UPDATE 3-EU battles Warsaw, Prague over climate change plans

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By Jeff Mason

BRUSSELS, March 26 (Reuters) - The European Commission slashed proposed limits on industrial carbon dioxide emissions in Poland and the Czech Republic on Monday, sparking a battle with Warsaw and Prague over their plans to fight climate change.

The European Union executive cut Poland's proposed emissions cap for 2008-2012 by 26.7 percent and the Czech cap by 14.8 percent in its latest move to shore up the emissions trading scheme, the bloc's key tool to curb global warming and meet commitments to cut emissions under the Kyoto Protocol.

The Commission accepted France's emissions cap, making it only the third of 17 plans to get a green light from Brussels.

"Today's decisions are of vital importance to create the necessary scarcity in the European carbon market and make the Emissions Trading Scheme a successful weapon for fighting climate change," Environment Commissioner Stavros Dimas said.

Poland, which already has rocky relations with the Commission over EU environmental law, and the Czech Republic, whose president has compared environmentalism to communism, threatened to sue over the decisions.

"This decision is very hurtful for us and there is a large chance that we will take it to the European Court of Justice," a government source in Warsaw told Reuters.

In Prague the environment ministry welcomed the EU cut, but the industry minister said it would hurt the economy and protested that his country was already meeting its Kyoto goals.

"It is interesting that the European Commission significantly cut the limit for emission allowances mainly for the new member countries, which have seen fast economic development in the past years," Czech Industry and Trade Minister Martin Riman said in a statement.

STEEP CUTS

The EU's emissions trading scheme sets limits on the amount of CO2 big factories such as power plants and oil refineries can emit. Companies that exceed their limits can buy permits, while those that come in below can sell them.

The Commission has reduced nearly all of the 2008-2012 cap proposals after 2005 data showed governments had given away too many permits for the 2005-2007 phase, triggering a crash in carbon prices last year.

The proposed 2008-2012 caps from Britain, France and Slovenia were the only ones that the Commission did not reject.

The Commission set Poland's cap at 208.5 million tonnes per year in 2008-2012, down 26.7 percent from the government's proposal. The Polish plan is the third-largest that Brussels has ruled on for the second phase of the scheme.

The Czech Republic's limit was set at 86.8 million tonnes per year.

France's cap was accepted at 132.8 million tonnes per year. Paris withdrew its plan from consideration last November when it was clear that its originally proposed cap would not be cleared.

European carbon prices for 2008 delivery were up 70 cents at 17.05 euros per tonne of CO2 on Monday afternoon on the European Climate Exchange.

Poland, which joined the bloc in 2004, said the move would hurt economic development and energy security.

The spokeswoman for Commissioner Dimas, Barbara Helfferich, said Poland had not been treated in a discriminatory way and the cuts would help the country move to a low-carbon economy.

The Commission said it wanted more information from the Czech Republic and Poland about how new enterprises joining the scheme would be treated.

Poland's industry must limit the foreign credits it uses under the Kyoto Protocol to 10 percent of its annual carbon allocation, while the Czech Republic's limit would be 13 percent, Helfferich said.

(Additional reporting by Darren Ennis in Brussels, Natalia Reiter in Warsaw, Jan Lopatka in Prague and Gerard Wynn in London)

Keywords: EMISSIONS EU/PLANS