FAQ on EC's Effort-Sharing Decision on Greenhouse Gas Emissions
December 19, 2008 // Published as a news service by IHS
As part of the climate and energy package proposed earlier this year by the European Commission (EC) and accepted by the European Parliament on Dec. 17, plans were hammered out on how European Union (EU) member states would share efforts to reduce greenhouse gas emissions.
This document answers frequently asked questions about these plans.
1. How is the 20% greenhouse gas reduction target shared between sectors and member states?
The total effort for greenhouse gas reduction needs to be divided between the sectors that are covered under the EU's Emissions Trading Scheme (ETS) and those that are not (non-ETS). This will be done as follows:
Taken together, this results in an overall reduction of -14% compared with 2005, which is equivalent to a reduction of -20% compared with 1990. A larger reduction is required of the ETS sector because it is cheaper to reduce emissions in the electricity sector than in most other sectors.
Since a single, EU-wide cap under the ETS will be introduced starting in 2013, an effort-sharing arrangement between member states has been determined solely for the reduction in emissions from non-ETS sectors.
Non-ETS sectors, which are made up of small-scale emitters in a wide range of areas - such as transport (cars, trucks), buildings (in particular heating), services, small industrial installations, agriculture and waste[1] - currently represent some 60% of total greenhouse gas emissions in the EU.
As a rule, it will be left to member states to define and implement policies and measures in such sectors, although a number of EU-wide measures in specific areas, such as energy efficiency standards and CO2 emissions from cars and waste, will also contribute to emission reductions in these sectors.
2. How is the -10% target for sectors not covered by the ETS shared among member states?
Member states all have individual targets expressed as a percentage, which average out at -10%. Gross domestic product (GDP) per capita has been used as the main criterion when setting the national targets.
This approach has two advantages. First, it ensures that the actual efforts and the associated costs are distributed in a fair and equitable manner. Second, it allows for further, accelerated growth in less wealthy countries where economic development still needs to catch up with other member states. Therefore, the package ensures that there will be no negative effect on economic and social cohesion.
Countries with a low GDP per capita will be allowed to emit more than they did in 2005 in non-ETS sectors because their relatively higher economic growth will probably be accompanied by increased emissions in sectors, such as transport. The reduction required in member states where GDP per capita is below the EU average is, therefore, correspondingly lower (that is, less than -10% below 2005 levels).
Less wealthy member states will be allowed to increase their emissions in non-ETS sectors by up to 20% above 2005 levels. These targets do, however, still represent a cap on their emissions and will still require a reduction effort.
By contrast, in the wealthier member states, where GDP per capita exceeds the EU average, an emissions reduction above the EU average is required, up to a maximum figure of -20% below 2005 where GDP per capita is highest.
The 20% limit on national emission reductions or increases compared with 2005 ensure that the targets for each country remain technically and economically feasible and that there is no unreasonable increase in overall costs.
3. What can a member state do to meet its national target in the non-ETS sector?
In sectors that do not come under the ETS, such as buildings and road transport, many of the important decisions will be made at the member state level.
Individual EU governments will introduce policies and measures to lower emissions, such as traffic management, shifts away from carbon-based transport, taxation regimes, the promotion of public transport, biofuels, urban and transport planning, improved energy performance standards for buildings, more efficient heating systems, and renewable energy for heating.
Measures to reduce and recycle waste streams, as well as to reduce landfilling, can also have a significant impact on greenhouse gas emissions. The revised guidelines for state aid in the area of environment that were adopted as part of the package earlier this year will increase the ability of member states to implement such measures, while avoiding distortions of competition in the internal market.
A number of important EU-wide measures will also help member states to reduce emissions and thus meet their national targets. New efficiency standards for boilers and water heaters, for example, together with adequate labeling systems to inform consumers, could help deliver major emissions reductions in buildings.
The full implementation of the Landfill Directive (in 2016) will deliver further important emission reductions, as reducing the landfilling of biodegradable waste will bring a major reduction in emissions of methane, a powerful greenhouse gas.
In addition, member states can also use credits from the Kyoto Protocol Clean Development Mechanism (CDM) and Joint Implementation (JI) projects (see also point 5).
