BRUSSELS—European Union leaders agreed to cut the bloc’s greenhouse-gas emissions to net-zero by 2050, coupling efforts to fight climate change with a massive economic transition poised to test EU unity.
The landmark agreement, already once postponed, came early Friday after contentious negotiations. In a sign of the challenges ahead, Poland refused to implement the decision before June, seeking financial assurances to safeguard its economy, which relies on coal for 80% of its energy needs.
“This provisional state of affairs is very good,” German Chancellor Angela Merkel said after the summit. “It constitutes a major step forward nevertheless.”
European leaders clinched the deal a day after the bloc’s executive, the European Commission, unveiled its “green deal” proposal to achieve climate neutrality by 2050. The comprehensive package includes €100 billion ($111 billion) in funding to help coal-reliant countries shift to cleaner energy, border carbon adjustments to protect European businesses and new taxes to punish polluting industries, among other measures.
The EU push for more decisive action comes amid a United Nations climate gathering in Madrid. Negotiators from across the world are seeking an agreement on carbon-market regulations to implement the Paris climate accord. The EU is trying to lead by example and salvage the 2015 deal, as President Trump withdraws the U.S. from the pact.
“It’s important for Europe to show a strong ambition,” European Council President Charles Michel said after brokering the compromise among EU leaders. “We want Europe as the first climate-neutral continent.”
European Commission President Ursula von der Leyen said EU countries had different starting points to reach net-zero emissions, adding she understood Poland’s wish to take a closer look into financing options for the transition. She promised more details in the coming months.
“This was an intense and vivid debate,” Mrs. Von der Leyen said. “We are determined to tackle this climate change and turn it into an opportunity for the European Union.”
Splits over the EU’s seven-year budget and how it would be deployed to pay for climate action was a principal point of conflict.
The bloc’s Central and Eastern European members are demanding additional funds, seeking to preserve so-called cohesion money earmarked to help poorer countries catch up with wealthier Western European counterparts. The richer EU members refuse to fork out more cash.
To take some of the burden off the EU budget, the European Investment Bank also committed to deploy its lending toward mobilizing €1 trillion of climate-action and environmental-sustainability investments in the decade through 2030.
Still, EU countries could be looking at a significant funding shortfall. The commission estimates that the bloc’s 28 members—including the U.K., which is expected to leave the union Jan. 31—could need as much as €575 billion annually to cover the costs of reaching its 2050 net-zero emissions target.
Financing wasn’t the only divisive issue at the gathering. Leaders also sparred about how to reduce carbon releases. Austria and Luxembourg squared off with the Czech Republic and France over the role of nuclear power, which doesn’t produce direct carbon-dioxide emissions but yields toxic waste.
Nuclear power “is neither sustainable nor safe,” Luxembourg Prime Minister Xavier Bettel said. He added that while EU countries could choose how to power their countries, they couldn't tap the bloc’s budget to finance nuclear plants.
Still, the compromise among EU leaders led to an explicit acknowledgment that some countries would deploy nuclear energy to cut emissions. Countries such as Luxembourg could prevent others from using the EU budget—currently under negotiation—for nuclear projects. But the bloc’s lending arm, the EIB, has previously financed nuclear projects and could technically provide funding for new plants independent of the EU budget.
“Nuclear energy is clean energy, without any emissions,” Czech Prime Minister Andrej Babis said. “I don’t know why a lot of countries have a problem with this.”
Corrections & Amplifications European Union leaders agreed to cut the bloc’s greenhouse-gas emissions to net-zero by 2050. An earlier version of this article incorrectly stated greenhouse-gas emissions would be cut to zero by 2050. (Dec. 13, 2019)
Write to Emre Peker at emre.peker@wsj.com
