* EU's energy strategy could lead to 25 pct CO2 cuts -draft
* EU mulls cancelling allowances to protect carbon prices
* Annual savings on fuel imports could top 175 billion euros
BRUSSELS, Feb 15 Europe's new energy strategy could lead to a 25 percent cut in greenhouse gases by the end of this decade and could ultimately cut fuel import bills roughly in half, a draft strategy paper shows.
The document was leaked amid renewed debate about whether the EU should deepen planned cuts to greenhouse gases beyond the current 20 percent goal.
Environmentalists say the goal became too soft after the economic crisis cut emissions to 17 percent below the baseline.
But with Europe's older industries, such as steel, openly hostile to raising climate ambitions, politicians are shying away from setting any new targets.
Instead, they are focusing on actions and financing to ensure existing plans are rolled out on the ground.
European Union leaders agreed last month to tighten their enforcement of energy-savings targets, and EU energy commissioner Guenther Oettinger is preparing an ambitious plan for upgrading power grids to absorb more green power.
"If the revised energy efficiency plan is fully implemented so that we meet the 20 percent energy efficiency objective, this would enable the EU to reduce domestic emissions by 25 percent," said the document, "Roadmap 2050", seen by Reuters on Tuesday.
Climate commissioner Connie Hedegaard is expected to present the strategy next month, and is likely to emphasise the EU still stands by its offer of moving to a 30 percent cut, if other big players such as China and the United States follow suit.
Europe's heavy industries have previously clashed with the Commission over its climate ambitions, fearing tougher targets might drive up the cost for buying emissions permits from the EU's carbon market known as the Emissions Trading Scheme (ETS).
The new strategy avoids confrontation with major energy consumers by seeking to limit the impact on their costs and could save the average EU household 1,000 euros ($1,356) per year in avoided energy bills.
Not all industry, however, opposes the move, arguing new technology will provide the growth Europe needs to drag itself out of economic crisis.
"Reaching a target beyond 30 percent will unlock innovation and financing potential, and will increase the European industry's readiness for new growth," Joaquin Mollinedo, innovation chief at Spanish infrastructure group Acciona (ANA.MC) said.
The strategy also implies major cuts to the amount of money that drains out of the EU economy each year for fuel imports.
"Taken over the whole 40-year period, it is estimated that energy efficiency and the switch to domestically produced low carbon energy sources will reduce the EU's average fuel costs by between 175 billion euros and 320 billion euros per year," says the draft. That's roughly half the annual bill.
Campaign group Friends of the Earth Europe welcomed the debate, but said the Commission was moving too timidly and should really target a 40 percent cut.
"The cleanest energy is the energy a country doesn't use -- but it's common knowledge that at present rates the EU will miss its energy savings target by more than half," said campaigner Brook Riley.
Although the EU strategy avoids setting a new 25 percent target, it implies further ratcheting down of caps to emissions under the ETS.
Failure to do that would lead to an oversupply of carbon permits as energy-efficiency measures, combined with the effects of the recession, curb the activity of power producers.
That, in turn, would lead to further erosion of carbon prices and undermine green investment.
The answer might be for the European Union to support carbon prices in the ETS from 2013-2020, by cancelling 500-800 million pollution permits.
That would probably be done by reducing the number of permits auctioned, rather than by reducing the number of permits given to industry for free.
That could push up the value of free permits already allocated to some industry sectors, reducing their opposition to the move in this highly politically-charged debate. (Editing by James Jukwey)
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