Explanatory Memorandum to COM(2016)482 - Binding annual greenhouse gas emission reductions by Member States from 2021 to 2030 for a resilient Energy Union and to meet commitments under the Paris Agreement - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2016)482 - Binding annual greenhouse gas emission reductions by Member States from 2021 to 2030 for a resilient Energy Union and to ... |
|---|---|
| source | COM(2016)482  |
| date | 20-07-2016 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
In October 2014, the European Council agreed the 2030 policy framework for climate and energy. The framework sets out the European Union (EU)'s commitment to a binding target of at least a 40% domestic reduction in economy-wide greenhouse gas emissions (GHG) by 2030 compared to 1990. All sectors should contribute to achieving these emission reductions. The European Council confirmed that the target will be delivered collectively by the European Union in the most cost-effective manner possible, with the reductions in the Emission Trading System (ETS) - and non-ETS sectors amounting to 43% and 30% respectively by 2030 compared to 2005.
With current implemented policies, GHG emissions are not expected to sufficiently decrease to reach the European Union's target of at least 40% reductions on 1990 by 2030 and, more specifically, a 30% GHG reduction in non-ETS sectors compared to 2005. Under current trends and with full implementation of existing legally binding targets and adopted policies relating, amongst others, to energy efficiency, energy performance of buildings, CO2-reductions from road vehicles, renewables, landfill sites, the circular economy or fluorinated greenhouse gases, emissions covered by the Effort Sharing Decision 1 ('ESD') are only projected to decrease by around 24% below 2005 levels in 2030. Hence, national reduction targets which provide the incentive for further policies driving deeper reductions are required. This proposal defines national targets in line with an EU-wide reduction of 30% in the non-ETS sectors compared to 2005 by 2030 in a fair manner while providing for cost-effectiveness as endorsed by the European Council. Member States contribute to the overall EU reduction in 2030 with targets ranging from 0% to -40% below 2005 levels. The reductions under this Regulation promote improvements notably in buildings, agriculture, waste management and transport.
This proposal also implements EU commitments under the Paris agreement on climate change. On 10 June 2016 the Commission presented a proposal for the European Union to ratify the Paris agreement 2 . This proposal followed the Commission's assessment of the Paris agreement 3 .
The 21st Conference of the Parties of the United Nations Framework Convention on Climate Change (UNFCCC) in December 2015 adopted the Paris Agreement. This includes a long-term goal to keep the global temperature increase well below 2°C above pre-industrial levels and to pursue efforts to keep it to below 1.5°C. In line with scientific findings of the International Panel on Climate Change (IPCC), the EU's climate objective is to reduce GHG emissions by 80-95% in 2050 compared to 1990, in the context of necessary reductions by developed countries as a group.
The European Union and all other Parties are obliged to communicate nationally determined contributions every 5 years, informed by the Agreement's global stocktake taking place in 2023 and every five years thereafter.
In order to achieve the European Union's domestic long-term objective to cut emissions by at least 80% by 2050, continued progress is needed for our transition to a low-carbon economy. The transition requires changes in business and investment behaviour and incentives across the entire policy spectrum. Importantly, the transition will provide the European Union with opportunities for jobs and growth. It will stimulate investment and innovation in renewable energy, contributing to the European Union's ambition of becoming a world leader, and increasing growth in markets for EU produced goods and services, for instance in energy efficiency. In the context of transition to a clean energy, additional policies and measures should be implemented to reduce emissions by Member States. Action by local and regional governments, cities and by local and regional organisations should be strongly encouraged. Member States should ensure cooperation between central and local authorities at different levels.
The implementation of a robust climate policy framework is a key element for building a resilient Energy Union with a forward-looking climate policy. Achieving this requires continuation of ambitious climate action also in the non-ETS sectors and progress on all aspects of Energy Union to provide secure, sustainable, competitive and affordable energy to its citizens.
Norway and Iceland have expressed an intention to participate in the joint action by the Union and its Member States. The terms governing possible participation by Norway and Iceland will be laid down in accompanying legislation. For the period from 2021 to 2030 Norway has made clear that it intends to fully participate in the reduction effort for the non-ETS sectors. As Member State targets range from 0% to -40%, on the basis of Gross Domestic Product (GDP) per capita, Norway would be attributed an estimated numerical reduction target of 40% below 2005 levels and flexibility mechanisms will be available for Norway and Iceland as for Member States. Final targets will be determined only when the proposal is adopted. This proposal is without prejudice to how Norway and Iceland will participate in the joint action.