4. Why are all objectives based on the year 2005, and not on 1990, as the Kyoto Protocol is?
The year 2005 has been used as the base year or yardstick against which greenhouse gas reductions are presented. Calculating reductions and renewable energy shares in comparison with 2005 gives a transparent and easily understandable picture of the changes needed, as it compares such changes with what is effectively the present situation.
The data for 2005 is also more reliable and more easily available. It includes verified emissions at the installation level within the ETS, as well as the overall greenhouse gas emissions of member states as officially reported to the United Nations Framework Convention on Climate Change (UNFCCC).[2]
5. Can member states use the Clean Development Mechanism and Joint Implementation to meet their national targets under the effort-sharing decision?
In the original EC proposal, the annual level of Clean Development Mechanism and Joint Implementation credits any member state could use in 2013-2020 was limited to 3% of 2005 emissions. In the final agreement, this will remain the rule in the absence of international progress beyond the EU's 20% independent reduction commitment.
However, the final agreement also allows member states that have to reduce their non-ETS emissions, or are allowed to increase them by up to 5%, to use an additional 1% of credits. These credits can come only from CDM projects in least developed countries and small island developing states, are non-bankable and non-transferable, and are available only to member states meeting at least one of the following four conditions:
- The overall cost of the package for the member state concerned is higher than or equal to 0.7% of GDP according to the EC's impact assessment.
- The specific approach for setting targets on the basis of the GDP per capita instead of on the basis of the cost-effective potential has lead to a cost increase of at least 0.1% of GDP according to the EC's impact assessment.
- More than 50% of the member state's total emissions covered by the effort-sharing decision are transport-related.
- The member states's renewable energy target is in excess of 30%.
The member states concerned are Austria, Finland, Denmark, Italy, Spain, Belgium, Luxembourg, Portugal, Ireland, Slovenia, Cyprus and Sweden.
Access to CDM and JI credits has to be carefully balanced, and the final agreement sticks close to the critical balance struck by the EC in its original proposal.
Greater use of credits can increase the cost-effectiveness of reducing emissions, but also means that the emission reductions take place outside the EU, reducing the domestic benefits for the EU in terms of technological leadership and pollution reductions.
The limits on credits aim to ensure that the package triggers investments in cleaner technologies and renewable energy, and thus puts Europe on the way to becoming a low-carbon economy. From the same perspective, member states are encouraged to use fewer credits than the allowed maximum.
6. What happens when an international agreement is reached?
The EU will increase its target up to 30% if developed countries agree to take equivalent measures under a satisfactory international agreement. To send a clear signal to the rest of the world on this commitment, the package contains detailed provisions that will take effect when an international agreement is reached and ratified. In particular:
- The targets can be adapted to be consistent with a higher international target. The member states' targets should be adjusted to achieve the European Community's greenhouse gas reduction commitment in this context.
- The EC will propose how to include emissions and removals related to land use, land use change, and forestry (LULUCF).
7. How do emissions need to evolve between 2013 and 2020?
The third phase of the ETS and the national targets for non-ETS emissions foresee a linear reduction path in 2013-2020. In the effort-sharing decision, member states have annual binding emission limits in accordance with the reduction path, and they must report their emissions to the EC each year. This will ensure a gradual move towards agreed 2020 targets, in sectors where changes take time, such as buildings, infrastructure and transport.
To increase the cost-effectiveness of the reduction path, several flexibility measures are provided, allowing member states to:
- Bank and borrow emission budgets (5% maximum) between years.
- Transfer overachieved emission reductions between member states.
- Invest in projects in other member states.
These flexibilities do not increase the total amount of greenhouse gas emissions in the EU; they only change the location of reductions and allow small changes in timing.
In addition to this, member states may use credits from CDM and JI in countries outside the EU (see also point 5).
Some member states have already achieved their respective Kyoto Protocol commitments, and they have therefore been given a starting point that allows them to follow a more logical reduction trajectory from today until the starting point. This adjustment of the starting point gives a marginal effect on emission reductions in the period 2013-2019 and does not affect the final target in 2020 in any way.
