EU Divided as Carbon Reform Vote Looms

Parliamentary committee last month failed to agree; further votes needed at plenary, member state level.

* Negotiations likely to continue until last minute

By Barbara Lewis and Susanna Twidale

BRUSSELS/LONDON, Feb 23 (Reuters) - Prospects for early reforms to prop up the EU's Emissions Trading System (ETS), the world's biggest carbon market, hang in the balance ahead of a closely watched vote on Tuesday with members of the European Parliament divided over how soon to act.

Parliamentary sources said negotiations between rival political groups are likely to continue up to the vote at around 1400 GMT, which still needs to be followed by a plenary vote and to get the backing of member states.

An email seen by Reuters from the social democrats alliance said it could not accept a Dec. 31, 2018, date put forward as a compromise by the main centre-right group, the European People's Party (EPP), but it might be willing to support Jan. 1, 2018 for beginning ETS reforms.

Parliamentary sources said the Greens and the ALDE liberal alliance also rejected the Dec. 31 date, but added the EPP was reluctant to shift.

Both 2018 dates are earlier than the executive European Commission's 2021 proposal, which coal-producing Poland and energy-intensive industry say is soon enough.

"No one (in the market) expects it to be the original 2021 date any more but anything later than 2018 would be bearish," one carbon trader, speaking on condition of anonymity, said.

Having fallen from all-time highs above 30 euros a tonne reached in 2006, ETS allowances are trading around 7 euros - too cheap to stimulate investment in low-carbon energy and making it more economic to burn heavily polluting coal than gas.

Volumes have also contracted, falling around 13 percent last year, according to data from Thomson Reuters Point Carbon, although the analysts expect the market to grow by roughly 8 percent this year.

Those keenest to accelerate reform include Britain, Germany and big utilities, such as E.ON, which seek to support investment in zero-emissions energy. They have been pushing for a 2017 start.

In a sign of the divisions at member state, industry and political level, the parliament's industry and energy committee last month failed to decide when to start putting hundreds of millions of surplus carbon allowances into a repository named the Market Stability Reserve.

After weeks of behind-the-scenes haggling, some parliamentary sources say the best way to get unity is to give up pushing for a 2017 start and settle for a 2018 date.

There is scope for extra compromises when negotiations on the final legal text begin, either after a plenary vote in parliament in April or earlier if parliament can agree.

The Commission avoids specifying target price levels, but in a draft of its energy union strategy to be published on Wednesday, it says the ETS must put "a meaningful price on carbon emissions" to stimulate cost-efficient emission cuts.