• Consistency with existing policy provisions in the policy area
This proposal, in general, continues the approach of existing policy provisions for non-ETS sectors laid down in the Effort Sharing Decision. The European Council explicitly called for continuation of the current policy architecture and gave guidance on specific issues to be addressed for the period 2021 to 2030, including for setting national reduction targets.
The overarching approach for setting the national reduction targets, in line with the approach taken in the current Effort Sharing Decision and guidance by the October 2014 European Council, is on the basis of relative GDP per capita. For MS with a GDP per capita above the EU average, targets are further adjusted to reflect cost-effectiveness within this group. Such an approach balances considerations of fairness and cost effectiveness as confirmed by the European Council.
In order to stimulate real additional action in the land-based sector, including agriculture, while ensuring robust accounting and overall environmental integrity, this proposal includes a new flexibility which allows for a limited use of net removals from certain Land Use, Land Use Change and Forestry (LULUCF) accounting categories, while ensuring no debits occur in the LULUCF sectors, to account for Member State compliance towards the targets in the ESD sectors if needed.
This is in line with guidance provided by the European Council noting the lower mitigation potential of the agriculture and land use sector, and the importance of examining the best means to optimise this sector's contribution to greenhouse gas mitigation and sequestration, including through afforestation.
Another new flexibility has also been included, consistent with European Council guidance, for Member States with national emission reduction targets significantly above both the EU average target and their cost effective reduction potential, as well as for Member States that did not have free allocation for industrial installations in 2013. The flexibility allows eligible Member States to facilitate the achievement of their ESD obligations through the cancellation of EU ETS allowances.
• Consistency with other Union policies
Complementary legislative proposals are envisaged for later in 2016 to help to achieve the targets agreed by the European Council of at least 27% for the share of renewable energy consumed in the EU by 2030 and improving energy efficiency in 2030 by at at least 27% (This will be reviewed by 2020, having in mind an EU level of 30%). These proposals should facilitate the achievement of the non-ETS climate targets, in particular in the buildings sector. In addition, a Commission Communication on the decarbonisation of the transport sector addresses action to further reduce GHG emissions in transport.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
Climate change is a trans-boundary problem which cannot be solved by national or local action alone. Coordination of climate action is necessary at European level and, where possible, at global level. EU action is justified on grounds of subsidiarity. Since 1992, the European Union has worked to develop joint solutions and drive forward global action to tackle climate change. More specifically, action at EU level will provide for cost effective delivery of the 2030 and long-term emission reduction objectives while ensuring fairness and environmental integrity.
Articles 191 to 193 of the TFEU confirm and specify EU competencies in the area of climate change. The legal basis for this proposal is Article 192 TFEU. In accordance with Article 191 and 192(1) TFEU, the European Union shall contribute to the pursuit, inter alia, of the following objectives: preserving, protecting and improving the quality of the environment; promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change.
Since the objectives of this Regulation cannot be sufficiently achieved by the Member States but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty of the European Union.
This proposal for a Regulation complies with the proportionality principle because it does not go beyond what is necessary in order to achieve the objectives of implementing the EU's greenhouse gas emission reduction target for the period 2021 to 2030 in a cost-effective manner while at the same time ensuring fairness and environmental integrity.
The European Council has agreed to an overall economy-wide and domestic reduction of at least 40% of greenhouse gas emission levels below 1990 levels. This proposal covers more than half of these greenhouse gas emissions, and the objective of the proposal is best pursued through a Regulation. It has considerable synergies with the Monitoring Mechanism Regulation 4 ('MMR'). Requirements are placed on Member States as well as the European Environment Agency to contribute to achieving the necessary national emission reductions.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
An evaluation of the ESD was carried out in 2015 in advance of this proposal in accordance with its Article 14 requiring the European Commission to draw up a report evaluating the implementation of the ESD by 31 October 2016 5 .
While the ESD is still in the early stages of implementation, ESD commitments can be considered to have been effective at least partly in stimulating new national policies and measures promoting effective reductions of GHG emissions within the ESD scope. This effect has been reinforced by the fact that it was launched together with a number of other EU climate and energy policies as part of the 2020 package, in particular on energy efficiency and renewable energy. For several ESD sectors including buildings, transport, agriculture and waste, a significant part of the emissions reductions to date can be attributed to factors such as technological changes that are influenced by policy interventions resulting from the 2020 package. Apart from EU-wide and national climate and energy policies, the economic crisis and growth in economic activity in some countries affected GHG emissions.
