European Union leaders reaffirmed ambitious goals to combat climate change on Friday but stressed they must be affordable for governments and industry at a time of economic downturn and market turmoil.

A draft final statement at a two-day summit, obtained by Reuters, called for cost-effective and flexible mechanisms to reach energy and climate policy objectives, adding the tell-tale phrase "so as to avoid excessive costs for member states".

The leaders pledged to enact the necessary laws within a year to meet their goals of slashing greenhouse gas emissions by 2020 and increasing the share of wind, solar, hydro and wave power and biofuels in their energy mix by the same date.

But they stressed the need to ensure that the high cost of carbon trading, the EU's central instrument in the fight against global warming, should not drive sectors like steel, cement, paper and aluminium out of Europe or out of business.

European Commission Vice-President Guenter Verheugen told Germany's Deutschlandfunk radio that measures would have to be taken to ensure European industries were protected against competition from countries with lower environmental standards.

He said Brussels "doesn't rule out that we create some sort of compensation for our industries ... but tariffs are not the idea for that".

Instead, importers might be included in the EU's Emissions Trading Scheme to make them bear a share of the cost, he said.

After chairing the first day of a two-day summit, Slovenian Prime Minister Janez Jansa told a news conference all 27 leaders agreed to adopt a liberalisation of the European energy market in June and a package of measures to fight global warming and promote green energy in December.

"We must reach agreement in the first months of 2009 at the latest," said Jansa.

GREEN TARIFF?

French President Nicolas Sarkozy said he was hopeful of reaching a package deal on climate change under France's presidency of the EU in the second half of this year.

But several leaders said a deal would be difficult because of conflicting national priorities.

German Chancellor Angela Merkel said she wanted early guarantees of special treatment for energy-intensive industries such as steel, cement, paper and aluminium, so they could plan investments. Diplomats said other countries backed her.

However Britain, Sweden and the Netherlands opposed Merkel's demand that the EU agree in 2009 on conditions for big energy users, saying it would weaken the EU's hand in global negotiations on curbing emissions.

"Everybody stated their priorities. Many were quite nervous about liberalisation and carbon leakage," a senior EU diplomat said. "Carbon leakage" occurs when production is transferred to countries with lower environmental standards.

Sarkozy told reporters: "The main concern is implementing a mechanism that will hit imports from those countries that don't play the game."

But Verheugen said Sarkozy was alone in calling for green import tariffs and had not pressed the issue at the summit.

Failure to agree on the details by this time next year would delay EU laws and weaken the bloc in United Nations talks on curbing emissions with other countries, including the United States, in Copenhagen in November 2009.

Leaders also approved a watered-down Franco-German plan for a Union for the Mediterranean to boost ties with the EU's southern neighbours after months of bitter wrangling.

Highlighting threats to European economic growth, the euro hit another record high above $1.56 on Thursday and oil prices hovered near a peak of $110 a barrel. Jansa said the euro's rise was a "serious issue" but that the summit would not discuss in detail any possible steps to halt the trend.

Aside from cutting emissions by at least one-fifth by 2020 from 1990 levels, EU states have agreed to use 20 percent of renewable energy sources in power production and 10 percent of biofuels from crops in transport by the same date.

Jansa acknowledged growing debate among scientists and economists about the desirability of the biofuels target, saying: "We're not excluding the possibility that we'll have to amend or revise our goals."