Berlusconi's announcement, at an EU summit in Brussels, came despite pleas from fellow leaders not to abandon the targets in the face of growing financial pressure, although Poland also appeared ready to vote parts of it down.

"I have announced my intention to exercise my veto," the Italian leader told a press conference on the sidelines of the summit.

"Our businesses are in absolutely no position at the moment to absorb the costs of the regulations that have been proposed," he said.

Last year, EU leaders vowed to cut greenhouse gas emissions by 20 percent by 2020, compared to 1990 levels. They also pledged to have renewable energies make up 20 percent of all energy sources.

But many EU nations have begun to baulk at the costs involved and the consequences to industry of the climate change goals.

Poland, heavily dependent on coal-fired power, said it would resist attempts to railroad the targets through.

"If there will be no other possibility we will take advantage of a veto but it is still unclear whether we will have to do this," Prime Minister Donald Tusk told reporters.

Ahead of the summit, Tusk led eastern European nations in calling on their EU partners to "respect the differences in member states' economic potential," in fixing national goals for reducing greenhouse gas emissions.

In a statement, leaders of the three Baltic states, Bulgaria, the Czech Republic, Hungary, Romania and Slovakia as well as Poland stressed "the Union's climate and energy policy should reconcile environmental objectives and the need for sustainable economic growth."

The call for special attention to be paid to economic concerns in finalising the climate package is just what Brussels and other EU member states had feared as the financial crisis takes hold.

"This is not the time to abandon a climate change agenda which is important for the future," British Prime Minister Gordon Brown warned ahead of the summit.

"The climate change agenda is part of the solution for many of the problems we face as a global economy," he said, noting that high oil prices and less energy security "makes it more important that we deal with a long-term policy."

European Commission chief Jose Manuel Barroso also urged the leaders to press ahead and not abandon Europe's leadership role.

"If we now give any signal that we are not really committed to doing it, others will not have the incentive to do it," he added.

But Berlusconi said it was unrealistic to expect Europe to adhere to strict limits when other major polluters would not.

"We do not think that now is the time to be playing the role of Don Quixote, when the big producers of CO2, such as the United States or China, are totally against adherence to our targets", he said.

French President Nicolas Sarkozy, who is chairing the summit, meanwhile urged his EU partners to reach agreement by the end of the year but indicated there was room for some flexibility.

"We must take note of specific problems of some of our colleagues," he told a press conference, adding that "perhaps we haven't done that enough."

In a draft of conclusions to be released at the end of the summit, the leaders were set to express their "determination" to honour the climate change goals, whose "balance and fundamental parameters" must be respected.

They would also underline their commitment to improving the security of energy supplies in Europe.

No final decision on the climate package was expected on Wednesday but the European Commission had been hopeful that it could seal a deal in December.