Heads of government from the bloc’s 28 nations endorsed a binding target to cut greenhouse gases by at least 40 percent from 1990 levels by 2030 at a summit in Brussels. Meeting that goal would cost about 38 billion euros ($48 billion) a year, according to EU estimates. The EU is on track to meet its previous goal of a 20 percent reduction by 2020.

“That sends a strong signal to the international community and I hope that the signal is being received today in Washington, in Beijing and other big economies so that they will prepare their ambitions accordingly,” EU Climate Commissioner Connie Hedegaard said in an interview. “Now investors, businesses, everyone will know that this is where we are headed — these are the targets.”

The agreement on emissions ensures the EU remains the leader in the fight against global warming before the United Nations climate summit in Lima in December where delegates aim to persuade other large polluters to sign up for worldwide accord they aim to clinch in 2015 in Paris.

“Like all good accords, this is a compromise,” French President Francois Hollande told reporters today. “Not all countries are in the same situation, and this agreement is expensive for some countries.”

Doubters Wrong

The European accord required unanimity and overcoming differences between poorer, mostly ex-communist east European nations and richer countries in western Europe. France, Portugal and Spain reached a compromise to build more gas and power connections across the Pyrenees while the U.K. and Germany bridged their divide over an energy efficiency goal.

“Many said it was the wrong thing to do at the wrong moment, today we have proved those doubters wrong,” European Commission President Jose Barroso said at a press conference after the deal was agreed. Other nations have to “step up to the plate,” he added.

Poland, which had threatened to veto the deal unless it addresses the country’s concerns of a surge in power prices, won assurances that its utilities will get free carbon permits under the EU emissions trading system, or ETS, after 2020 and that the country will have access to funds for modernizing coal-based plants.

Veto Threat

EU leaders agreed to give member states whose gross domestic product per capita doesn’t exceed 60 percent of the EU average an option of getting free permits for utilities up to 2030. After 2020 the number of free permits will be capped at 40 percent of the allocation for auctioning based on verified emissions. That will guarantee electricity prices in Poland won’t increase, Prime Minister Ewa Kopacz said after the summit.

“The veto is a tool, and the goal is to get the best conditions possible for Poland’s economy,” she told reporters. “Nobody got compensated like we did.”

Under today’s deal, the EU will renew a special carbon-permit reserve — which yielded 2.2 billion euros for renewable energy and carbon-capture projects over the past four years — and extend its scope after 2020. It will also create a new fund, which would include 2 percent of ETS allowances, to help finance investment in low-income member states.

EU emission permits for delivery in December rose as much as 1.6 percent today to a seven week high of 6.44 euros a metric ton. They traded at 6.34 euros on ICE Futures Europe exchange as of 11:26 a.m. in London.

Political Signal

“Today’s agreement is the political signal that business has been looking for,” Dirk Forrister, president of the International Emissions Trading Association, said in a statement. “Investments in Europe’s low-carbon future need to be made now — this decision is a sign that such investments will still have a value beyond 2020.”

As part of the headline 40 percent target, emissions covered by the cap-and-trade program will fall by 43 percent by 2030 and discharges by sectors outside of it, such as agriculture, would decrease by 30 percent from 2005 levels.

The package also envisages an indicative goal to increase energy efficiency by at least 27 percent by 2030 and a target to boost the share of renewable energy in European energy consumption to at least 27 percent. The latter would be binding at EU level but will not be translated into objectives for individual member states.

‘Far From Ambitious’

The deal as “a far cry” from what is needed to combat climate change, according to Monica Frassoni and Reinhard Buetikofer, members of European Green Party.

“The adopted targets are far from ambitious and not only weaken Europe’s climate policy, but also undermine the fight against Europe’s energy independence,” they said in a statement. “They are far from ambitious regarding making economic progress through a green transformation, namely through enhanced efficiency and more renewables.”

The EU must now ensure that its package for 2030 does not harm growth and jobs and should step up efforts to secure an internationally binding agreement to protect the competitiveness of its industry, according to the European arm of the International Federation of Industrial Energy Consumers.

An energy security strategy for Europe is the fourth pillar of the deal. The leaders’ endorsement for the plan to diversify energy-supply sources and cut the region’s dependence on fossil fuels came after a pricing dispute led to the cutoff of Russian natural-gas supplies to Ukraine, the transit country for around 15 percent of the EU’s need for the fuel.

The leaders agreed to improve cross-border power interconnections, which currently can handle about 8 percent of the bloc’s potential power output, less than the 10 percent target set by EU leaders in 2002, according to commission data. The target for 2030 was set at 15 percent.

A discussion on the EU economic and employment situation will take place on the second day of the summit when the leaders may endorse incoming European Commission chief Jean-Claude Juncker’s plan for a 300 billion-euro investment program.

Lead image: Carbon Dioxide via Shutterstock