Negotiators from the Council of the European Union and the European Parliament reached a provisional agreement on the revision of the EU’s effort sharing regulation (ESR), on Tuesday evening 8 November, after a meeting (‘trilogue’) lasting about 5 hours.
The second proposal of the ‘Fit for 55’ package is to have an Interinstitutional Agreement after the one on CO2 standards for new cars and vans (see EUROPE 13053/1), this dossier is still relatively unknown due to its highly technical nature, but is nonetheless particularly important.
The ESR sets a national target for each Member State to reduce emissions from sectors not covered by the EU Emissions Trading System (ETS) nor by the Land Use, Land Use Change and Forestry (LULUCF) Regulation. It covers road transport, heating of buildings, agriculture, small industrial installations and waste management, i.e. 60% of the EU’s greenhouse gas (GHG) emissions.
For Jessica Polfjärd (EPP, Swedish), the Parliament’s rapporteur on the dossier, the agreement reached on Tuesday evening represents “a major step forward in delivering on the EU’s climate objectives”, as the new rules on national emission reductions “ensure that all member states contribute and that existing loopholes are closed”.
Reduce emissions by 40%
Despite differences on several aspects of the text, the EU co-legislators retained the various new national targets proposed by the European Commission, ranging from a 10% reduction in emissions (Bulgaria) to a 50% reduction (Finland, Luxembourg, Germany, Denmark, Sweden) depending on GDP per capita and cost-effectiveness (see EUROPE 12762/2).
On the basis of these ‘national contributions’, the target at EU level is to reduce emissions from the sectors covered by the Regulation by 40% by 2030 compared to 2005 levels (compared to the current target of 30%).
Compromise on trajectory
In order to meet these national targets, each Member State will have to ensure that its emissions do not exceed a certain annual emissions quota set out in the regulation.
These annual emission allowances will be gradually reduced until 2030, according to a trajectory calculated as follows: - for the period 2021-2022, on the average of a Member State’s emissions in 2016, 2017 and 2018; - for the period 2023-2030, on the annual allocation for that Member State in 2022, with a possibility of readjustment for 2026-2030. The EU Council and the Parliament have agreed on an update of the linear trajectory in 2025, which could lead to an upward or downward adjustment of the annual allocations for the period 2026-2030.
Compromise on flexibilities
In addition to the trajectory, the issue of the flexibilities left to the Member States also gave the co-legislators a hard time.
These flexibilities take three forms: the transfer of allowances, the borrowing of a number of allowances initially planned for the following years, and the banking of allowances.
According to the provisional agreement, the level of annual emissions allowances that can be traded between Member States will be limited to 10% of allowances during the period 2021-2025, which is the level desired by the EU Council. This rate will then be reduced to 15% for the period 2026-2030, which is lower than the EU Council’s request (20%) but higher than the Parliament’s request (5%).
Regarding the second flexibility, the text stipulates that Member States will be able to borrow allowances from the following year up to a maximum of 7.5% of their annual emission allocations for the years 2021 to 2025 (compared to 10 and 5% respectively in the EU Council and Parliament proposals). This ceiling will be reduced to 5% for 2026-2030.
In years when a Member State’s emissions are lower than its annual allocations, it will be able to save allowances and use them in subsequent years. This reserve should not exceed 75% of the annual emission allocation in 2021 and 25% from 2022 to 2029.
Removal of the ‘additional reserve’
In addition, the Parliament obtained the abolition of the ‘additional reserve’ which would have allowed Member States to receive additional quotas, under certain conditions. The current ‘safety reserve’ is maintained. It allows a maximum of 105 million tonnes of CO2 equivalent to be allocated to certain Member States - those with a lower GDP per capita than the EU average and a shortfall in emissions compared to their cumulative annual allocations.
It should be noted that the co-legislators did not accept the Parliament’s amendment to extend the ESR beyond 2030.
Before entering into force, the provisional agreement must still be formally adopted by both the Parliament and the EU Council. (Original version in French by Damien Genicot)