UPDATE 1-German CDU agrees not to pursue C02 law-sources

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By Andreas Moeser and Markus Wacket

BERLIN, June 23 (Reuters) - The leadership of German Chancellor Angela Merkel's Christian Democrats (CDU) has agreed not to pursue a law on carbon dioxide storage before the federal election in September, party sources told Reuters on Tuesday.

"This was the consensus view of the CDU leadership," one source among Merkel's conservatives said.

Germany's carbon capture and storage (CCS) law would pave the way for further developing technology aimed at cutting pollution from coal-burning power plants, by holding CO2 indefinitely in underground storage facilities.

The ruling coalition of conservatives and centre-left Social Democrats has spent months arguing over rules to regulate the efforts of utilities such as E.ON (EONGn.DE: Quote, Profile, Research), RWE (RWEG.DE: Quote, Profile, Research) and Vattenfall Europe [VATN.UL] to test and install the technology early enough for large-scale commercial use after 2020.

Last week sources in the coalition told Reuters a scaled down version of the law had been agreed at parliamentary level but the decision by conservative party leaders to take it off the agenda makes even this unlikely now.

Social Democrat Environment Minister Sigmar Gabriel urged Merkel to step in and rescue the law, noting that she had originally pressed for the law to be adopted quickly.

"Now the head of the CDU herself can't even get her own party to accept this law," he said in Berlin.