Czech leader urges EU to overhaul carbon trading schemes to curb energy costs

PRAGUE, Feb 2 (Reuters) - The European Union needs to revamp its carbon emissions trading schemes to cut energy prices, Czech Prime Minister Andrej Babis said in a letter to EU peers and institutions released on Monday, seeking backing ahead of next week's competitiveness meeting.

The EU should cap the cost of emissions allowances under its Emissions Trading System and delay the introduction of its second phase, Babis said in the letter addressed to the heads of the European Commission and European Council, as well as the leaders of the bloc's other 26 member states.

Speaking at a news conference, Babis said he would lobby for support among fellow EU leaders, including France and Italy, ahead of the bloc's informal summit on February 12.

He said allowance prices had been forecast in previous years to be far lower than current levels, putting a heavy strain on European industry.

It was necessary to cap the cost of allowances "in order to prevent excessive price increases and the relocation of industry from Europe," the letter said.

Many factors contribute to Europe's high energy prices, including fuel prices, underinvestment in grids and national taxes.

The EU carbon market is the bloc's main tool to reduce CO2 emissions - charging industries and power plants for every ton of carbon they produce to encourage cleaner production and investment in low-carbon technologies.

Launched in 2005, the scheme returns part of its revenue to national governments, with the rest channelled into EU funds supporting low-carbon projects.

EU carbon prices were trading at around 81 euros per metric ton of CO2 on Monday, after briefly hitting 90 euros in mid-January.

Babis also called for delaying the rollout of the ETS for buildings and transport — known as ETS2 — until at least 2030, after the EU had already agreed to postpone its launch to 2028 from 2027.

Countries including Poland have long argued that EU carbon prices are too high and have urged Brussels to intervene to curb rises they say are driven by financial speculation rather than genuine demand from emitting industries.

Other EU countries, however, see a strong carbon price as essential to meeting climate targets, arguing that higher costs for carbon permits increase incentives to invest in low-carbon technologies and shift to cleaner fuels.