In a move which analysts hope will liven up international climate policy efforts, European Union (EU) leaders have agreed on a set of mid-term climate and energy targets for the world’s third-largest economic bloc.

The EU’s new climate and energy policy framework, finalised in the course of an all-night session of the European Council, obliges the bloc’s member states to collectively reduce domestic greenhouse gas emissions by at least 40% by 2030, relative to 1990 levels. Unless countries such as China and the US unexpectedly pledge substantially more ambitious targets — in which case Europe would follow suit — the agreed target will form the EU's contribution to a planned global climate agreement early next year.

European heads of state also agreed on a politically binding EU-wide target to increase renewable energy use to 27% by 2030, up from just over 14% currently. Another 27% target, for improving EU-level energy efficiency, is merely ‘indicative’, to be reviewed in 2020 with a 30% target in mind.

Policy analysts cautiously welcomed the agreement. “Politically, nothing much more was possible,” says Severin Fischer, a climate policy expert with the German Institute for International and Security Affairs in Bonn. “What the deal is really worth depends on what China and the United States will offer next year.”

"Europe is setting an example," French President Francois Hollande said, but added that the deal is a compromise between European governments with different views on the urgency and affordability of climate action. Poland, for example, which heavily relies on coal for electricity generation, had threatened to veto a decision unless far-reaching concessions were made to its energy and heavy industries.

“It is important that the doors remain open to more ambitious targets,” says Eva Filzmoser, director of Brussels-based Carbon Market Watch. “But the deal also includes a number of unwelcome concessions to large polluters which threaten to severely limit its effectiveness.”

Greenhouse gas emissions in the EU have already dropped by almost 20% since 1990. The greater share of the additional reductions will have to be achieved by some 12,000 energy-intensive installations covered by the EU’s mandatory emission trading scheme (ETS). From 2021 onwards, the cap on maximum permitted emissions will be reduced each year by 2.2%, up from the current 1.74% per year. But to avoid ‘carbon leakage’ to countries with less stringent climate regulations, Brussels will continue to give ample free pollution rights to energy-intensive manufacturing industries which might otherwise transfer production.

Carbon market analysts also point to more than 2 billion unused allowances from previous trading periods, a result of overallocation and the economic crisis of recent years, which businesses can use to offset future emissions. The ETS is to be reformed with a view to stabilizing the price of emissions, which temporarily dropped to zero during the 2008-2012 trading period.

But critics say that neither the cap reductions nor the planned market stability measures will suffice to raise the price of carbon from around €5 per ton of emissions that it is at present to levels required to stimulate serious investment in clean energy technologies. “It is about time now to fix the most important instrument of the European climate policy,” says Ottmar Edenhofer, chief economist of the Potsdam Institute for Climate Impact Research in Germany. “Without a working ETS, it’s difficult to see how the climate targets will be put in practice.”

Meanwhile, EU member states must still negotiate on national targets for sectors not covered by the ETS. This, says Fischer, could be a tough job since the deal hammered out last night requires that decisions on all elements be agreed upon by all parties, risking a stalemate should some countries refuse to comply.

Countries will however be granted more flexibility in how they achieve their national targets, for instance by domestic carbon offsets from emission reductions in non-traded sectors such as building and heating. But after 2020 the deal will terminate the option of offsetting domestic emissions by means of clean energy projects — often of questionable quality — in developing countries.

This article is reproduced with permission and was first published on October 24, 2014.