Overall, the ESD has resulted in Member States becoming more active in considering new measures to reduce emission in its sectors and how to best design them. The ESD was found to have resulted in limited additional administrative burden at Member State level, although there may be opportunities for reducing administrative costs. The administrative costs for the Commission of the monitoring and compliance system are in the order of 650 000 EUR per year, while the annual costs for all 28 Member States taken together is estimated to be in the order of 500 000 EUR per year.
• Stakeholder consultations
The European Commission organised a public consultation 6 on the effort of Member States to reduce their greenhouse gas emissions to meet the European Union's greenhouse gas emission reduction commitment in a 2030 perspective.
The consultation complemented the consultation on the Green Paper on a 2030 framework for climate and energy policies that was carried out in 2013 and was fully open to the public. The consultation focused on enhancing the existing flexibility instruments; reporting and compliance; the approach to setting the national greenhouse gas reduction targets; and a limited one-off flexibility between ETS and ESD. It also addressed complementary EU-wide action to achieve the reduction targets, and capacity building and other support for implementation at national, regional and local level. The Commission received 114 formal replies from a broad spectrum of stakeholders from Member States. 7
The European Commission also consulted Member States in four meetings of the Climate Change Committee Working Groups held in 2015. These consultations addressed different options for enhancing the existing domestic flexibility mechanisms in the ESD in the period after 2020 and how to administer reporting and compliance.
A synopsis of the stakeholder consultation is provided in Annex 8.2 of the impact assessment for this proposal.
• Collection and use of expertise
The quantitative assessment of future impacts in the EU builds on and complements the analysis undertaken for the 2030 framework proposal and updates it on specific ESD related elements. The Commission contracted the National Technical University of Athens, IIASA and EuroCare to model an updated reference scenario 8 , and on this basis policy scenarios were quantified. Energy system and CO2 emission modelling is based on the PRIMES model. The non-CO2 GHG emission modelling is based on the GAINS model. Agricultural non-CO2 emissions are assessed with the CAPRI modelling framework.
Expertise reflected in stakeholder contributions during the public consultation, as well as national GHG projections submitted by Member States under the Monitoring Mechanism Regulation in 2015, have been used as additional sources of knowledge to complement this analysis.
A supporting study for the evaluation of the implementation of the ESD was carried out in 2015 for the Commission by a group of external consultants. 9
• Impact assessment
The impact assessment accompanying this proposal 10 complements the analysis conducted in the 2014 impact assessments supporting the 2030 climate and energy framework 11 . This formed the analytical basis to set the at least 40% GHG emission reduction objective by 2030 compared to 1990 as well as the split into the respective emission reduction targets of 30% and 43% between the non-ETS and ETS sectors by 2030 compared to 2005.
The impact assessment considered options for implementing the reduction in the non-ETS sectors other than the LULUCF sectors, building upon the current ESD and the guidance given by the European Council. The impact assessment looks at what the impact of the proposal would be on fairness, cost efficiency, and environmental integrity.
The impact assessment revisits the methodology to set targets based on GDP per capita which ensures fairness and updates this based on 2013 data. It assesses to which extent targets could be adjusted within the group of Member States that have an above average GDP per capita and for which Member States the cost efficient achievement of the targets may be a particular concern. Regarding the starting point for the linear target trajectory, a methodology similar to the existing ESD methodology based on recent emissions is seen as desirable from an environmental integrity perspective while administratively feasible.
The impact assessment shows that the new flexibilities from the ETS and the LULUCF sectors need to be limited to ensure that real additional action is still taken in the non ETS sectors in line with the long term reduction objectives. At the same time both flexibilities allow specific Member States circumstances to be taken into account. For the one off flexibility this typically relates to concerns regarding cost efficiency for those Member States with the highest targets. For the LULUCF sector this relates to concerns of limited mitigation potential regarding non-CO2 emissions in the agriculture sector, which is of most importance to Member States with a high share of agriculture emissions. The existing flexibilities are untested and offer a lot of scope to reduce costs and achieve cost efficiency. Any enhancement needs to take into account the potential administrative impacts. Administrative costs for both Member States and the European Commission are at present limited and further reduced by the shift to a five year compliance check.
