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By Vera Eckert and Caroline Copley BERLIN (Reuters) - German Economy Minister Sigmar Gabriel said on Wednesday he was considering an alternative to a proposed levy on coal-fired power plants and would make a final decision on July 1. Germany is wrestling with how to reduce carbon dioxide (CO2)emissions from the energy sector to stop it from falling short of its ambitious climate targets, while safeguarding jobs and securing its energy supply. Gabriel originally proposed putting a levy on CO2 emitted by the oldest and most-polluting power stations above a certain threshold to help reach a target of cutting CO2 emissions from the coal sector by a further 22 million tonnes by 2020. But he has faced a backlash from industry, with unions saying it could put up to 100,000 jobs at risk and lead to the decline of the mining and power generation industries. Speaking at an energy industry conference in Berlin, Gabriel said the government will now decide between his original proposal and an alternative to gradually shut down coal-fired power stations and offer more financial support for combined heat and power plants, among with other measures "With the two alternative proposals, we can make a political decision. I'm certain that we will manage this on July 1 during the coalition's consultation meeting," he said. His comments were welcomed by the industry. Hildegard Mueller, chairwoman of the German Association for Energy and Water industries (BDEW) told reporters that Gabriel had shown a lot of sympathy for the alternative proposal. OFF THE TABLE? Garrelt Duin, economy minister for the state of North Rhine-Westphalia declared that the coal levy was now officially off the table and said the alternative would still ensure that Germany achieves its CO2 savings for the sector. The plan envisages gradually phasing out around 3.1 Gigawatts of brown coal capacity and putting it on reserve for use only in emergencies, Duin said. The operators RWE, Vattenfall and Mibrag would be compensated in return RWE and Vattenfall declined to comment. In addition, it proposes tripling support payments for combined heat and power plants -- which offer carbon emissions savings through capturing heat from electricity making for re-use rather than emitting it in the air -- to 1.5 billion euros. Other measures include reducing the CO2 emissions from railway operator Deutsche Bahn [DBN.UL] and replacing old home heating systems. Shares in RWE -- which produced 60 percent of its electricity from coal-fired plants last year -- were trading up 2 percent by 1415 GMT. Shares in rival E.ON, which relies more on gas and nuclear, were down 0.2 percent. While Gabriel said he believed the coal levy would be efficient and cost-effective, he said he understood concerns that it could lead to job losses and a collapse of the mining and generation industry. But he said that the alternative would place a burden on the federal budget due to the higher support payment for combined heat and power plants, which would lead to higher costs for households and small-and medium-sized businesses. Duin said the alternative measures would increase the cost of electricity by 0.5 cents per kilowatt hour, an amount he viewed as acceptable. Gabriel also said it was important to resolve a spat between Bavaria and Berlin over new high-voltage power lines, needed to transport mostly wind power from the north to the south. Gabriel suggested greater use of underground cables and putting new lines along existing grids to appease opponents in Bavaria. (Additional reporting by Matthias Inveradi, Christoph Steitz and Andreas Rinke; Editing by William Hardy)