* German environment minister backs Brussels on CO2
* Merkel aide says energy big issue for 2013 elections
* Altmaier plays down talk of alliance with German Greens
By Stephen Brown and Markus Wacket
BERLIN, Nov 19 Germany's environment minister has come out in support of a European Commission proposal to prevent the collapse of its instrument for cutting carbon emissions by withdrawing some emission permits from the market.
Peter Altmaier, an influential figure in Chancellor Angela Merkel's Christian Democrats (CDU), told Reuters he hoped the ruling centre-right coalition could agree to support it in time for a European Union summit in December.
"The European Commission in recent weeks made new proposals which show a sense of proportion and reality," he said in an interview on Monday, adding this would help stabilise trade in carbon permits and give business an incentive to reduce CO2.
The EU's climate chief, faced with a slump in the price of emissions as the economic slowdown crushes demand and creates a huge surplus of allowances, last week proposed a temporary fix while Brussels works on longer-term reforms.
This involves deferring the auction of 900 million permits that would have been sold between 2013-2015, the first three years of the next phase of the EU Emissions Trading Scheme.
In a process known as backloading, they would instead be auctioned at the end of the phase, in 2019-2020. European Energy Commissioner Connie Hedegaard said last Wednesday that market operators needed a decision on this from the EU by year-end.
"I personally believe this is the right proposal and I hope the German government can come to a coordinated position by December," said Altmaier.
However, the energy portfolio in Germany is effectively split between Altmaier and Economy Minister Philipp Roesler, who heads the Free Democrats (FDP), the CDU's junior allies in the ruling coalition. Theirs is not always an easy partnership.
One of Roesler's deputy ministers, Stefan Kapferer, said last week the Commission proposal was unnecessary because "the market mechanism has so far made a key contribution to a drop in Europe's CO2 emissions".
Carbon emissions trade is aimed at pushing industry towards cleaner energy by making it dearer to burn coal. But with demand for power flagging, the market has been flooded with permits.
Until Monday, the EU's biggest economy Germany had not taken a position, while its coal-dependent neighbour Poland and the heavy-industry lobby have led opposition to anything that would drive up the price of carbon allowances.
Energy companies ranging from oil major Royal Dutch Shell to First Solar are among those clamouring for a stronger carbon price to drive innovation and a move away from carbon-intensive coal.
Altmaier was moved to the ministry in May from the whip's office, in what was seen as a sign of how seriously Merkel views the challenge of presenting her post-Fukushima U-turn on nuclear energy to the public ahead of federal elections in autumn 2013.
German papers carry frequent headlines about how consumers are paying for the switch from nuclear to renewable energy via surcharges on their electricity bills, and operators say these subsidies for renewable power will rise by 47 percent next year.
Altmaier acknowledged the energy switch was now "one of the two or three top items in the political debate." It is hard to see how even the popular Merkel can turn this to her advantage for the elections, when she will seek a third term.
But the "greening" of Merkel's energy policies has robbed one of the main opposition parties - the Greens - of their "no nukes" platform and fired speculation that the CDU and the Greens could try to circumvent their current allies - the FDP and Social Democrats (SPD) respectively - to form a majority.
The Greens' choice of a moderate leadership ahead of the 2013 election contest has revived such talk.
But like other senior Merkel political allies, Altmaier insisted the CDU's strategy was to renew the centre-right coalition with the flagging FDP.
"The SPD and Greens have other policy ideas and for this reason I think speculation about a conservative-Green alliance is for now and the foreseeable future not realistic," he said.
Merkel's energy policy foresees a huge expansion of the German power grid, which Altmaier wants to make more popular with the population by forcing the grid operators to issue bonds to the public, enabling them to invest.
"The expansion of the grid will mean many billions of euros being invested and I have proposed that part of this investment should be made available for 'burgher bonds' at a fixed rate of 5 percent to give citizens the possibility to create value by participating in the expansion of the grid," said Altmaier.
This is also likely to be the subject of debate with the FDP-run economy ministry, which likes the idea of giving the public a chance to participate in the expansion of the grid but does not want operators forced to finance projects in this way. (Additional reporting by Noah Barkin and Matthias Bahr; editing by Gareth Jones and James Jukwey)