Financial crisis clouds EU's climate change plans

(BRUSSELS) - The financial crisis and slumping economic activity are threatening Europe's ambitious plans to slash greenhouse gas emissions, with governments eager to avoid saddling companies with additional burdens.

"The Germans are giving up and the Italians are getting ready to follow," said one European negotiator on condition of anonymity.

The European Union's French presidency wants EU leaders to agree to "keep the balance and the fundamental framework" of Europe's ambitious plans to cut carbon dioxide emissions, according to draft conclusions obtained by AFP.

French President Nicolas Sarkozy wants EU nations to confirm the tough objectives imbedded in the plan.

"It's not certain that this will be accepted," a French diplomat acknowledged.

Likewise, at the European Commission, a senior official said: "I do not think that there will be very ambitious conclusions on this point."

"The governments are on the defensive, they are less favourable towards the agenda and discovered a lot of problems," he said.

Commission head Jose Manuel Barroso aims to put them on the spot by asking them "to say whether they consider the objectives to no longer be justified and if this is the case then to assume their responsibilities," according to the source.

EU governments, the European Commission and the European Parliament are in the midst of difficult negotiations over the plans with the aim of striking a deal by the end of the year.

"If member states are no longer up to the challenge then we might as well stop," a European negotiator said.

Europe aspires to lead the world in cutting greenhouse gas emissions with plans to cut such pollution by 20 percent from 1990 levels by 2020. Some of the road has already been travelled with a six percent reduction registered in 2005.

Heavy industry such as steelworks, power and petrochemical plants, which generate 40 percent of the EU's emissions each year, will have to carry a particularly heavy burden.

They are supposed to cut their emissions by 21 percent from 2005 levels and pay for each tonne of carbon dioxide they emit starting in 2013.

Industry has baulked at the duty, which it says will make European companies uncompetitive against rivals in China, India, Russia and the United States.

Although lawmakers at the European Parliament rejected on Tuesday a German demand to water down the constraints on industry, Berlin remains up in arms.

"Manufacturing sector companies facing the toughest international competition should benefit from 100 percent free emission quotas until an international agreement is reached," the BusinessEurope association said on Thursday.

Their demand has the support of German and Polish leaders, who are working hard to form a blocking minority.

The French EU presidency has brought out a compromise proposal which would offer 100 percent free emissions quota but just for specified industries.

"The current context is worsening concerns. We have to respond while not undermining the targets and balances on the plan," said French European Affairs Minister Jean-Pierre Jouyet.