Brussels EU leaders clashed last night over how to cut greenhouse gases a year after making climate change their top priority with a series of tough targets.

The first signs of a retreat from the much-trumpeted green pledges came from Angela Merkel, the German Chancellor, who called for concessions for German car-makers and heavy industry.

Gordon Brown re-launched a joint proposal with French President Nicolas Sarkozy for reduced VAT rates on eco-friendly appliances but it failed to gain widespread support at the leaders’ spring council meeting in Brussels.

The sound of brakes being applied to the EU’s climate change plans led Jose Manuel Barroso, the European Commission president, to warn the 27 leaders that their credibility was on the line.

Mr Barroso believes that only a clear EU timetable for cutting CO2 and dramatically reducing car emissions will persuade the rest of the world to set ambitious global targets at a climate summit in Copenhagen next year designed to follow the Kyoto protocol.

But Mrs Merkel, who helped to negotiate Kyoto as German environment minister and championed EU targets agreed exactly a year ago, arrived yesterday in Brussels determined to protect German industry from losing competitiveness in the rush to go green.

“I will be standing up particularly for jobs in Germany’s car sector,” she said, under pressure from manufacturers such as Mercedes, Audi and Porsche which face big fines if they do not reduce exhaust emissions substantially.

“We want a fair set of rules here,” she said, adding that efforts to protect the environment must not damage Europe’s industrial base.

Mr Barroso told The Times yesterday that the EU would act to protect different industrial sectors such as cement or steel after 2012 if they faced unfair competition from countries that refused to join a new global climate agreement.

But the Germans, backed by the Austrians and several other EU countries, want heavy industry to win immediate exemptions from the emissions trading scheme which is designed to force companies to cut CO2 or face financial penalties.

“The European Union would lose all credibility if one year after having given a strong signal, it was unable to meet its targets,” Mr Barroso warned yestreday.

Mr Brown returned to his idea of reduced VAT levels across the EU for low-carbon light bulbs, fridges and washing machines but it was met with a cool response.

One EU diplomat explained: “The whole idea of VAT is difficult because you cannot tell if it will really influence prices. If it is opened up, a whole set of other concerns over VAT rates will be raised such as whether Britain should keep its zero rating on children’s clothes and newspapers.”

The European Commission pledged to investigate Mr Brown’s proposal but a source added: “The aim is good but the tool is probably not the most efficient way of doing it. There are other member states which apply direct subsidies, for example in Belgium if you buy a fridge that is environmentally friendly you get back 50 Euros.” Downing Street said that it would continue to push the idea along with a call to use fiscal measures to reduce packaging.

EU states agreed last March to cut CO2 emissions by at least 20 per cent by 2020 from 1990 levels, to use 20 percent of renewable energy sources in power production and 10 percent of biofuels from crops in transport by the same date. But they have yet to agree a timetable and the share of the target to be borne by each country.

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