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UPDATE 2-EU energy tax plan set to fail as Italy blocks

(Updates with Eichel comments)

By Lisa Jucca

BRUSSELS, Feb 18 (Reuters) - European Union plans to establish common minimum tax levels on energy products to fight global warming and pollution were set to fail on Tuesday as Italy was ready to veto the proposed rules, EU officials said.

The proposal, which needs the unanimous backing of the 15 EU states, would raise existing minimum tax levels for oil products and introduce EU-wide minimums for coal, gas and electricity. It was first tabled in 1997.

"Today there will be no result on energy taxation," German Finance Minister Hans Eichel told a briefing as finance ministers met in Brussels to discuss growth, taxes and budgets.

Italy, which relies heavily on road transport for its exports, wants to be allowed to extend tax breaks for truck fuel it introduced in 2000 after protests against rising oil prices.

But Germany, where fuel duties are higher than in most EU countries, does not want to grant Rome such an extension as this would put German road hauliers at disadvantage.

"Italy is blocking a deal because it won't give up its tax breaks," a diplomat told Reuters.

Rome says its hauliers need compensation for a three-year closure up to last year of the Mont Blanc tunnel between France and Italy following an accident. Italy is also fighting against tough limits Austria imposes on heavy duty road traffic.

EU diplomats say Italy wants the tax breaks to remain in place until it has secured easier access through the Alps.

EU leaders backed the bill in principle at a summit in Barcelona, Spain last year. But spats over exemptions for truckers, households and energy-intensive industries have held up full agreement on the proposal.

France has introduced similar tax breaks, but is ready to phase them out by the end of 2004, according to diplomats.

Italian Finance Minister Giulio Tremonti and Eichel had face-to-face talks on the issue on Monday night and Tuesday but were unable to broker a deal.

Unless the two countries find a way to resolve their differences, the EU will not be able to adopt the new rules.

Environmentalists see the energy tax as essential to spur companies and individuals to use energy frugally and reduce pollution caused by fossil fuels as well as nuclear power.

They said an agreement was needed before the EU takes in 10 new members next year, which would make it more difficult to get unanimous support for the package. (Additional reporting by Guido Bohsem)