* EU carbon price touches new record low
* Longer-term structural reform debate also under way
* Majority of member states supports Commission plan
By Ben Garside and Barbara Lewis
STRASBOURG/BRUSSELS, April 16 (Reuters) - European Unionpoliticians rejected a plan to prop up the world's biggestcarbon market on Tuesday, sending it plunging to a new recordlow and raising questions about its survival.
After months of bitter debate, a plenary session of theEuropean Parliament in Strasbourg rejected by 19 votes aCommission proposal to remove temporarily some of the oversupplythat has overwhelmed the market for permits to emit carbondioxide.
Ireland, holder of the rotating EU presidency, said supportfor the carbon market was still a priority and it would seekagreement from member states, debating in parallel with theparliamentary process, as a matter of urgency.
The Commission, the EU executive, and many in the powersector are keen for a higher carbon price to drive investment inlower carbon energy.
Traders took the lack of political support as a signal tosell, driving the market down to its lowest yet. Immediatelyafter the vote, carbon prices dropped by around 40 percent to2.63 euros a tonne. They were trading at 3.14 euros,down 34 percent, by 1541 GMT.
"The carbon market is now in a coma, until a clearintervention takes place," an emissions trader said.
Climate Commissioner Connie Hedegaard said the Commissionstill believed its proposal, known as backloading, could restoreconfidence in the Emissions Trading Scheme (ETS) pending deeperreforms.
"We will now reflect on the next steps to ensure that Europehas a strong EU ETS," Hedegaard said. "The market, the investorsand our international partners are all waiting."
But she said forging agreement on climate policy had becomea lot harder following economic crisis.
"The vote shows it has become more difficult than it wasthree years ago, five years ago. Still I hope that in Europe, wewould not have become so poor that we think it should costnothing to pollute," she told Reuters.
A majority of member states is said to support theCommission proposal. National representatives are expected todebate what to do next this week.
NOT SO QUICK
The Commission's backloading plan was meant to be a quickfix that could be agreed by the end of last year.
But it exposed deep divisions, with interest groupsintensively lobbying members of the European Parliament.
Hedegaard and many analysts have said failure to agree on EUsteps would fragment environmental policy as EU member statestried to safeguard their own green targets. Britain, for instance, already has a carbon price floor.
Analysts say a price of around 50 euros is needed toencourage a switch away from coal to generation from lesspolluting sources.
The power sector and other energy companies, such as RoyalDutch Shell, keen to promote natural gas, have stronglysupported the Commission plan.
Together with more than 40 firms, representing more than 875billion euros ($1.15 trillion) in turnover, Shell placed afull-page advertisement in the Financial Times newspaper onMonday, saying backloading was needed as a stop-gap measure.
"Without agreement on the backloading proposal the pricewill fall further threatening the long-term survival of the EUETS and lead to fragmentation of the single energy marketthrough a patchwork of national regulations," it said.
Opposition has been led by energy intensive industries.
They have argued intervention in the ETS will push up energycosts when Europe is already suffering a competitivedisadvantage compared with the United States, which hasbenefited from abundant supplies of shale gas.
STRUCTURAL REFORM
Debate on deeper, structural reforms, such as the permanentwithdrawal of allowances, is under way, but is expected to takea long time via tangled EU process.
The Commission has also kicked off discussion on 2030 energyand environment policy to succeed 2020 goals.
At member state level, EU sources say a majority supportsbackloading even though Poland, heavily reliant oncarbon-intensive coal, is opposed to it and Germany has failedto take a formal position because of divisions within itsgovernment.
"Reducing the number of emissions certificates would be anintervention in a functioning market system. It would place anadditional burden on our industry and harm the competitivenessof Germany and the whole EU," German Economy Minister PhilippRoesler said in a statement.
German Environment Minister Peter Altmaier had a verydifferent view, saying it was "not a good day for Germany".
"My concern is that critics of backloading haven't thoughtabout the fact that calls for regulatory intervention by thestate will grow louder now, so I hope we will manage to push itthrough in a second attempt in the European Parliament," he toldGerman television channel ARD.
Environmental campaign groups voiced dismay at Tuesday'svote, which Greenpeace called "a historic failure".
"In its present form, the carbon market will not stop asingle coal plant from being built," Greenpeace EU climatepolicy director Joris den Blanken said.
