The European Commission has announced a package of measures to reduce greenhouse gases by at least 20% and increase renewable energy use by 20% by 2020.
Under their proposals, the EU Emissions Trading System (ETS) will be strengthened by the inclusion of more greenhouse gases and more industries, such as aviation, and a year-on-year reduction of the number of allowances on sale.
Revenues from auctioning - which could reach an estimated Euro 50bn a year by 2020 -would be used to support innovation in environmental technology and to help developing countries adapt to climate change.
Member states would be set individual, legally-binding targets for developing renewable energy to create an average of a 20% increase across the EU, with the option for countries to invest in renewables outside their own borders to reach the target.
The Commission also wants this to include a 10% biofuels target by 2020, despite recent criticism from UK MPs.
Commission President José Manuel Barroso, said: "Our mission, indeed our duty, is to provide the right policy framework for transformation to an environment-friendly European economy and to continue to lead the international action to protect our planet.
"Our package not only responds to this challenge, but holds the right answer to the challenge of energy security and is an opportunity that should create thousands of new businesses and millions of jobs in Europe."
The draft laws have had a mixed reception. Environmental campaigners such as WWF and Friends of the Earth Europe said a target of at least 20% was too weak.
The European Environmental Bureau said the announcement was a "first step", but there were a number of loopholes that needed to be closed.
John Hontelez, secretary-general of the EEB, said: "If this proposal goes through, the EU risks losing its global leadership position on climate change and missing an opportunity to shift to the low carbon economy that both industry and governments talk about."
The UK Government praised the measures, while Liberal Democrat MEPs said it was "an opportunity, not a threat".
Eurelectric, the union of the electricity industry, warned that planned changes to the EU ETS would push up electricity prices.
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