* Italy asks to renegotiate carbon emissions cap
* Several EU states may seek more permits from reserve fund
* European Commission says caps not renegotiable
* European carbon market nears two-day fall of 10 percent
By Pete Harrison and Gabriela Baczynska
BRUSSELS, Sept 24 France, Italy and several other European Union countries weighed their chances of haggling up their EU carbon emissions quotas on Thursday, one day after Poland and Estonia successfully challenged theirs in court.
The two east European countries won their appeal on Wednesday for more generous caps on industrial emissions in the Emissions Trading Scheme (ETS), the EU's main tool for ratcheting down gases blamed for climate change. [ID:nLN487837]
The European Court of First Instance ruling, the bloc's second highest court, threw European carbon markets into uncertainty and the International Emissions Trading Association asked countries to restrain from challenging their own quotas.
European carbon markets were down 4 percent, heading for a two-day fall of 10 percent. [ID:nLO167619]
"We call on all member states to hold back from attempting to make use of a loophole that simply has to be closed for the carbon market, and European climate policy, to continue on a sound footing," IETA said in a statement.
Poland was cautious about its victory on Thursday, weighing the possibility that any re-negotiated quota might be based on lower emissions data from 2008, impacted by recession, resulting in a tougher rather than more lenient cap. [ID:nLO149486]
But elsewhere there was little sign of restraint, with Italy pushing for a review of its quotas and a sign that France too was looking too ease the pressure of carbon costs.
European Commission spokeswoman Barbara Helfferich played down the chances of renegotiation.
"There is no way of increasing the allowances," she told Reuters. "The ceilings have been established already."
Double-click here for possible scenarios [ID:nLO236872]
Italian Prime Minister Silvio Berlusconi had already written last week to the European Commission asking to renegotiate the caps on his country's carbon dioxide emissions, said an Italian government official, who welcomed Wednesday's ruling.
"The cap assigned to Italy was excessively low and we have difficulty meeting it as our industry is already very efficient, especially our power generation system," the Italian official said. "We are making no proposal, just looking to discuss this problem with the Commission."
A shortage of carbon permits could cost Italy about 500 million euros ($736 million) in the short term, mounting to a total of 800 million by 2012, the official added.
Lithuania and the Czech Republic, which are pursuing a similar appeal to Poland, were encouraged by Wednesday's court decision.
"We will need more carbon emissions due to shutting down Ignalina nuclear power plant at the end of this year, and switching electricity generation to fossil power plants," Stasile Znutiene at Lithuania's environment ministry told Reuters.
Several European Union countries, including France, are also discussing the possibility of increasing carbon emissions permits in a reserve fund for new businesses entering the ETS, an EU diplomat said.
"The question of the reserve for new entrants is being asked in several EU countries, among them France, but at this point there is no formal demand of reviewing the allocation plan," the EU diplomat said.
(Additional reporting by Julien Toyer in Brussels, Michael Szabo and Nina Chestney in London, Nerijus Adomaitis in Vilnus and Jan Korselt in Prague, editing by Timothy Heritage and Gerard Wynn)
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