8. Will there be tougher targets in the future?
If we are to limit climate change to 2°C above the temperature in pre-industrial times, reductions will have to continue worldwide after 2020 as well.
Global emissions need to be halved by the middle of this century. To give certainty of this development, the effort-sharing decision clearly states that EU greenhouse gas emissions should continue to decrease beyond 2020, with a view to collective reduction of 80% by 2050 compared to 1990.
However, in reaching the 20% reduction target by 2020, we will be taking a decisive step on the path to steeper reductions in the future. At the same time, more advanced technologies will be needed to meet more stringent reductions in the future.
9. Will the rest of the world follow suit?
International negotiations on a global climate agreement for the post-2012 period are underway and due to be concluded in December 2009 at the United Nations climate change conference in Copenhagen.
The package allows the EU to show global leadership, by example, and to demonstrate that fighting climate change is fully compatible with continued economic prosperity.
10. What sort of penalties will be involved if national targets are not met?
Each member state is granted an annual budget of total allowed emissions in non-ETS sectors. The amounts are in accordance with a linear reduction path towards the final 2020 target. Member states are, however, allowed to borrow 5% of their allowed emissions from the next year and can bank the emission reductions they make in excess of their reduction targets for the following year.
Member states already monitor their greenhouse gas emissions and report on them every year. If a monitoring report for a given year shows that a member state is not in accordance with the allowed amounts specified in the effort-sharing decision, it will have to take corrective action.
Underachieved emission reductions will have to be achieved in the next year, multiplied by a factor of 1.08. On top of this, member states will have to submit a corrective action plan to the EC detailing, for example, by which measures and when they intend to get back on track, with a view to meeting their 2020 targets.
The EC and the Climate Change Committee (comprising the member states) can comment and give recommendations on the plans. In addition, there is a temporary suspension of the member state's eligibility to transfer part of its emission budget and JI/CDM rights to another member state. The EC can also launch an infringement procedure against the member state concerned.
There may also be external factors that encourage the EU to make emissions cuts. Under the Kyoto Protocol, any non-compliance needs to be made up, plus an additional restoration factor of 1.3.
The combination of the standard European Community infringement procedure and the mechanism for corrective action under the effort-sharing decision goes beyond the compliance mechanism available under the Kyoto Protocol. This strengthens the credibility of the EU's mitigation measures and also increases certainty for member states that achieve greater emissions than required and would like to sell their surplus emission allocations to another member state.
11. Can a member state set its own overall target for a reduction in greenhouse gas emissions?
The fact that there is no overall legally binding target for greenhouse gas emissions is the logical consequence of the introduction of a single EU-wide cap for the EU emissions trading system. Eventually, the market operators will decide where emission reductions will take place, most probably in places where they are most cost-efficient.
It is, therefore, not possible to define a specific target for a country at the EU level. Naturally, this will not prevent member states from adopting their own targets, giving visibility to their own efforts to fight climate change, benchmarking progress and engaging the public.
12. What are the next steps?
Following the agreement by the institutions on this decision, the immediate next step will be the technical implementation of what has been decided: to establish rules for transfers, prepare guidelines for reporting and plans, and so on.
Further adjustments will also be needed when an international agreement on climate change is reached. The EC will then report on implications and options for moving to a 30% reduction, as well as for the potential inclusion of LULUCF and maritime emissions in the effort-sharing decision, the ETS or through another measure.
The EC will also need to assess the needs and possibilities for further measures in non-ETS sectors and develop legislative proposals, as appropriate. This assessment will involve sector analysis and modeling to determine policies and measures, as well as stakeholder and member state consultations.
[1]Agriculture and waste lead to a substantial amount of non-CO2 greenhouse gas emissions (methane, N20). All non-CO2 greenhouse gas emissions represent some 20% of total greenhouse gas emissions in the EU, while CO2 represents some 80%.
[2]Malta and Cyprus have no reduction commitment under the Kyoto Protocol and thus no annual emission reporting requirement under the UNFCCC. But under the EU Monitoring Mechanism Decision 280/2004/EC, an annual inventory report has to be compiled by all member states.
Source: European Commission.