Two new briefings show how small changes to the Effort Sharing Regulation – currently being debated by the European Institutions – could slow EU greenhouse gas emissions cuts. Hundreds of millions of tonnes of CO2 emissions are at stake.
Double trouble with the ESR Safety Reserve
The Safety Reserve was introduced under the Effort Sharing Regulation to ‘recognize early efforts’ from lower-income member states that are expected to overachieve their targets in the current period (2013-2020). To the extent that the EU as a whole achieves its target for 2030, these lower-income member states can use emission allocations from the Safety Reserve to help them achieve compliance in the period 2026-2030. However, as explained in our previous briefing, this Reserve reduces the incentive for Member States to make additional reductions and for transfers within the ESR. Its potential use should therefore be limited as much as possible.
In our first briefing we show that, rather than the size, it is the second distribution round that will be key in determining how much of the Reserve will eventually be available for use:
- With just one distribution round, we expect that a large share of the Safety Reserve will remain unused, as most eligible Member States won’t need it to achieve compliance. Our analysis shows that only about one third of the overall available limit would eventually be used.
- With the introduction of a second distribution round, it is probable that the Reserve will be fully exhausted by just a few member states. They would be able to cover more than half of their expected deficit under Business as Usual with allocations from the Reserve. In other words, the second distribution round would halve additional effort they would have to do beyond Business as Usual. This clearly undermines the incentive to reduce, either domestically or through cooperation with other Member States.
Policy makers should not only focus on limiting the overall size of the Safety Reserve, but also – and even more importantly – on preventing or at least limiting a second distribution round. Our main recommendations are therefore:
- Limit the access to the Safety Reserve to one distribution round. The introduction of a second distribution round risks to give just a few Member States a very large access to the Reserve;
- Limit the overall cap on the Safety Reserve as much as possible, to further reduce its negative impacts;
- If a second distribution round would be included after all, put a limit on the access a Member State could get in that distribution round (e.g. at its original access to the reserve, before applying a pro rata reduction).
Too much flexibility between the ETS and ESR
Our second briefing shows that the one-off flexibility between the Effort Sharing Regulation and the EU ETS reverts the progress made during the ETS trilogues, and could lead to an increase of the total EU emission budget of up to 200 million tonnes, due to the interactions with the MSR:
- Worst case, the one-off flexibility would cause the MSR to lose one year of double withdrawal. In that case, the total EU emission budget for 2021-2030 would increase by about 200 million tonnes. In other words, the one-off flexibility could revert the welcome improvements to the MSR as agreed last month.
- Even if this worst case does not materialize, it’s still certain that member states would be able to use ETS allowances under the ESR which would have otherwise been absorbed and subsequently cancelled by the MSR. Under Sandbag’s low case emission scenario, the one-off flexibility would lead to an increase in the ESR budget of 100 million tonnes, and only a 61 million tonne decrease in the ETS budget. The net impact would be an increase in the total budget of 39 million tonnes.
This goes directly against both the agreement of a strengthened MSR as reached last month, as well as against the European Council conclusions from October 2014 (which stated that the environmental integrity should be preserved when developing the one-off flexibility mechanism).
The European Parliament has put forward a solution (Amendment 48) that prevents any undesired interaction between the one-off flexibility and the MSR. According to Sandbag’s analysis, it effectively guarantees a net-zero impact of the one-off flexibility on the EU’s emission budget. The Council should accept this amendment as a strict minimum to ensure at least some notion of preserving the environmental integrity.
Cover image with thanks to Rob Bates