This week the Commission should publish its new legislative proposal on the Effort Sharing Decision (ESD) – the policy driving emission reductions for the remaining approximately 60% of EU greenhouse gas emissions, not covered under the Emissions Trading System (ETS).
In the context of the Paris Agreement, it is clear that a much stronger push to decarbonise is needed from the EU and Member States under the ESD.
As EU Climate Action and Energy Commissioner Miguel Arias Cañete stated already in 2014: “The science is clear. The time to act is now" and after COP21 in Paris last December promised Europe would do its homework.
Europe will need to deliver net zero emissions in the second half of this century. Policy options that would not incentivise reductions beyond a business as usual scenario in the ESD until 2030 will only increase the costs of reductions that need to occur economy-wide after 2030. That will put a strain not only on ESD, but also on industrial economy.
The good news is that overall EU emission reductions under the ESD are already on target to be much higher than the current target of 30% below 2005 levels by 2030. Member States could even deliver reductions of up to 50%. Our recent report: The Effort Sharing Dinosaur (May 2016) shows that Member States could even deliver total EU reductions of up to 50%!
We say higher targets need better flexibilities.
So what really is the problem here? Well, the new individual Member States’ national reduction targets are not likely to capture the most cost-effective EU-wide emission reduction potential spread across Europe. The new ESD II targets will be set based on GDP/capita, essentially under the solidarity principle, with some adjustments. This is likely to place the weight of mitigation responsibilities away from areas of cheapest reduction potential. Member States with higher GDP/capita will have to deliver more reductions even though these may not be the cheapest opportunities within the EU.
In Sandbag’s new report we show that the effort could be shared in a more balanced way. Wealthier states with higher targets but smaller cost-efficient reduction opportunities could pay countries with lower GDP/capita to cut their ESD emissions exactly where cost is lowest.
Flexibilities should help Member States achieve more emission reduction at the lowest cost, not break the ESD system. Photo credit to Laura Saarinen .
Increased Member State ESD emissions credit trading would generate economic incentives for both poorer and wealthier Member States and could reduce opposition to higher targets. Up to 2 billion tonnes of additional emission reductions could be delivered between 2021-2030 with an ESD target of 50% below 2005, if these flexibilities are added. This is equivalent to more than two years of Germany’s CO2 emissions at current levels!
We’re not the only ones to talk about this. The existing ESD already includes some flexibilities allowing limited transfer of effort between Member States. The October 2014 Council Conclusions set out further options allowing Member States to meet their 2030 targets more cheaply and collectively in some sectors.
We have assessed the options proposed by the Council in our newest report. We’re concerned that these options are economically and environmentally risky in a run-up to 2050. The only option that should safely make it into the ESD II, to ensure a greater emissions reduction at lowest cost, is a European Project-Based Mechanism (EPM).
Our proposal for a new European Project-Based Mechanism would build on the experience with other project based policies such as Joint Implementation (JI) and the Clean Development Mechanism (CDM) and would take into account lessons learned with these mechanisms to date.
Under this intra-EU offsetting mechanism, a project in a host Member State could generate credits for other Members States to buy for their compliance. This would facilitate compliance for Member States with higher than the EU average targets and limited cost-efficient emission reduction potential, and host countries would benefit from increased investment flows into their economies.
Let’s take a closer look at our analysis to understand why an EPM is the only solution that works.
Unless the ESD establishes itself as an instrument able to drive additional emissions reductions, the inclusion of any flexibility options diluting the size of its emissions reduction targets would be a dangerous move.
Interaction between reductions required under the EU ETS and ESD is likely to endanger both industrial growth in Member States’ economies after 2030 and the ability to deliver the 2050 target. The same applies to any interactions with Land use, land-use change and forestry (LULUCF) sectors.
In order to facilitate additional, fair and cheap emissions reductions in the ESD up to 2030, and to facilitate achievement of EU-wide 2050 ambition at the lowest possible cost, the EU institutions and Member States should:
- Introduce a new market-based flexibility between Member States: a European Project-Based Mechanism (EPM), within the ESD only
- Prevent the inclusion of any further flexibilities that would dilute the ESD’s 2030 target and increase the current huge EU-wide surplus of Annual Emissions Allocations (AEAs). This includes not allowing banking of surpluses of AEAs from ESD I to ESD II. Flexibilities with other climate policies with surpluses or potential to increase surpluses (such as the EU ETS and LULUCF) should not be considered until after 2030.
Flexibility options with policy areas outside the ESD II will move us away from a cost-efficient reductions trajectory in the run up to 2050 – something we should remind the politicians of this summer!
Source: New feed