Germany Scraps Coal Levy: report

The German government plans to scrap a proposed levy on coal-fired power plants, a government source told Reuters on Wednesday, confirming a report from public broadcaster ARD and boosting shares in utilities E.ON and RWE.

A spokesman for Economy Minister Sigmar Gabriel said there was no agreement yet. He said Gabriel would give a statement at 1100 local time (0900 GMT).

"I firmly deny that," the spokesman said. "No decision has been made. There are still several proposals on the table on how to reach the targeted cuts in CO2 emissions."

The government has faced a backlash over its plans to slap a levy on Germany's oldest and most polluting power plants, with unions saying the measure could put up to 100,000 jobs at risk.

Gabriel had originally proposed the penalties to help reach a target of cutting carbon dioxide emissions from the coal sector by a further 22 million tonnes by 2020.

RWE shares were up 3.7 percent and E.ON shares up 1.0 percent by 0755 GMT, lifting the European utilities index  0.2 percent.

Coal accounted for 60 percent of electricity production at RWE last year, while E.ON's share was 27 percent.

"Investors are just focusing on the headline, that the coal levy could be scrapped," a Frankfurt-based trader said. "Obviously, that would be great news for the utilities."

The source said a plan was being considered to compensate coal plant operators if they put 2.7 gigawatts (GW) into a capacity reserve to withdraw highly polluting power stations from the market and achieve carbon-emission savings for Germany.

At the same time, operators would not be faced with an immediate loss of assets.

As an alternative to the coal levy, the mining, chemical and energy trade union IG BCE has suggested introducing a scrappage bonus for old heating systems as well as grants for combined heat and power plants, which are more environmentally friendly.

The levy is aimed at forcing coal plant operators to slash their emissions as part of a national climate package to stop Germany from falling short of its target to cut greenhouse gases by 40 percent by 2020 from 1990 levels.

By Andreas Rinke