But some eastern European states have threatened to derail the proposals, saying it puts a costly burden on their highly-polluting communist-era coal-fired power stations.

Heavy industries, such as steel, aluminium and chemicals have also raised opposition, saying they will lose out to rivals in neighbouring regions that have less environmental regulation and therefore lower costs.

France sought on Thursday to defuse that opposition, preparing a draft paper -- which is still under discussion -- to present to EU leaders at a summit in Brussels next week.

"Sectors or sub sectors exposed to the highest risk, must be able to receive 100 percent of emission quotas for free," said the document seen by Reuters.

That would give sectors like steel an easier deal than proposed by EU lawmakers on Tuesday, when they proposed factories should start paying for 15 percent of the permits in 2013, increasing to 100 percent by 2020.

France also sought to ease the concerns of eastern European states that fear their economies will suffer from soaring electricity prices when power generators are forced to pay for all their CO2 permits from 2013. "Derogations limited in scale and time may be granted when specific situations linked notably to an insufficient integration into the European electricity market justify it," said the document.

The EU is hoping other nations will follow its lead by agreeing an international deal, mindful of UN warnings that climate change will lead to more droughts, flooding and rising sealevels.

And it has pledged to automatically increase its ambitions of cutting CO2 to a 30 percent cut by 2020, if a global accord can be struck.

But France suggested any such switch to 30 percent should be subject to the EU's full legislative process rather than done automatically. (Reporting by Pete Harrison, editing by Anthony Barker)