BRUSSELS (Reuters) - The European Commission has approved state aid of 1.88 billion euros for the Czech Republic and 56 million euros for Hungary in the form of free carbon allowances, it said on Wednesday.
Stating the grants were within EU state aid rules, the Commission said the money would be used to modernize energy installations and infrastructure and promote competition.
"The investments foreseen in the Czech and Hungarian plans will allow both member states to diversify their sources for the production of electricity and to contribute to the expansion of national energy markets," Competition Commissioner Joaquin Almunia said in a statement.
"At the same time the schemes contribute to reaching Europe's 2020 objectives by reducing greenhouse gas emissions."
Electricity generators and other industrial operators must submit carbon allowances to cover their annual emissions in the EU's Emissions Trading Scheme (ETS). Under EU rules, a portion of these allowances can be allocated for free by governments.
In the Czech Republic, the projects to be funded include several new gas-fuelled and biomass plants, waste-to-energy installations and co-generation units.
In Hungary, the funding will be used to develop economically efficient and sustainable power systems in a smart grid pilot project and to diversify the energy mix with the construction of a gas-interconnector between Hungary and Slovakia.
(Reporting by Barbara Lewis; editing by Rex Merrifield)