By Pete Harrison and Ingrid Melander
BRUSSELS (Reuters) - Eastern European states could receive billions of euros in funding to secure their support on Friday for an EU plan to fight climate change, but environmental groups said the deal was a sell-out to industry.
The European Union hopes to clinch a historic deal on Friday to cut carbon dioxide by a fifth by 2020 -- the biggest step worldwide to avert global warming -- but member states facing an economic crisis have won a myriad of exemptions.
"This is a flagship EU policy with no captain, a mutinous crew and several gaping holes in it," said Sanjeev Kumar of environment pressure group WWF.
European Commission Jose Manuel Barroso rejected that view.
"Today, we give binding commitments," he said. "We are by far the ones with the most ambition to fight climate change, so the idea that we are watering it down is completely nonsense."
The nine east European nations are seen as the final main blockage to agreeing a package of measures aimed at tackling climate change but which will ramp up costs for their highly polluting coal-fired power sectors.
Two swathes of funding would be distributed to them taken from around 12 percent of revenues from the EU's flagship emissions trading scheme (ETS), according to a final draft text prepared for EU leaders to discuss.
The money is partly framed as a reward for the massive drop in emissions they experienced when their industry collapsed in the wake of communism.
Their power sectors were also partially exempted from paying for emissions permits from the ETS, which make industry buy permits to pollute. They need only buy permits for 30 percent of emissions in 2013, rising to 100 percent in 2020.
BAD GUY
Diplomats said Hungary had raised particular concerns about the package, but its position looked increasingly untenable after receiving a 6.5 billion euro EU loan last month to help it through a financial crisis.
Measures were proposed to reduce the risk that carbon curbs would hurt European industry and reduce its ability to compete with less regulated rivals overseas -- an issue that had worried Germany and earlier led Italy to threaten to block a deal.
The biggest threats are seen for steel, aluminum, cement and chemicals.
"I can't use any veto on the climate question because I can't cast myself in the bad-guy role since the left would use this position to fight me politically," said Italian Prime Minister Silvio Berlusconi who was still fighting for the ceramics, glass, paper and cast iron sectors.
European industries exposed to international competition will receive free emissions permits if they will see a 5 percent increase in costs, a measure that is viewed as covering over 90 percent of EU industry.
(Additional reporting by Paolo Biondi and Julien Toyer; editing by Ralph Boulton)
