Proposed Effort Sharing Directive establishes link between EU ETS and non-ETS sectors

On 21 July 2016, the European Commission proposed 2030 national emissions reduction targets for its member states’ non-ETS sectors.  The regulation applies mainly to the buildings, agriculture, waste management and transport sectors. The proposed Effort Sharing Directive (ESD) is in line with the EU’s 2030 Climate and Energy Framework, which outlines a 30% cut in emissions from the non-ETS sectors compared to 2005 levels. The targets range from 0% (Bulgaria) to 40% (Luxemburg, Sweden).

A new element of the proposal is a link to the EU ETS, which gives nine member states the option to cut emissions in non-EU ETS sectors by cancelling allowances (total of 100 million) to contribute to their ESD targets. The reduction can only be made once and member states that intend to use the flexibility provision must notify the European Commission by 31 December 2019. The total number of cancelled allowances will be split evenly from the EU ETS Phase Four auction share.

Under the ESD, member states must meet annual emissions limits, known as annual emissions allocations (AEAs), which are laid out in a linear fashion starting with average emissions for 2016-2018. However, they also have some flexibility as to how they meet these targets. Banking and borrowing (up to 5%) within the 2021-2030 commitment period and trade in AEAs are permitted, as well as the use of project-based offset mechanisms.

Finally, the proposal also allows the use of up to 280m tCO2 from the land use sector. The number of credits each member state can use is outlined in the proposal, with a larger share reserved for member states with a larger agriculture sector.

The proposal must now be reviewed and agreed upon by the European Council and European Parliament. Once legislated, the directive will come into effect in 2021.