Europe can fight climate change without harming its economy, the European Commission president said on Monday, amid signs that intensive lobbying by heavy industry for special treatment was paying off.

José Manuel Barroso told an audience in London to seize the business opportunity, saying the market, rather than government, had the answers on climate change. Commission officials in Brussels said they were willing to give an explicit assurance to sectors such as steel and cement that their competitiveness would be preserved in the face of a commitment to cut carbon emissions.

As well as offering a specific pledge that they could receive all permits to pollute free, the Commission would start immediately on an assessment of which sectors were most exposed to global competitors without emissions constraints. “New wording will give them the guarantees that we mean business,” said one, speaking on condition of anonymity.

But the senior official added this was conditional on businesses cutting greenhouse gas emissions by a fifth between 2005 and 2020, in line with the rest of industry. The iron, steel, aluminium, chemicals, glass and paper sectors, among others, have claimed that, without concessions, they would have to leave Europe. Economic studies show many companies would be plunged swiftly into losses.

How Europe is leading the way on emissions cuts

The European Union has taken the lead in combating climate change. It has pledged to cut carbon emissions to 20 per cent of 1990 levels by 2020, or 30 per cent if other developed states match it.

It has a preliminary target of a 50 per cent reduction by 2050, based on limited global warming to 2.2°C above pre-industrial levels. The new proposals to be announced on Wednesday include:
●Tightening the emissions trading scheme. Most permits will be auctioned rather than given away with new sectors and gases such as nitrogen included.
●Individual country targets for emissions cuts.
●Minimum environmental standards for the production of biofuels to count towards them forming 10 per cent of vehicle fuel by 2020.
●Rules to allow state subsidies for renewable energy to help increase its share of power generation from 8.5 per cent to 20 per cent.
●A legal framework to allow emissions to be captured and stored, usually underground.

The Commission’s plans could force power generators to pay for carbon emissions permits and could chop profits at companies that burn coal to produce electricity, analysts said.

Laws unveiled on Wednesday will outline how the EU will meet targets to cut carbon emissions to 20 per cent below 1990 levels, to boost renewable energy generation to 20 per cent of supply and to ensure plant fuels make up 10 per cent of vehicle fuels, all by 2020. The policy could be “climate-friendly, market-friendly, industry-friendly and growth– and jobs-friendly”, said Mr Barroso.

EU officials expect electricity price rises of 10 to 15 per cent.

That, in turn, could re-open a debate about how Europe can safeguard its future energy supplies, especially as Germany plans to phase out nuclear power.

Germany risked power supply shortages if it did not build more power stations and rethink its nuclear exit plan, said Hans-Peter Villis, chief executive of German utility company EnBW.

The EU’s carbon trading scheme currently limits emissions of carbon dioxide by giving heavy industry a fixed number of permits. It is the bloc’s main weapon against global warming.

Until now, companies have received at least 90 per cent of their emissions permits for free but Brussels will propose on Wednesday a drastic reversal whereby power generators will have to pay for them all.

The Commission will propose to phase in 100 per cent auctioning for utilities between 2013 and 2020, and “rather sooner than later”, a European Commission source told Reuters.

The plan aims to make cleaner sources of power – such as nuclear, renewables and gas – more competitive against dirtier fuels such as coal and wipe out windfall profits that some of the biggest polluters have made by charging consumers for permits they got for free.