The proposed policy mostly affects national administrations. There are no direct reporting obligations or other administrative consequences for businesses, SMEs or micro-enterprises. Depending on the nature and scope of any national and EU measures to reduce emissions they will affect various stakeholders, including businesses and consumers. Any such specific effects will need to be assessed within those policy proposals.
• Regulatory fitness and simplification
In line with the Commission commitment to Better Regulation, the proposal has been prepared inclusively, based on transparency and continuous engagement with stakeholders. Due to the proposed control of annual compliance every fifth year, the associated administrative burden and costs for administering compliance will be reduced for Member States and the Commission. While maintaining the current annual reporting system but switching to compliance checks every 5 years the total costs over the whole commitment period 2021-2030, including for the Commission and Member States, are estimated at 60-70% of the administrative costs for a system with annual compliance checks, which are in the order of 1 150 000 euro per year.
There are no direct reporting obligations for Small and Medium Enterprises or other enterprises under the current legislation. The proposal would not change this situation.
• Fundamental rights
As the proposed policy primarily addresses Member States as institutional actors, it is consistent with the Charter for fundamental rights.
4. BUDGETARY IMPLICATIONS
The indirect impacts on Member States’ budgets will depend on their choice of national policies and measures for GHG emission reductions and other mitigation action in sectors covered by this initiative. The proposal for setting national targets will reduce cost effects for low-income Member States compared to a proposal that would set targets solely based on cost-efficiency. It foresees enhanced flexibility to ensure that costs for high-income Member States will remain limited.
The proposal foresees continued annual reporting but with less frequent compliance checks. This will reduce the administrative costs for Member States.
This proposal has very limited implications for the EU budget.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
Transparent, regular reporting of Member State obligations coupled with robust compliance checks are fundamental elements to ensure progress towards delivering the EU long-term emission reduction commitments.
The monitoring of progress and compliance assessment will continue to rely on a comprehensive framework of monitoring, reporting and verification laid down in the proposal as an amendment to the relevant Articles of the MMR. The robust reporting and evaluation as defined under the current ESD will be maintained for the purposes of this proposal with the only difference that they are now fully integrated with the relevant provisions in the MMR. These are planned to be integrated into the Governance of the Energy Union, for which a Commission proposal is foreseen by the end of 2016 in the Commission’s work programme and might be further streamlined as part of that proposal.
This proposal lays down that if, based on the annual evaluation performed by the Commission, a Member State's progress deviates from its annual emission allocations it shall submit an action plan in order to ensure that the Member State complies with its obligations. Any such action plan is expected to be taken into account in the context of that Member State's integrated national energy and climate plan and will be part of the governance system to be set out in the forthcoming legislative proposal on the Governance of the Energy Union. The obligation for Member States to make such national integrated energy and climate plans is foreseen to be included in that legislative proposal.
Moreover, the integrated national energy and climate plans in the forthcoming legislative proposal on the Governance of the Energy Union should refer to the annual binding national limits set under this Regulation.
Member States maintain an obligation to comply with annual limits and a linear trajectory in the period 2021-2030 though the comprehensive review of Member States' GHG emissions inventories and the actual compliance check will be organised every 5 years instead of annually. The Commission would perform two compliance checks, in 2027 (for the years 2021-2025) and in 2032 (for the years 2026-2030). This allows that the potential contribution from activities relating to afforested land, managed cropland and managed grassland taking place pursuant to Regulation [ ] can be considered.
To ensure that the compliance assessment relies on accurate data, the GHG emissions inventories annually submitted by Member States will continue to be reviewed by the Commission.
A review of the operation of this Regulation is to take place by 28th February 2024, and every five years therafter. This review assesses the overall functioning of this regulation such as the flexibility to transfer parts of the annual emission allocations between Member States, which is of importance to ensure the cost efficiency. The review can also be informed by the results of the global stocktake of the Paris Agreement.
In addition to the compliance checks with legally binding consequences, the progress towards the 2030 targets will be monitored every year as part of the progress report published by the Commission under Article 21 of the MMR and the results will continue to be used in the context of the European Semester and integrated in the State of the Energy Union Report. 12 The tracking of progress provides early warning in case Member States are lagging behind with their obligations and provides encouragement to take the necessary actions. Existing requirements will continue for Member States to report every second year on the policies and measures implemented in order to achieve their obligations targets under this proposal as well as on their emission projections.
• Detailed explanation of the specific provisions of the proposal
Article 1 – Subject matter
This article explains that the Regulation lays down the minimum contributions of Member States to emission reductions for the period from 2021 to 2030 and the rules for determining the annual emissions allocations and those on evaluation on progress.
