EU secures historic climate change deal

The EU's ambitious climate change action plan was today finalised, after a compromise deal saw European leaders agree to a wide-ranging package of measures that will see greenhouse gas emissions cut 20 per cent by 2020.

Fears had been mounting that opposition from several eastern European states could scupper the negotiations. But an agreement was today reached after EU leaders settled on a number of changes to the original proposals designed to help fund low carbon projects in poorer eastern states and protect the competitiveness of several heavy industries.

The move drew praise from business leaders who claimed that the commitment to legally binding emission targets and clear legislative package will give firms the certainty they need to justify long term investment in low carbon technologies and business models.

Despite the compromise agreement, the bulk of the original proposals remain intact, including the overarching targets to cut emissions by 20 per cent, increase renewable energy capacity to account for 20 per cent of the EU's energy mix, and improve energy efficiency by 20 per cent.

Leaders also committed to increase the emissions reduction target to 30 per cent in the event that an international climate agreement is reached in Copenhagen next year.

The legislative package will now go before the European Parliament before the end of the year where it is expected to be rubberstamped.

UK energy and climate change secretary Ed Miliband hailed the agreement as a historic breakthrough. "The rest of the world has been watching, and Europe has delivered a credible and ambitious climate package," he said. "It sends a signal that, even in the most challenging of economic times, it's possible to take bold far-sighted action to slash emissions."

Under the the new plan, the European emissions trading scheme (ETS) will be tightened to ensure that emissions will be capped at 21 per cent below 2005 levels by 2020 and at least 60 per cent of pollution permits will be auctioned by the same date.

Half of the revenue raised from auctioning of permits will be earmarked to fund low carbon investments, while up to 300 million tradable permits will be issued to help fund the development of 12 carbon capture and storage demonstration projects.

However, as part of the compromise brokered with Germany and several Eastern European countries, many of the heaviest emitting industries will continue to receive large numbers of free credits in an attempt to ensure that they do not decamp to countries outside the bloc.

Controversially, the deal will also allow member states to meet up to half of emission reduction targets by importing UN-approved carbon offset credits from projects in the developing world.

In addition, there were direct concessions to the nine Eastern European countries, led by Hungary and Poland, which had been threatening to veto targets they felt could not be reached given their reliance on coal-based power.

The final deal agreed that 12 per cent of revenues from the ETS will be distributed to eastern European states to help them cope with the costs of adaptation, while their power sectors will be partially exempted from paying for emissions permits from the ETS on a decreasing scale until 2020.

The agreement prompted a mixed response with green groups praising the overall emissions targets, but also accusing the EU of providing too many loopholes for the most carbon intensive industries.

Colin Butfield, head of campaigns at WWF-UK, summed up the green groups' concerns, claiming that the decision to allow large scale importing of carbon credits meant that "Europe has essentially decided to offset almost two thirds of its own greenhouse gas emissions". He added that consumers would also have to pay for emissions permits that polluting companies will have received for free.

However, business leaders offered praise for the measures, which they argue will help drive the transition towards a low carbon economy.

"This is a good deal for business and the environment," said the CBI director-general, Richard Lambert. "It secures an EU-wide cap on greenhouse gas emissions and allocates more money to developing carbon reduction technologies.

He added that the legislation would also help firms justify future investment in clean technologies. "By setting a price for carbon up to 2020, the deal means it will make business sense to invest in carbon reduction," he said. "The extra support agreed for carbon capture and storage will help to get this vital technology up and running."