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By Bloomberg

European Union leaders face heated negotiations today on a deal to toughen emission-reduction policies in the next decade and boost the security of energy supplies amid a natural-gas dispute between Russia and Ukraine.

The main challenge for the 28 heads of government will be to iron out differences on a strategy that ensures cheaper and safer energy while stepping up climate-protection measures. The agenda of the two-day Brussels summit, the final one to be chaired by EU President Herman Van Rompuy, also features a debate on the European economy and on measures to prevent the spread of the Ebola virus.

Countries including Poland, Portugal, Spain, France and the U.K. have signaled that the outstanding issues that leaders will need to resolve at the gathering include sharing the burden of carbon cuts, the nature of energy targets and plans for power and gas interconnectors.

"It will not be easy to reach an accord, many countries have energy problems, and some have re-opened coal mines," French energy minister Segolene Royale told lawmakers in Paris yesterday. "But I think we will have the wisdom, the strength, and the sense of responsibility to reach an accord."

Carbon Targets

EU leaders plan to back a binding target to cut greenhouse gases by 40 percent by 2030 from 1990 levels, accelerating the pace of reduction from 20 percent set for 2020, according to draft conclusions for the meeting obtained by Bloomberg News. An agreement would ensure the bloc remains the leader in the fight against global warming before a United Nations climate summit in Lima in December and a worldwide deal expected to be clinched in 2015 in Paris, according to the European Commission, the EU's executive arm.

While differences among member states on the carbon target are narrowing down, leaders still need to resolve issues including emissions burden-sharing, which pits richer countries in western Europe against mostly ex-communist east and central European nations led by Poland.

Polish Prime Minister Ewa Kopacz has threatened to veto the planned EU deal unless it addresses her country's concerns, including the risk of a surge in electricity prices. The biggest economy in central Europe wants assurances that its utilities will get some 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.

'Far Away Deal'

"Deal is still quite far away," Poland's secretary of state and climate envoy Marcin Korolec said on Twitter today. "Final work begins now."

To pave the way for a compromise, the EU plans to renew a special carbon-permit reserve -- which yielded 2.2 billion euros ($2.8 billion) for renewable energy and carbon-capture projects over the past four years -- and extend its size and scope after 2020. It also aims to create a new fund, which would include between 1 percent and 2 percent of ETS allowances, to help finance investment in low-income member states, according to the draft conclusions.

The ETS, Europe's key emission-reduction tool, imposes carbon dioxide limits on about 12,000 installations owned by manufacturers and utilities. Under the draft deal, emissions under the cap-and-trade program would fall by 43 percent by 2030 and discharges by sectors that it doesn't cover, such as agriculture, would decrease by 30 percent from 2005 levels.

Energy Efficiency

A stormy debate is also expected today on two other elements of the draft 2030 energy and climate package: an EU- wide goal to boost the share of renewable energy by 27 percent and an indicative target to increase energy efficiency by 30 percent. While a group of countries led by Germany favors binding measures to reduce consumption of energy, the U.K. opposes it and may agree to an indicative goal only, according to two EU diplomats with knowledge of the matter.

Six eastern and central European states -- Poland, Slovakia, Czech Republic, Hungary, Romania, Bulgaria -- said in a Sept. 30 statement that the introduction of any legally binding renewable energy and energy efficiency targets at EU or national level isn't desirable.

"I cannot conceal that we're facing extremely difficult negotiations and it's very uncertain if we'll make a deal," Danish Prime Minister Helle Thorning-Schmidt told lawmakers in Copenhagen before the summit. "The countries are wide apart and we face major obstacles on setting targets, distributing burdens and renewing our energy infrastructure and efficiency."

Sticking Point

An energy security strategy for Europe is set to be the fourth pillar of the planned deal. The proposal to diversify energy-supply sources and reduce the region's dependence on fossil fuels comes 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.

A sticking point in the debate is a plan to back the target of improving cross-border power interconnections, which are currently at about 8 percent of installed capacity, below the 10 percent level endorsed by EU leaders in 2002, according to commission data. The issue pits Portugal and Spain, which demand setting a higher and binding goal for 2030, against France, which opposes such a measure, according to two EU diplomats.

Three European Parliament members who lead on environmental matters told the assembly's president, Martin Schulz, to urge EU leaders to speed up energy interconnections and defend ambitious energy and climate targets when he speaks to them at the beginning of the summit.

'National Egoisms'

"If we want the energy union to become a reality, we need to overcome national egoisms and mobilize more political will to end isolation of energy islands such as Spain and Portugal," Peter Liese of the Christian Democrats, Matthias Groote of the Socialists and Claude Turmes of the Greens said in a letter to Schulz obtained by Bloomberg News.

Decisions at European summits require unanimity. Van Rompuy, whose term expires next month, is determined to help leaders find consensus, according to an EU official. A failure to achieve an agreement this week would mean that governments would have to return to the issue in the coming months, after Poland's former premier Donald Tusk takes over as EU president on Dec. 1.

"Remember EU leaders: nothing gets easier by postponing, nothing gets cheaper," EU Climate Commissioner Connie Hedegaard said on Twitter. "Only uncertainty for investors will grow."

A discussion on the EU economic and employment situation will take place on the second day of the summit with the planned endorsement of a 300 billion-euro investment package proposed by incoming European Commission chief Jean-Claude Juncker.

The agenda also includes a debate on Ebola. European leaders will urge the appointment of a coordinator to collaborate with European and international organizations to combat the disease, according to the draft conclusions.

There's no plan to raise the issue of sanctions on Russia at the summit. Member states will say that Europe remains fully engaged in support of a political solution to the Ukrainian crisis and that Russia should respect its neighbor's national sovereignty and territorial integrity, according to draft conclusions.