set aside until after the summer meant there could be a proper debate about the numbers.
Estimates vary on the amount of permits which should be removed, ranging from 400 million to as much as 2.6 billion. An exact number has never been spelt out by the Commission.
"I don't think it is a catastrophe if (..) we have a bit more time on the backloading proposal to look at the numbers," said Sam Van Den Plas, climate policy officer at WWF.
Some market experts said finding permanent solutions to over-supply is crucial.
"The amendment will state what date the backloaded allowances will be released for auction and what the distribution is each year. My hope is it will answer those questions and it will be accompanied by signals or proposals for permanent solutions," said David Holyoake, law and policy adviser at non-profit environmental law organisation Client Earth.
"This is just a needle in the arm, a booster shot, that is likely to boost the price of carbon now but everyone knows it is a temporary fix," he added.
The ETS is the EU's flagship scheme to tackle climate change, forcing some 12,000 emitters to buy carbon permits called EU allowances to cover their emissions output.
($1 = 0.8188 euros) (additional reporting by Barbara Lewis in Brussels; editing by Keiron Henderson)