We don’t think so. In today’s blog:

  • Sandbag releases new figures comparing cost-effective reduction potential and the Effort Sharing Regulation 2030 targets for Member States
  • Sandbag updates the data on flexibility between the Effort Sharing Regulation and Forest Management

“Effort Sharing is a difficult task but we need to rise to that challenge” said Ségolène Royal, the French Minister for Environment, during yesterday’s first Environment Ministers meeting on the EU Effort Sharing Regulation (ESR) after the ratification of the Paris Agreement.[1]
The Ministerial discussion has been dominated by fears around the cost of meeting the national emission reductions under the ESR. Several countries have already indicated they aren’t happy with targets assigned by the Commission at the end of July. Austria said its goal of reducing emissions by 36% is “very ambitious and cannot be achieved just with national measures,” Finland was taken by surprise with their goal of 39% and Romania said its 2% reduction goal is going to be difficult to achieve. Poland has rejected its target from the start and stated its intention to form an alliance against the targets with Italy, who are also not happy.
Well, to some extent they are right. The new individual Member States’ national reduction targets are not likely to capture the most cost-effective EU-wide emission reduction potential. The new ESR targets are set based on GDP/capita, essentially under the solidarity principle, with some adjustments. This is likely to place the weight of emission cuts 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.
We first explained this in July in our report Bend it, don’t break it, before the Commission’s proposal. Today we release updated figures that include the targets proposed by the Commission.

Fig. 1. Difference between proposed national reduction targets under 30% ESR EU-wide target and Member State cost-efficient emission reduction potential in 2030 – updated!

Source: Minimum of cost-efficient potential (CEP) for 2030 from European Commission Impact Assessment.

This problem can be turned into an opportunity. What’s hidden behind the effort sharing is a financial investment that will create new jobs if the flexibilities are improved. We support Luxemburg, Belgium, Czech Republic, Bulgaria, Romania, Estonia, and Croatia in their ask for increased Annual Emission Allocations (AUAs) trading between Member States. Such trading should regard the emission cuts in sectors involved by restricting the projects only to the ESR sectors and to ensure environmental integrity. Member States want to see a clear pricing mechanism.
Back in July in Bend it, don’t break it we analysed the flexibilities options suggested by 2014 October Council Conclusions. Increased Member State ESR 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 ESR 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!
What happens if the ESR flexibilities are not improved?
Poland is arguing for some carry over of allowances from the ESD I and use of 2020 targets as a starting point. Jan Szyszko, the Polish Minister for Environment, argued to add more flexibilities between ESR and the EU ETS, as well as between the ESR and forest management.
These are ideas are very appealing in principle, but in practice any flexibilities that dilute the ESR EU-wide target will only buy Member States more time before taking real action to cut emissions, instead of sticking to the cost-effective path.
The idea of linking the ETS and ESR  on the surfacecould allow emission reductions to be carried out across sectors more efficiently, for example by allowing sectors covered under the ESR to access cheaper emission reduction opportunities in the sectors covered by the ETS. In practice though any linking would take place in the context of the current surplus of over 2 billion EUAs under the ETS, projected to increase to 4 billion in 2030.
Correspondingly the ETS carbon price will remain low without significant reform, as demonstrated in the analysis from our flagship briefing on the EU ETS reform Getting in touch with reality. Providing access to EUAs from the ESD would likely weaken incentives for emission reductions in the ESD sectors.
There are other issues with this idea that are going to make the emission reductions in the ERS more expensive in the 2050 perspective:

  • Different regulatory regimes in ESD and the ETS
  • Different barriers to entry in ESD and ETS sectors
  • Different stages of technological development in the ETS and ESD

All these Bend it, don’t break it explores in detail.
Forest management – a very different sort of animal
On the inclusion of forest management, the LULUCF sector is different from the EU ETS and ESD sectors in that besides including activities that result in CO2 emitted, it also contributes to the removal of emissions. These removals, however, are not permanent in nature, take a long time to be realised, and the human impact on them is hard to assess. The data on emissions and removals resulting from forest management is highly uncertain and different accounting methods have led to production of excessive credits from carbon sinks.
Some Member States question the LULUCF flexibility for similar reasons. There is also a question of whom would really benefit from this flexibility? Austria and Hungary are concerned with the grouping presented in the Commission’s proposal. Finland goes further than that and questions the whole idea of LULUCF flexibility. The countries that may need the flexibilities most, including Finland, may find that the LULUCF will result in an additional source of carbon, rather than a sink helping them to achieve their targets.
We have come to the same conclusion in July. In Bend it, don’t break it we analysed the European Environment Agency data and demonstrated that most Member States with targets above the EU average and a lower cost-effective potential could benefit from flexibility with LULUCF. However, some countries in that group would not be able to benefit (Belgium and the Netherlands in particular due to comparatively lower availability of sinks), so it not a viable solution for the EU as a whole. Furthermore, using credits from a currently uncapped system, would not incentivise necessary emission reductions and countries could find it much more difficult to comply with their ESD targets even in the period to 2030.
Today we present updated figures in the figure below:

Fig. 2. Afforestation credits available to Member States in 2030 compared to difference between CEP and 30% target – updated

Source: Minimum of cost-efficient potential (CEP) for 2030 from European Commission Impact Assessment.

A reminder to all: Europe will need to deliver net zero emissions in the second half of this century economy wide. Policy options that would not incentivise reductions beyond a business as usual scenario in the ESR until 2030 will only increase the costs of reductions that need to occur economy-wide after 2030.
Introduction of flexibilities to the ESR through the European Project Mechanism can help boost investments and job creation, while diluting the ESR targets will not only put a financial strain both non-ETS and industrial economy.

Flexibilities need to be in line with the EU respective economy-wide emission reductions obligations.
Picture used under the Creative Commons License.

The message about the importance of keeping the targets corresponding to the economy-wide reduction challenge has been taken up by the largest EU players including Germany and the UK who argue that the discussion about the Effort Sharing Regulation should take place together with the ongoing one on the EU ETS.
So really the only option for the ESR is to redistribute the effort more cost-effectively in order to raise the targets for 2030. The European Parliament and the coalition of progressive Member States must heed this message!  
Will the Member States follow? Poland should not take long in getting on board with the mechanism that will make it easier to achieve the higher targets.  In conversation with the Polish government we argued that the EPM will benefit the economy of countries with larger cost-effective reduction potential and incentivise more foreign investments.
We addressed the Polish Ministry of Development regarding the investment opportunities hidden behind ESR two weeks ago in our new government briefing – A Chance for Responsible Development – available to our Polish readers. Now we are looking forward to a constructive discussion between the EU Parliament and the Member States.

[1] The Effort Sharing Regulation covers future emission reductions in sectors such as buildings, agriculture and transport until 2030.