Annual emission allocations
Questions and Answers on annual emission allocations (October 2013)
Can Member States use the Clean Development Mechanism and Joint Implementation mechanism to meet their national targets under the Effort Sharing Decision?
The annual level of Clean Development Mechanism (CDM) and Joint Implementation (JI) mechanism credits any Member State can use in 2013-2020 is limited to 3% of its 2005 emissions.
However, the Effort Sharing Decision also allows certain Member States that have emission reduction targets, or which are allowed to increase emissions by up to 5% of 2005 levels, to use an additional 1% of credits. These credits can come only from CDM projects in least developed countries and small island developing states, and are not bankable or transferable. The Member States concerned are Austria, Finland, Denmark, Italy, Spain, Belgium, Luxembourg, Portugal, Ireland, Slovenia, Cyprus and Sweden.
Greater use of credits can increase the cost-effectiveness of reducing emissions. However, it 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 investments in cleaner technologies and renewable energy are triggered, thus putting Europe on the way to becoming a low carbon economy. From the same perspective, Member States are encouraged to use fewer credits than the maximum allowed.
Do Member States have any flexibility in meeting their annual targets under the Effort Sharing Decision?
To increase the cost-effectiveness of the emissions reduction path, several flexibility measures are provided. These include allowing Member States to bank and borrow emission budgets (5% max.) between years and to transfer (for example, by selling) over-achieved emission reductions to another Member State.
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, Member States may use Clean Development Mechanism credits and Joint Implementation mechanism credits from countries outside the EU (see point 5 above)
The national targets under the Effort Sharing Decision (ESD) foresee a linear reduction or limitation path in 2013-2020 (as does the EU ETS). In the ESD, Member States take on binding annual emission limits – known as annual emission allocations (AEAs) - in accordance with the reduction path and they must report their emissions to the European Commission each year. This will ensure a gradual move towards the agreed 2020 targets is achieved in sectors where changes take time, such as buildings, infrastructure, and transport.
The annual reports that Member States are required to make under the Effort Sharing Decision will cover not only their emissions but also the policies and measures they are undertaking and projections of their future progress. Together with the various flexibilities at their disposal, this should enable Member States to take timely action to ensure that they comply with their annual emission allocations.
If a Member State's report for a given year shows it is not in line with its annual limits, however, it will have to take corrective action.
Any shortfall in emission reductions will have to be achieved in the next year, multiplied by a factor of 1.08 as a penalty. On top of this, Member States will have to submit a corrective action plan to the Commission detailing, among other things, how and when they intend to get back on track towards meeting their 2020 targets. The Commission and the EU 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 any AEAs and JI/CDM rights to another Member State.
The Commission can also launch an infringement procedure against the Member State concerned.
The combination of the mechanism for corrective action and the potential use of the infringement procedure strengthens the credibility of the EU's mitigation measures under the Effort Sharing Decision. It also gives greater certainty to Member States which achieve greater emission reductions than required and would like to sell their surplus emission allocations to another Member State.
The Decision determining Member States' annual emission allocations has two tables with AEAs for the period 2013-2020. Why is that?
This is because the 'global warming potential' (GWP) values for certain greenhouse gases that Member States use in their emissions reporting will change for the reporting year 2013 onwards. Greenhouse gas emissions are reported with two years delay, which means Member States will report on their emissions for the year 2013 in 2015. As the new GWP values did not yet apply when the Decision entered into force, the AEAs have been calculated by applying both the current GWP values and the future ones to ensure legal certainty and consistency between reported emissions and AEAs throughout the ESD commitment period. The new GWP values are taken from the Fourth Assessment Report of the Intergovernmental Panel on Climate Change.
Pursuant to Article 10 of the Effort Sharing Decision (ESD), the AEAs shall be adjusted if there is a change in the coverage of the EU ETS that affects the ESD. A general adjustment of Member States' AEAs was published by the Commission in October 2013 due to the extension of the EU ETS scope for the 2013-2020 period. As a result of activities included in the ETS that were previously covered by the Effort Sharing Decision, the AEAs were reduced by a quantity corresponding to the amount of ETS allowances issued to that Member State as a result of the scope extension.
In some cases, the AEAs also had to be adjusted because a Member State unilaterally (in addition to the general ETS scope change mentioned above) included an activity in the EU ETS that was not previously covered by the system, or because a Member State excluded certain small installations from the ETS from 1 January 2013.
Member States' annual emission allocations (AEAs) may change after 2013 for two reasons:
- If a Member State excludes from or includes in the EU ETS any further installations or activities for the period 2013-2020;
- As a result of new guidelines for national greenhouse gas inventories that will be applied from 2015 onwards. Under Article 27(2) of the Monitoring Mechanism Regulation (which sets EU rules for reporting and monitoring of Member States' greenhouse gas emissions), a revision of Member States' AEAs might happen in 2016 if the new guidelines result in changes exceeding 1% of Member States' total emissions. Any such revisions would only affect AEAs for the period 2017-2020.