EU ministers sign off on climate laws amid German infighting

But the debates were heavily contested and lasted from Monday until 3AM Wednesday.

The deal sees the extension of the bloc's emission trading system (ETS) to buildings and vehicles, including aeroplanes and large ships.

A carbon tax on imported goods is planned to come into force in 2027. Emission targets for the industry are made stricter.

Part of the revenue from these carbon pricing policies will be distributed to a Social Climate Fund in support of low-income households

Social Climate Fund

But the deal, originally proposed by the EU Commission and already approved by the EU Parliament last week, was nearly scuppered when Germany at the last minute torpedoed both the Social Climate Fund and the proposed end of combustion engines in 2035 which was also part of the package.

Germany, with support from Finland, Sweden, Denmark and the Netherlands proposed to reduce the budget of the Social Climate Fund from €72bn to €59.

This met with strong resistance from many eastern and southern European member countries, including Greece, Poland, Romania and Bulgaria because the fund would help sell the carbon pricing system to the poorest households.

But on Tuesday night their resistance was broken and the German reduction was approved.

German infighting

The lowering of the Social Climate Fund was seen by some EU diplomats as part of a complex effort to solve internal differences between German coalition partners.

German finance minister Christian Lindner, of the liberal FPD, ahead of the meeting in Luxembourg had said Germany would not support a combustion engine ban.

Then on Tuesday morning environmental minister Steffi Lemke, Lindner's coalition partner but from the Greens, told ZDF-Morgenmagazin that Germany did in fact support the ban.

This led to hours of delay and confusion during the negotiations in Luxembourg, which derailed efforts to reach an early agreement.

"No one understands what the German coalition agreement means anymore," one EU diplomat, who spoke under condition of anonymity, told EUobserver on Tuesday night after talks were already held up for hours.

A compromise was finally reached with the end date of combustion engines still set at 2035, with the added caveat that the commission will re-assess the ban in 2026.

Timmermans in a debate with parliament in June said car makers had "already made their choice", referring to electric vehicles, and said any weakening of the ban was "nonsense" due to the high costs associated with biofuel and hydrogen.

But following the latest compromise, his office or that of his successor will have to reassess this statement.

The new compromise will now be debated among member states, commissions and parliament in so-called trialogues, which will start in July and last until the summer of 2023.