Article 2 – Scope
The article defines the scope of coverage of the Regulation. It makes clear that this regulation covers the emissions from the IPCC source categories: energy, industrial processes and product use, agriculture and waste. Emissions from the sectors covered by the EU ETS and by the Regulation [ ] are not addressed under this Regulation. Article 3 – Definitions
The article defines the term GHG in terms of the greenhouse gases covered herein.
Article 4 – Annual emission levels for the period from 2021 to 2030
This article lays down Member States’ emission limits in 2030 as set in Annex I, and how emission levels are determined for 2021-2030. The approach of annually binding emission limits as laid down in the ESD is continued. The annual emission levels are determined based on a linear trajectory starting with average emissions for 2016-2018 based on the most recent reviewed GHG emission data. Annual emissions allocations (AEAs) in CO2 equivalent for each Member State for each year of the period will be set out in an implementing act.
Article 5 – Flexibility instruments to achieve annual limits
The article sets out the flexibility available to Member States to achieve their annual limits including flexibility over time through banking and borrowing of AEAs within the commitment period, and flexibility between Member States through transfers of AEAs.
Article 6 – Flexibility for certain Member States following reduction of EU ETS allowances
A new flexibility is established through the cancellation of ETS allowances up to an established limit. Eligible Member States will decide before 2020 if they want to use this flexibility and precise amounts will be determined in the implementing act setting out annual emission allocations. The flexibility is available to Member States listed in Annex II. The implementing act in Article 4 will also determine the maximum quantity of allowances that a Member State may choose to cancel in order to have it taken into account for its compliance with the limits.
Article 7 – Additional use of up to 280 million net removals from deforested land, afforested land, managed cropland and managed grassland
A new flexibility is established that allows Member States, to the extent that they need it, to use a limited amount of net removals from Regulation [ ] subject to certain conditions. The limits for each Member States, in CO2 equivalent, are listed in Annex III.
Article 8 – Corrective action
If, based on the annual evaluation performed by the Commission, a Member State's progress deviates from its annual emission allocation, it will need to prepare an action plan with additional measures to be implemented in order to ensure that it will comply with its obligations.
Article 9 – Compliance check
The provisions for compliance check and corrective action laid down in the ESD are continued, with the change that only every five years there will be a compliance check for each of the previous years of the period. Should a Member State be found non-compliant with its annual emissions allocations for any year of the period, corrective action in the form of the addition to the next year's emissions of a quantity equal to the amount in tonnes of CO2 equivalents of the excess emissions multiplied by a factor of 1.08 will apply. The right to transfer AEAs will be suspended until the Member State regains compliance.
Article 10 – Adjustments
To ensure consistency of the EU-wide 2030 emissions target, any changes in the scope of the EU ETS (for example by changing the number of installations or sources covered by the EU ETS) need to be mirrored by a corresponding adjustment of this Regulation. The Article continues the provision laid down in the ESD explaining how such adjustments would be made. The use of credits generated pursuant to Article 24a of the EU ETS is also foreseen, continuing a flexibility that exists in the ESD. It also addresses the specific situation for Member States with positive limits in the ESD and increasing emission allocations between 2017 and 2020.
Article 11 – Registry
The Article continues the current implementation of the ESD in the Registry Regulation and adapts it to this Regulation. It is needed to ensure the accurate accounting of transactions under this Regulation and avoid any double counting.
Article 12 – Exercise of the Delegation
The proposal empowers the Commission to adopt delegated acts according to relevant procedures.
Article 13 – Committee procedure
This is the same committee procedure as established for the ESD using the Climate Change Committee.
Article 14 – Review
A review of all elements of the regulation to determine whether they remain fit for purpose is to be performed in 2024, and every 5 years thereafter.
The MMR is being amended in order to ensure that the reporting requirements currently applying to the ESD are continued within the framework of that Regulation. Member States are required to report yearly their relevant GHG emissions and they continue to be required to report every two years on their projections and policies and measures implemented to ensure compliance with their targets. In order to enhance transparency and facilitate inter Member State transfers, Member States are also obliged to report on the volumes that they intend to buy or sell in accordance with Article 5.
The Commission will track Member States' progress with their emission limits by including in the annual Climate Action Progress report an evaluation whether the progress made by Member States is sufficient for them to fulfil their obligations under this Regulation.