Effort Sharing Decision
European Union Carbon Market Glossary


Decision 406/2009/EC on the efort of Member States to reduce their greenhouse gas emissions to meet the Community's greenhouse gas emission reduction commitments up to 2020 (Effort Sharing Decision, ESD) sets greenhouse gas emission reduction targets for each European Union Member State for the sectors not covered by the EU Emissions Trading System.


Its scope currently covers some 55 % of total greenhouse gas emissions in the EU and includes greenhouse gas emissions from sources such as CO2 emissions from road transport, heating of buildings, small-scale industry and so-called non-CO2 emissions from agriculture and waste.


The Effort Sharing Decision does not include emissions or removals from land use, land-use change and forestry (LULUCF).


Each Member State has an emission reduction or limitation commitment for 2020 under this Decision which varies between -20% and +20% as compared to its 2005 GHG emissions.


Taken together, these commitments correspond to an EU-wide reduction in 2020 of around 10% compared to 2005 for the sectors covered by the Effort Sharing Decision.


The objective of the Effort Sharing Decision is to achieve its contribution to the EU's overall 20% reduction target in 2020 and to promote reductions ofgreenhouse gas emissions (GHG) within its scope in a cost-effective manner.


In addition to the 2020 targets, the Effort Sharing Decision establishes binding annual GHG emission limits — so-called annual emission allocations (AEAs) — for all Member States for the period 2013–2020 with annual reporting obligations and compliance checks.



Monitoring, reporting and compliance



The Effort Sharing Decision (ESD) and the Monitoring Mechanism Regulation (Regulation (EU) No 525/2013, MMR) have established an annual reporting and compliance cycle requiring an annual review of Member States' greenhouse gas inventories to ensure that compliance with theESD is assessed in a credible, consistent, transparent and timely manner.


The reviewed inventory data are used to check Member States' compliance with their annual emission limits.


If a Member State's emissions exceed its annual emission allocation even when the flexibilities are taken into account, it will need to take corrective action in addition to the likelihood of the Commission launching regular infringement procedures.


The corrective action includes a penalty of 1.08 times the Member State's excess annual emissions adjusted for the following year and temporary suspension of its right to transfer AEAs to other Member States.


The first annual inventory review will be carried out in 2015 and will concern Member States' inventories for the year 2013.



Setting national targets for GHG emissions not covered by the EU Emissions Trading System



The Effort Sharing Decision sets Member State targets for GHG emissions between -20% and +20% by 2020 compared to 2005 based on economic capacity, with reduction targets for countries with higher GDP per capita than the EU average, and emission increase limits for countries with lower GDP per capita.


At the European Council meeting in October 2014, EU leaders expressed their wish to continue the Effort Sharing Decision approach for the period 2021-2030, with the aim to reduce emissions in the non-ETS sectors by 2030 by 30% compared to 2005 as the contribution in implementing the overall economy-wide emission reduction target of at least 40% in 2030 as compared to 1990 (see the European Council Conclusions of 23/24 October 2014 (EUCO 169/14)).


The October 2014 European Council also declared that "the methodology to set the national reduction targets for the non-ETS sectors, with all the elements as applied in the Effort Sharing Decision for 2020, will be continued until 2030, with efforts distributed on the basis of relative GDP per capita."


The European Council also expressed its wish that the applicable target range be as follows: "All Member States will contribute to the overall EU reduction in 2030 with the targets spanning from 0% to -40% compared to 2005."






Flexibility mechanisms


In order to provide for flexibility for Member States in implementing their commitments and as a means to enhance the overall cost-effectiveness of reaching the EU-wide 2020 target, the Effort Sharing Decision (ESD) provides a number of so-called flexibility mechanisms thatcan be used in the period 2013-2020 to comply with their annual targets. Should the greenhouse gas emissions exceed the annual emissionallocations (AEAs) for the relevant year Member States are allowed to borrow 5% of their AEAs from the next year, buy AEAs from otherMember States or use international project credit rights in order to fill any deficit for compliance. Should a Member State reduce its emissionsby more than needed, thus exceeding its target for a given year, it can bank the surplus AEAs for use until 2020 or transfer it to other MemberStates. It is also possible for a Member State to transfer to other Member States up to 5% of its AEAs for a given year before compliance havebeen checked for that year. Member States are obliged to report on concluded agreements of AEA transfers among each other, but areotherwise free to decide on whether and how to engage in such transfers. As of early 2015, there were no known concluded agreements ofAEA transfers between any Member States.


For the 2030 perspective the European Council has expressed its desire that "the availability and use of existing flexibility instruments within thenon-ETS sectors will be significantly enhanced in order to ensure cost-effectiveness of the collective EU effort and convergence of emissionsper capita by 2030." Flexibility instruments should be simple, transparent and easy to manage for Member States. The intention thatinternational project credits will not be allowed in the ESD after 2020 means that a stronger emphasis on the two existing internal flexibilitymechanisms will be needed:


1) Banking and borrowing of AEAs during the compliance period


As explained above, Member States already have flexibility in managing the use of their AEAs over the whole commitment period to cover anyAEA shortage in specific years. Different levels of borrowing than the current 5% limit could be envisaged for the period after 2020 to helpMember States achieve their annual targets by managing their own AEAs, bearing in mind that a higher level of borrowing early in thecommitment period could increase the risk of individual Member States not meeting their targets later in the period.


2) Transfers of AEAs between Member States


There are several possible ways to stimulate AEA transfers among Member States. These include creating a more transparent market for AEAtransfers, being less restrictive in how much Member States can transfer among each other before the compliance checks, and more directmeasures to enhance availability of AEAs, such as project-based mechanisms or auctioning of a number of AEAs.


Market transparency could be enhanced by requiring Member States to report more openly and frequently on AEA transactions and prices orby encouraging transfers to pass through certain trading platforms.


The current 5% limit for AEA transfers before the compliance check could be increased, however, it should be noted that increasing this limitcould also increase the risk of individual Member States not meeting their targets later in the commitment period 2021-2030.


Different kinds of project-based mechanisms for cost-efficient compliance within the ESD could be considered. Such an approach couldattract targeted investments in ESD sectors prioritised by the host Member State and ensure more certainty that AEAs will become availablefor transfers by potentially allowing private sector initiatives. However, a verification and certification system would need to be established toguarantee the environmental integrity and validity of the credits which would entail upfront administrative costs.Auctioning of a certain percentage of AEAs could ensure that an annual supply of AEAs becomes available for MS to acquire.


For all above aspects, alternative solutions might also be possible.


Source: Consultation Questionnaire on the preparation of a legislative proposal on the effort of Member States to reduce their greenhouse gas emissions to meet the European Union's greenhouse gas emission reduction commitment in a 2030 perspective




Last Updated on Saturday, 10 February 2018 11:59


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