(adds reaction of Hungarian Environment Ministry)

By Jeff Mason

BRUSSELS, April 16 (Reuters) - The European Commission told Hungary on Monday to slash its proposed cap for industrial carbon dioxide (CO2) emissions in 2008-2012 by more than 12 percent, making it the 16th country to face a cut by Brussels.

The European Union executive set Hungary's cap at 26.9 million tonnes annually, a 12.4 percent reduction from the country's proposed cap.

The Commission has forced most European Union states to reduce their caps for the 2008-2012 period in an effort to shore up the emissions trading scheme, the EU's key tool to fight global warming and meet commitments under the Kyoto Protocol.

"Today's decision reinforces the strong signal we gave with previous decisions that Europe is fully committed to achieving its Kyoto target and to making the Emissions Trading Scheme (ETS) a successful weapon for fighting climate change," Environment Commissioner Stavros Dimas said in a statement.

"The Commission is assessing all national plans in a consistent way to ensure equal treatment of Member States and to create the necessary scarcity in the European carbon market."

Hungary said it was surprised by the EU executive's announcement and it could not rule out the possiblity of taking legal action against Brussels over its decision.

"We are still assessing the ruling, but even at the first glimpse this reduction looks massive. Whether Hungary will take this issue to court I cannot yet tell, but this is something of a surprise," Environment Ministry official Jozsef Feiler said.

ISSUES

"We also have some issues with the methodology the commission employs to establish the final emissions caps for member states and we have informed the commission about our concerns but apparently they were unheeded," Feiler said.

He said Hungary will give an official reaction next week at the earliest.

Environment Minister Miklos Persanyi had said earlier Hungary would not accept substantial reductions from the original proposal.

The ETS is the 27-nation European Union's key tool to fight global warming and meet commitments to reduce emissions agreed under the Kyoto Protocol.

The scheme sets limits on the amount of CO2 that big factories may emit and allows them to trade permits if they overshoot or come in below their caps.

EU governments across the board gave industry more emissions rights in the first phase of the scheme than were needed, sparking a crash in carbon prices last year.

The Commission has demanded 16 countries cut their proposed caps for the next trading phase. It has ruled on 19 member states' plans so far.

Hungarian companies covered by the scheme reported verified 2005 emissions of 26 million tonnes, meaning they emitted far less CO2 that year than the government, which allocated rights to emit 31.3 million tonnes, had allowed.

The country had proposed a cap of 30.7 million tonnes per 2008-2012. The Commission said Hungary's plan covered emissions equivalent to 1.4 million tonnes of CO2 in sectors that did not report emissions in 2005, the base year that has been used by Brussels when determining the caps.

The Commission said Hungary would have to make other changes to its national allocation plan. It said Hungary's plan included guarantees for emissions rights beyond 2012, which would likely be deemed incompatible with EU state aid rules.

(additional reporting by Sabina Zawadzki in Brussels and Gergely Szakacs in Budapest)

AlertNet news is provided by