The total effort for greenhouse gas reduction needs to be divided between the EU ETS and non-ETS sectors. 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 EU 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 EU ETS will be introduced from 2013, an effort sharing arrangement between Member States has been determined solely for the reduction in emissions from sectors not covered by the EU ETS.
These sectors, which are made up of small-scale emitters in a wide range of sectors such as transport (cars, trucks), buildings (in particular heating), services, small industrial installations, agriculture and waste, currently represent some 60% of total GHG 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 areas such as energy efficiency standards, CO2 emissions from cars and waste will also contribute to emission reductions in these sectors.
Member States all have individual targets expressed as a percentage, which average out at -10%. GDP/capita has been used as the main criterion when setting the national targets. This approach has two advantages. It ensures that the actual efforts and the associated costs are distributed in a fair and equitable manner, and it allows for further, accelerated growth in less wealthy countries where economic development still needs to catch up with other Member States. The package therefore 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/capita is below the EU average is therefore correspondingly lower (i.e. 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/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/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.
In sectors that do not come under the EU ETS, such as buildings and road transport, many of the important decisions will be made at 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, and to reduce landfilling can also have a significant impact on GHG 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 labelling 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 Clean Development Mechanism (CDM) and Joint Implementation (JI) projects (see point 5).
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 installation level within the EU ETS, as well as the overall greenhouse gas emissions of Member States as officially reported to the United Nations Framework Convention on Climate Change (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.)
In the original Commission proposal, the annual level of Clean Development Mechanism (CDM) and Joint Implementation (JI) 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% of 2005 emissions, 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 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 Commission 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.
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 third phase of the EU 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 Commission each year. This will ensure a gradual move towards agreed 2020 targets, in sectors where changes take time, such as buildings, infrastructure, and transports.
To increase the cost-effectiveness of the reduction path, several flexibility measures are provided, allowing Member States to:
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 the Clean Development and Joint Implementation Mechanisms in countries outside the EU (see point 5 above)
Some Member States have already achieved their respective Kyoto 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.
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.
International negotiations on a global climate agreement for the post-2012 period are under way and due to be concluded in December 2009 at the UN 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.
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 Commission detailing e.g. by which measures and when they intend to get back on track with a view to meeting their 2020 targets. The Commission 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 Commission can also launch an infringement procedure against the Member State concerned.
There may also be external factors that encourage the EU 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 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 which achieve greater emissions than required and would like to sell their surplus emission allocations to another Member State.
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 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.
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, etc.
Further adjustments will also be needed when an international agreement on climate change is reached. The Commission 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 EU ETS, or through another measure.
The Commission 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 modelling to determine policies and measures, as well as stakeholder and Member State consultations.