News: SFG UPDATE 1-Poland calls on EU to remove 'speculators' from its carbon market

(Adds industry letter)

Poland has urged the European Union to introduce "control mechanisms" to the bloc's carbon market and curb financial speculators' participation in the scheme, the Polish government said on Tuesday.

European Union policymakers are preparing to negotiate a major reform of its core policy tool for curbing emissions - the emissions trading system (ETS), which requires power plants and industry to buy CO2 "allowances" to cover each tonne of CO2 they release.

The ETS is designed to have a gradually shrinking supply of permits, which trade on exchanges like other assets. Their price soared by around 150% last year and hit a record high of 98.49 euros ($112) per tonne this month. The benchmark carbon price CFI2Zc1 was around 91 euros a tonne on Tuesday.

Poland last week sent Brussels its demands concerning the ETS and has built a coalition of countries that want to reform the system, Warsaw said in a statement on Tuesday, following a meeting between Polish Climate Minister Anna Moskwa and EU climate policy chief Frans Timmermans in Brussels on Monday.

"It is crucial for us to withdraw financial institutions from the ETS market as soon as possible. Our second demand is to abandon the withdrawal of free allowances," the statement quoted Moskwa as saying.

Industries get a share of free CO2 allowances to help them compete with international rivals that have no CO2 costs, but Brussels wants to phase them out to push industries to curb emissions.

Moskwa said Brussels should also introduce "control mechanisms" to the market, without specifying what these would do.

"At present, the European Commission is helpless and legally and formally unable to interfere in this market," she said.

A group of 10 industry bodies on Tuesday wrote to the commission urging it not to limit speculators, and pointed to a preliminary investigation by the EU securities watchdog in November, which said there was no proof of abuse in the ETS.

"Introducing position limits or restricting the participation of financial and non-financial actors would run the risk of weakening the market. It would make it more expensive and complex for compliance entities to hedge for the future and plan for investments into low carbon alternatives," the letter said.

Poland relies on coal for more than 70% of its power and has long argued that EU climate policies must take into account that such an energy mix makes reaching the climate targets more costly than for other EU members.

The EU and other countries see higher CO2 prices as an essential incentive for companies to invest in the green technologies needed for the EU to meet a goal of cutting emissions by 55% from 1990 levels by 2030. ($1 = 0.8810 euros)