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EU sets tighter climate targets, spurs cost concerns

European Union leaders set tighter targets for cutting greenhouse gases and curbing the use of fossil fuels, spurring industry concerns that extra costs and regulations will undermine Europe's competitiveness.

Pledging to take the lead in fighting climate change, the EU agreed to reduce greenhouse emissions by 20% by 2020, even if the US and China don't follow suit. Leaders also set goals for energy efficiency and the use of renewable sources like wind and solar power. EU leaders rejected warnings from business groups that tougher climate regulations would push jobs and investment out of Europe, shackling an economy that has lagged behind the US for most of the past decade.

Europe is opening „the door into a whole new dimension of European cooperation in the area of energy and combating climate change,” German Chancellor Angela Merkel told reporters today after chairing an EU summit in Brussels. Europe's economy notched the fastest growth in six years in 2006, and the political leaders said the climate-change package will give the 27-nation bloc a „first mover” advantage in developing energy-saving technologies.

„The EU should go green,” Danish Prime Minister Anders Fogh Rasmussen said in an interview. Denmark, a leader in wind-power technology, has grown faster than the EU average in the past two years. Europe burnished its credentials as the principal backer of the Kyoto climate-change accord, which exempts developing nations such as China and is boycotted by the US, both the world's biggest economy and its biggest polluter. Tighter regulations „would make Europe relatively more expensive, though I guess the Europeans are hoping other countries will follow their lead,” said Dario Perkins, an economist at ABN Amro Holding NV in London.

Kyoto mandates greenhouse-gas cuts of 5.2% by 2012 from 1990 levels. EU leaders today were set to pledge to boost the unilateral target of 20% by 2020 to 30% if rich nations like the US sign up. The environmental campaign „will harm competitiveness if prices are much higher that elsewhere, if we have a shortage of energy and it harms energy-intensive areas,” Philippe de Buck, secretary general of BusinessEurope, the EU employers federation, said in an interview. Binding targets create „a lot of uncertainties.”

Several analysts said businesses are overreacting and portrayed clean technologies as the wave of the future. „Once industry has accepted it and gotten busy, they'll find their businesses will become more and more competitive in global markets,” said Paul Hofheinz, president of the Lisbon Council, a Brussels think tank. The climate pledges came at an annual summit originally designed - at the peak of the high-tech boom in 2000 – to discuss ways of lessening government interference in business and promote the Internet economy.

Energy was catapulted to the top of the European political agenda by the rise in oil prices and moves by President Vladimir Putin of Russia, the source of a quarter of the EU's natural gas, to assert control over Russian oil and gas resources. Putin is exploiting EU internal divisions by lining up former German Chancellor Gerhard Schroeder to manage a €5 billion ($6.6 billion) natural gas pipeline from Russia to Germany - a project that is receiving criticism from Poland and Sweden. Today's vow to wean the EU off foreign oil and gas providers included a target of 20% energy savings by 2020.

The EU pledged that renewable energies would make up 20% of EU consumption by 2020 and a goal for biofuels to account for 10% of car and truck fuel by the same date. The only controversy at the summit was over whether to make the renewables target „binding” - a call initially opposed by eastern European countries such as the Czech Republic that rely on cheap coal. Merkel, chairing her first EU summit, got around those objections by putting a promise of „differentiated national overall targets” in the communiqué to allow some countries to go slower than others. The European Commission, the bloc's regulator, will propose by September how to divide up the burden.

„The crucial point for us is that we are not pushed to make pledges we cannot fulfil,” Slovak Prime Minister Robert Fico said. Merkel teamed up with French President Jacques Chirac to water down a commission proposal to break up - or „unbundle” - big utilities like Electricite de France SA and E.ON AG. Citing „different national traditions,” Merkel said it wouldn't be realistic to force power producers to sell their transmission businesses as a way of pushing down prices in the €250 billion gas and electricity market. Chirac, who is completing a second term and hasn't given any indication of running for a third, hailed the climate-change accord as „one of the great moments in the history of Europe.” (Bloomberg)