The ETS is the bloc's flagship policy to cut greenhouse gas emissions by charging for the right to emit carbon dioxide.

However, weak economic growth has cut industrial production and energy demand, creating a glut of allowances that has depressed prices, blunting the drive to shift industry away from highly polluting coal and towards low-carbon energy.

Member states are haggling over how early to begin removing oversupply. Latvia, which holds the presidency until the end of June, is trying to negotiate a compromise.

Its suggestion of beginning reform at the start of 2019 is later than the date of 2018 supported by a European Parliament committee last month but earlier than the European Commission's original proposal of 2021.

The document, circulated among diplomats by the Latvian presidency, says the Market Stability Reserve (MSR) should be "operational in 2019".

The reserve would allow the removal of hundreds of millions of surplus allowances, which could be returned to the market if demand increases.

The latest proposed date is subject to negotiation among representatives of the EU's executive Commission, member states and the European Parliament.

Benchmark carbon prices were around 0.5 percent lower on Friday at just under 7 euros per tonne.

Those keenest to accelerate reforms include Britain, Germany and utilities, which want investment in zero-emissions energy. They had been pushing for a 2017 start.

Early reform is opposed by a group of member states led by Poland, which relies on carbon-intensive coal.

Poland's Prime Minister Ewa Kopacz last week urged the Commission to stick to its original proposal of a 2021 start and said she also represented the views of Bulgaria, Croatia, the Czech Republic, Cyprus, Hungary, Lithuania and Romania.

Energy-intensive industry, such as the chemical and steel sectors, has joined in Poland's opposition to early reform.

However, Austrian steelmaker Voestalpine (>> voestalpine AG), together with Austrian utility Verbund (>> VERBUND AG), issued a statement backing 2017 reform, saying it is needed to justify the most energy-efficient and environmental industrial production.

Once the MSR reforms are agreed, the Commission wants deeper change.

Miguel Arias Canete, climate and energy commissioner, said on Thursday that he aimed to present proposals for "ambitious carbon market reform" before the Commission's summer break in August.

(Additional reporting by Shadia Nasralla in Vienna; Editing by Dale Hudson)

By Barbara Lewis

Stocks treated in this article : voestalpine AG, VERBUND AG