* EU wants carbon offset market re-vamp from 2013

* EU says industry in developing nations must do more

* UN worried the North not rewarding climate action in South

By Nina Chestney and Gerard Wynn

COPENHAGEN, March 17 (Reuters) - Industries in developing countries must do more to curb their greenhouse gases before earning the right to sell carbon offsets under a new climate treaty from 2013, the European Commission said on Tuesday.

The proposal drew a sharp response from the U.N.'s climate chief Yvo de Boer, who said developing countries wanted money up front to help them fight climate change under a new treaty to replace the Kyoto Protocol, which expires in 2012.

Finding cash to fight climate change during recession will be a key hurdle to agree a new treaty, meant to be thrashed out in Copenhagen in December, at the same venue as this week's PointCarbon emissions trading conference.

Under Kyoto's $6 billion clean development mechanism (CDM) developing countries earn carbon offsets for cutting their emissions below a baseline of what they would normally do, for example by improving efficiency at a steel plant.

Rich nations buy the offsets as a cheap way to meet their carbon caps under the 2008-12 Kyoto Protocol.

That scheme should change from 2013, forcing industry in developing countries to meet, for example, a certain efficiency standard before they earn credits, said Jos Delbeke, deputy director-general of environment at the European Union's executive Commission.

"The EU advocates the creation in Copenhagen of a new U.N.-based sectoral carbon market crediting mechanism," Delbeke told the conference.

He put more detail on the proposals than previously, and said U.S. officials backed the approach. The idea was to force developing countries to do more themselves to fight climate change, given their ballooning carbon emissions as their economies grow.

EMERGING AND RAPIDLY INDUSTRIALISING ECONOMIES

"The CDM as it exists today is not addressing sufficiently the problem of emerging and rapidly industrialising economies," he told the conference.

The changes should come into effect from 2013, he told Reuters. Present CDM projects could continue to generate and sell offsets under the new scheme, if they fitted within the relevant sectors which could include cement, steel, power and aluminium, he added.

"We must avoid a hiccup," he said, referring to a re-vamp which made present projects invalid.

But some developing countries and sectors would oppose such an approach, said Yvo de Boer, the chief U.N. official driving the present global climate negotiations.

"The reaction to the sectoral approach is quite negative. Developing nations want money upfront, not later," de Boer told reporters on the fringe of the conference.

Rich countries accept that they will face tougher emissions caps than developing ones under a new treaty from 2013, and hope a sectoral approach will stop their industry from moving abroad to flee higher resulting costs and fuel bills.

"A sectoral crediting instrument would apply to emerging economies and in particular for power and industrial sectors, mainly sectors in which the competitiveness argument is very prominent," said Delbeke. "We heard that in all the comments from the American side. I think that's a very valid argument."

(Editing by Anthony Barker)

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