* Vote hangs in the balance
* Industry opinion divided, Poland opposes, Germanyundecided
* Longer term structural reform would take time
By Barbara Lewis and Nina Chestney
BRUSSELS/LONDON, April 9 (Reuters) - Months of bitterargument culminate next Tuesday in a make-or-break vote on anattempt to prop up the European Union carbon prices, whichplunged to record lows earlier this year.
A proposal put forward by the European Commission last yearto remove temporarily some of the glut of carbon allowances thathas depressed the Emissions Trading Scheme (ETS) was meant to bea quick and easy fix.
But opinion is deeply divided and EU sources say a defeat ina plenary session of the Strasbourg parliament expected on April16 would almost certainly kill the short-term plan.
In theory, the vote is on a highly technical amendment toshore up the legality of removing permits from the scheme, whichis being debated in parallel by member states.
"It's a tiny little proposal, but it's become an enormousdebate because it's seen as the opening skirmish," one EU sourcesaid on condition of anonymity.
The short-term plan would be a prelude to longer-termstructural reforms, such as the permanent removal of allowances.
"It is being watched internationally in terms of a test ofthe European Union's will to save its carbon market," BryonyWorthington, founder of non-governmental organisation Sandbag,said.
Within the European Parliament, the single biggest politicalgroup, the European People's Party, has mostly opposed theintervention.
In contrast, more than half of the EU member states hasbacked it, but a few, including coal-reliant Poland, have not.
Dominant member state Germany, facing an election year, hasrefused to take a position as industry complains a higher ETSwould drive up energy costs, reducing its competitiveness.
INDUSTRY DIVIDED
Chemical giant BASF has argued for longer termreform, while opposing short-term intervention.
"Shale gas has made energy prices drop dramatically in theUnited States, while that is not so in Europe. We need to takethat into account," Wolfgang Weber, a vice president at BASF,said.
The Commission has sought to address warnings from some inindustry that they are in danger of being driven out of Europewith a "carbon leakage" list of industrial sectors entitled tofree carbon allowances to prevent them leaving the continent andjust adding to pollution elsewhere.
A study on Tuesday from Dutch consultancy CE Delft, whichhas given advice to the Commission on policy issues, noted theexisting list, to be revised next year, was drawn up on theassumption of a 30 euro ($39) carbon price, 10 times higher thanthe historic low of less than 3 euros touched in January.
Of the biggest industrial sectors, it found only crude oiland natural gas extraction should still be entitled to freeallowances, whereas other leading energy users, such as oilrefining, cement and iron and steel should have to pay forpermits to pollute through auctions of allowances.
Others in industry back the stop-gap measure, referred to asbackloading, of temporarily removing permits and returning themto the market later.
Royal Dutch Shell, for instance, which is keen topromote natural gas, rather than more carbon-intensive coal, haslent prominent support. So too have many in the power sector.
Oystein Loseth, president and CEO of Sweden's Vattenfall, said the European Union was "at a crossroads".
In one direction, it faces a fragmentation of EU energy andenvironment policy as some states would take their own measuresto support the ETS. Britain already has a carbon price floor.
The alternative route would lead to a single, efficientmarket-place and ultimately reduced costs. "The ambition must beto re-establish the ETS as a strong driver," Loseth said.
Those who want backloading, also want deeper reform but saythat will take too long under EU processes that require parliament and member states to endorse proposals from the EUexecutive.
Commission officials have admitted time is running out foragreement on far-reaching measures before the current team ofcommissioners steps down next year.
EU carbon prices have crept up since the January low toaround 5 euros a tonne as traders have bet on a positive vote.Analysts predict a 'no' will drive the price towards zero.
"The plenary vote on 16 April will be close, and thereforerepresents another do or die moment for the troubled EuropeanETS," said Matthew Gray, carbon analyst at Jefferies Bache.
