Climate change: EU leaders reach compromise deal on emissions

Plan explains how 27 countries will cut carbon emissions by 20% by 2020
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European leaders have reached a compromise deal on how to cut carbon emissions, diplomats said, on the second day of a heads of state summit in Brussels.

The plan lays out the ways in which the EU's 27 members will cut carbon emissions by 20% by 2020 and is intended to set an example for world efforts to tackle climate change.

It includes various burden-sharing measures meant to ensure that the cost of curbing pollution will not impede economic growth. The cost of the plan had caused uproar among many poor eastern European countries, many heavily reliant on coal for power, as the continent grapples with economic downturn.

As EU leaders set the seal on plans to cut emissions, the German chancellor, Angela Merkel, expressed hope that a deal in Brussels could give impetus to UN climate change talks in Poznan, Poland, which are laying the groundwork for a global climate deal in 2009.

"I am cautiously optimistic that we will manage to have a good result that can send a good signal to the Poznan climate conference," Merkel told Reuters.

But environmental groups condemned today's agreement as a "failure". They said the deal allowed around two thirds of the emissions reductions to be "offset" by paying for projects outside Europe rather than making cuts at home.

In addition, the manufacturing sector has largely been exempted from the requirement to buy the permits it needs to cover its carbon emissions, while the power sector has also won concessions over having to pay for its carbon allowances.

Robin Webster, climate campaigner for Friends of the Earth, said: "This could have been one of European Union's finest moments, but once again short-sighted national self-interest has been put ahead of the long-term safety of the planet."

Colin Butfield, head of campaigns at WWF-UK, said: "Europe has essentially decided to offset almost two thirds of its own greenhouse gas emissions, to have consumers pay for emissions permits that polluting companies will have received for free and to avoid supporting poorer countries in the fight to tackle climate change."

Several poorer eastern European countries, including coal-dependent Poland and Hungary, had resisted a deal setting out how to achieve greenhouse gas emissions cuts of 20% by 2020.

Ahead of today's talks in Brussels, the Dutch prime minister, Jan Peter Balkenende, told reporters that those two countries were taking a hard line against a plan under which EU governments would share the burden of slashing industrial pollution.

Diplomats suggested giving eastern European countries a "solidarity fund" drawn from some of the money that polluting companies would have to pay for permits allowing them to release carbon dioxide.

A draft agreement, seen by Reuters, said eastern European nations would be offered billions of euros to help to tackle climate change and modernise their power-generating industries. Poland, for example, generates more than 90% of its electricity from dirty coal. It wanted its power stations exempted from buying the permits until 2019 as well as massive transfers of funds from west to east.

The EU package represents the most ambitious legislative effort on climate change anywhere which includes four laws that mandate cuts in greenhouse gases by one-fifth by 2020 compared with 1990 levels, reduce energy consumption in Europe by one-fifth by the same deadline and stipulate that 20% of Europe's energy mix comes from renewable sources.

Germany's chancellor Angela Merkel initiated the deal as EU president in March 2007. Since then the EU has been bragging about leading the world in the race to keep global temperatures from rising by more than 2C.

It falls to Nicolas Sarkozy, the French president, to end his dynamic six months in the EU hot seat with a deal that could see the entire package turned into law before the end of the year.

The disputes have been fundamentally about costs, a disagreement that was magnified in the current economic climate. While everyone agrees the headline target of 20% cuts in greenhouse gases by 2020 is sacrosanct, the disputes were about how to get there.

The heart of the scheme is the "cap-and-trade" or emissions trading system which is to supply around half of the cuts in greenhouse gases. The ceiling for industrial pollution levels is progressively lowered and industries and companies pay to pollute by buying permits in an auction system.

The pay-to-pollute principle is supposed to kick in from 2013, but was highly contentious. Germany, in particular, demanded that 30 industrial sectors be given their permits free of charge. The sectors are responsible for 90% of emissions in the scheme.

If the Germans win the argument, the incentives for going greener will be minimised and revenue from the scheme will collapse. Many observers have argued that that revenue should be invested in green energy schemes and pilot plants for carbon capture and storage.

Germany's industrial lobbies complained that their global competitiveness will be wrecked if they needed to pay for the pollution permits and are threatening their operations move out of Europe. Merkel this week said that the summit "must not take decisions that would endanger jobs or investments in Germany. I will see to that."

The dispute between "old" and "new" Europe also ran deep. The poorer post-communist states of central Europe, led by Poland, felt they were getting a raw deal, that they could not afford the package, and that their economic development would not be affected and that their costs of living would soar.

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