BRUSSELS, Belgium (Reuters):

European Union leaders clinched an agreement on Friday on a bold long-term strategy for energy policy and climate change aimed at leading the world in the fight against global warming, diplomats said.

The deal setting binding targets for slashing greenhouse gas emissions, developing renewable energy sources, promoting energy efficiency and using biofuels laid down a challenge to the United States and other industrialised powers to follow suit.

"There's a deal on the whole package," one diplomat said. He explained that while the 27 leaders had set binding Europewide objectives, "setting national targets will be done with the consent of the member states".

German Chancellor Angela Merkel, who chaired a two-day summit, put forward the key compromise to secure agreement to set a legally binding target for renewable fuels such as solar, wind and hydro-electric power - the most contentious issue.

Renewable sources

Leaders accepted the target of 20 per cent of renewable sources in EU energy consumption by 2020 in exchange for flexibility on each country's contribution to the common goal.

"This text is indeed a breakthrough as regards the environment and climate change policy of the European Union," Merkel said.

Germany added wording to win over states reliant on nuclear energy, led by France, or coal, such as Poland, and small countries with few energy resources, such as Cyprus and Malta, by adding references to the national energy mix.

"Differentiated national overall targets" for renewables should be set "with due regard to a fair and adequate allocation taking account of different national starting points", it said.

On Thursday, the 27 leaders committed themselves to a target of reducing EU greenhouse gas emissions by 20 per cent by 2020 and offered to go to 30 per cent if major nations such as The United States, Russia, China and India follow suit.

European Commission President Jose Manuel Barroso called it "the most ambitious package ever agreed by any commission or any group of countries on energy security and climate protection."

NUCLEAR

The statement also set a 10 per cent minimum target for biofuels in transport to be introduced by 2020 in a cost-efficient way.

Renewables account for less than seven per cent of the EU energy mix and the bloc is falling short of its existing targets both for low-carbon energy and to cut carbon dioxide emissions.

In an attempt to balance pro- and anti-nuclear power states, wording was added on the contribution of nuclear energy "in meeting growing concerns about safety of energy supply and CO2 emissions reductions while ensuring that nuclear safety and security are paramount in the decision-making process."

Several EU states are fundamentally opposed to using nuclear power or, like Germany, in the process of phasing it out.

Anti-nuclear Austria hastened to say that in its eyes nuclear power had nothing to do with sustainable energy.

Poland won a commitment to "a spirit of solidarity amongst member states" in the draft ? code for western Europe helping former Soviet bloc states if Russia cuts off energy supplies.

Several other new ex-communist member states in central Europe fear huge costs from the green energy revolution.

French President Jacques Chirac insisted at his last formal EU summit before leaving office that the bloc recognise that nuclear, which provides 70 per cent of France's power, must also play a role in Europe's drive to cut greenhouse gas emissions.

As this year's chair of the Group of Eight industrialised powers, Merkel wants the EU to set the environmental agenda.

The Brussels summit outcome will form the basis of the EU's position in international talks to find a replacement to the UN Kyoto Protocol, which expires in 2012.

Environmentalists want the bloc to go further in its efforts to fight climate change. But European business is concerned it will foot the bill by losing competitiveness to dirtier but cheaper foreign rivals.

The European Commission has proposed that big utility groups be forced to sell or separate their generation businesses and distribution grids in a process known as "ownership unbundling." Merkel said she did not expect such an agreement.

The draft statement said the EU agreed on the need for "effective separation of supply and production activities from network operations" but made no reference to breaking up energy giants such as Germany's E.ON and RWE; and Gaz de France and EDF.