* EU regulators to propose new power market rules on Wednesday
* Limit of 550g CO2/kWh would hit coal, other less efficient plants
By Alissa de Carbonnel
BRUSSELS, Nov 28 (Reuters) - EU regulators plan to attach emissions limits to subsidies paid to utilities that set aside capacity to avert blackouts, an EU source told Reuters.
A draft law due to be published by the European Commission on Wednesday will set stricter rules on capacity mechanisms as the EU pushes to implement 2030 goals on reducing greenhouse gases.
Capacity mechanisms are used in some EU countries such as Britain and France to fund electricity generation that may not be cost-effective or as clean as renewable power but is needed to guarantee supply during periods of peak demand.
But other EU nations oppose the schemes due to concerns they may block the flow of cheaper energy between countries and lead to other distortions of wholesale electricity markets.
"Capacity mechanisms will not be used as a backdoor subsidy of high-polluting fossil fuels; that would go against our climate objectives," EU Commissioner for Climate Action and Energy Miguel Arias Canete told Reuters.
"It is necessary to include strict environmental criteria in such mechanisms to avoid giving wrong incentives that might lead to stranded assets as our emissions target gets more strict."
Wednesday's draft law will set a limited of 550 grams of carbon dioxide per kilowatt-hour for new plants, the source said, and give EU nations time to adapt existing capacity mechanisms already cleared by regulators.
This would limit their use of coal-fired and less efficient gas-fired power plants as back-up for when renewable plants are not running.
The Commission's proposal will also require members of the 28-nation bloc to open such schemes across borders where sufficient infrastructure is in place.
Under the draft rules, capacity mechanisms would only be allowed if justified by an EU-wide adequacy assessment and if other market distortions that might have triggered their need are first removed, the EU source said.
Environmental campaigners who have long criticised the schemes as thinly disguised subsidies for fossil fuel power said they would welcome stricter rules but warned against member states that are heavily dependent on coal power such as Poland seeking to water down the CO2 limits.
A proposal to share the burden of the bloc's pledge under the Paris climate accord to cut emissions by at least 40 percent by 2030 from 1990 levels published in July is being fiercely fought over by member states and European Parliament.
(Reporting by Alissa de Carbonnel; additional reporting by Susanna Twidale; editing by Jason Neely)
Our Standards: The Thomson Reuters Trust Principles.