Germany to decide between coal levy and alternative on July 1

BERLIN (Reuters) - German Economy Minister Sigmar Gabriel said on Wednesday he was considering an alternative to a proposed levy on coal-fired power plants and would decide on July 1.

Germany is wrestling with how to reduce carbon dioxide (CO2)emissions from the energy sector to stop it from falling short of its ambitious climate targets, while safeguarding jobs and securing its energy supply.

Gabriel originally proposed putting penalties on the oldest and most-polluting power stations to help reach a target of cutting CO2 emissions from the coal sector by a further 22 million tonnes by 2020.

But that met with a backlash from industry, with unions saying it could put up to 100,000 jobs at risk.

Speaking at an energy industry conference in Berlin, Gabriel said the government will now decide between his original proposal and a suggestion from trade union IG BCE to gradually shut down coal-to-power stations.

"With the two alternative proposals, we can make a political decision. I'm certain that we will manage this on July 1 during the coalition's consultation meeting," he said.

Shares in RWE -- which produced 60 percent of its electricity from coal-fired plants last year -- rose 2.1 percent to the top of Germany's DAX. Shares in rival E.ON, which relies more on gas and nuclear, were down 0.2 percent.

Gabriel said he believed the coal levy would be efficient and cost-effective, but that he also understood concerns that it could lead to job losses and a collapse of the mining and generation industry.

As an alternative, IG BCE has proposed gradually phasing out old coal-fired power stations and building combined heat and power stations fired with gas. Its plan includes taking at least 2.7 gigawatts of brown coal-fired capacity gradually out of the market rather than risking sudden closures, as in Gabriel's plan.

It also calls for additional financial support for combined heat and power plants, which offer carbon emissions savings through capturing heat from electricity making for re-use rather than emitting it in the air.

Gabriel said this proposal would put a burden on the federal budget and lead to higher support payments for those plants, which would create higher costs for households and small-and medium-sized businesses.

He raised the prospect that big industry -- which has been spared from some green subsidies up till now -- would have to make a contribution, if this proposal was chosen.

In a report published on Wednesday, the DIW economic institute said the climate levy was cheaper and more effective than the alternatives under discussions and would be certain to help Germany reach its goal of cutting greenhouse gases by 40 percent by 2020 from 1990 levels.

"By introducing the climate levy, the power sector could finally take the leading role in climate protection it is predestined for, through its attractive alternatives," said DIW energy economist Claudia Kemfert.

Gabriel also said it was important to resolve a spat between Bavaria and Berlin over new high-voltage power lines, needed to transport mostly wind power from the north to the south.

Gabriel suggested greater use of underground cables and putting new lines along existing grids to appease opponents in Bavaria.

(Additional reporting by Daniela Pegna, Christoph Steitz and Andreas Rinke, Editing by Georgina Prodhan and William Hardy)

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