The European Commission will provide China with $85.85m for a clean coal project that will have almost no emissions.
Both parties said they would work towards the China-EU near-zero emissions coal (NZEC) project at the 12th China-EU Summit in Nanjing, east China.
The project is important if China is to meet ongoing emissions reductions targets, especially with world climate change targets being discussed in Copenhagen later this month.
Developed nations have been asked to show increased support to developing nations such as China, which are reliant on emissions-heavy industry for continued growth.
They have been asked to help fund more environmentally friendly alternatives for China and India especially, including clean coal projects.
Technology transfer is also being pitted as key in allowing emerging nations to adjust to climate change and the project will include the sharing of knowledge about clean coal technologies.
China has agreed to set national targets to limit its carbon outputs and introduce a range of environmental policies and it is believed the China-EU Joint Declaration on Climate Change will only help this process along.
China is the largest producer of coal in the world and its carbon emissions are estimated to be 10% of the world’s total.