By Pete Harrison and Darren Ennis
BRUSSELS (Reuters) - European leaders sought to ease the shock for heavy industry on Thursday by watering down plans to tackle climate change in the midst of an economic crisis.
The European Union hopes to agree ways of cutting carbon dioxide to 20 percent below 1990 levels by 2020, heeding warnings of stormier weather and rising sea levels.
"We are going to get a historic decision," said Finnish foreign minister Alexander Stubb.
Having already struck deals in recent weeks to promote green energy and curb emissions from cars, the focus has switched to the most contentious issues -- power generators, heavy industry and manufacturing.
The talks assume a greater importance coming as they do just over a month before Barack Obama assumes the U.S. presidency, amid hopes in Europe of new transatlantic co-operation on tackling climate change.
Within hours of the talks starting, environmentalists accused EU leaders of selling out to industry. "The EU's credibility as a leading actor on climate change is in freefall," said Green group member Caroline Lucas.
Several leaders stressed the need to maintain the EU's ambitious targets, but German Chancellor Angela Merkel and Italian President Silvio Berlusconi appeared to have secured early concessions for industry.
"We are heading toward a compromise. We are getting what we want," said Berlusconi, who had earlier threatened to veto any deal that was not in Italy's interest and is still fighting for the paper, glass, iron and ceramics sectors.
SOLIDARITY
Steel, cement, chemicals and other industries will be sheltered from the added cost of buying permits to emit CO2 from the EU's flagship emissions trading scheme (ETS), according to a draft text that formed the basis for negotiations.
"This covers about 90 percent of industry, and I don't see any reason why Germany would not accept this proposal," German conservative Peter Liese told Reuters. "I see it as a victory."
But critics said that handing out pollution permits for free removed the main incentive for emissions cuts.
"Allocating such a large proportion of emissions permits for free...would turn the ETS into a windfall profit machine for Europe's most polluting industries," said Lucas.
Once industry has been dealt with, negotiations will switch to bargaining with eastern European states over how much money they need to accept a deal that looks set to punish their power sectors.
Proposals to make power generators pay for permits to pollute from 2013 are aimed at making the dirtiest plants uneconomical, but that has caused alarm in Poland, which gets over 90 percent of its power from highly polluting coal.
Poland's battle led to proposals in the draft that its power sector could be handed opt-outs, alongside other big coal users, island nations and the Baltic states.
Along with opt-outs, eastern European states are also demanding a boost to a 7.5 billion euros "solidarity fund" designed to help replace coal with green energy and nuclear.
"It's all at the expense of the western countries so it will be very difficult to negotiate an increase of even 1 percent," said a Bulgarian government official.
Many were hopeful of a deal, including Czech Deputy Prime Minister Alexandr Vondra.
"There is a solid chance to have a solution, to have a decision which would bring a...solution that would not produce winners and losers," he said.
(Additional reporting by Anna Mudeva, Huw Jones, Ilona Wissenbach, Ingrid Melander and Marcin Grajewski)
