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The EU INDC: an ambitious policy for 2030

Member States have reduced GHG emissions by 19% while GDP has grown by more than 44%. Currently, implemented policies have the legally binding 2020 target of 20% emissions reduction with respect to 1990. For the COP 21, the EU presented its INDC to the UNFCCC in March 2015, being the second party to do so, after Switzerland. The EU presented a single INDC for all the 28 EU Member States, with a target of 40% reduction in greenhouse gas emissions by 2030. This reduction covers 100% of the GHG emissions and it is fully domestic, since it does not include contribution from international credits. The target is in line with the long-term EU target of emission reduction of 80-95% by 2050, and consisting in reducing global emissions by half by 2050. A 40% emission reduction is an ambitious target if compared with the targets of other largest GHG emitters submitted for Paris. Russia proposed a reduction of 25-30%, USA a –26-28% by 2025 with respect to 2005 (which implies a -15% with respect to 1990) and China only committed to peak in emissions by 2030.

This emissions target comes under an overall reform of the energy and climate strategy for 2030 that goes under the name of Energy Union. Two additional key targets for 2030 will support the emission reductions: 27% share of renewable energy consumption, and 27% energy savings compared with the business-as-usual scenario. The European Council adopted the three targets for 2030 already in October 2014, one year before the COP 21. The EC is now working on designing the policies for achieving them, which will be built on the current 2020 climate and energy package.

The main instrument to achieve the 40% target is the EU emissions trading system (ETS), which covers about half of the EU GHG emissions. The EU ETS started in 2005 and it was initially designed to comply with the Kyoto protocol. This is a cap & trade system, where there is cap on the total emissions of the installations regulated by the system. A number of allowances equal to the cap are issued every year. Each regulated installation has to annually surrender a number of allowances equal to their annual emissions. Those allowances can be treaded in a market, which creates a carbon price that is a price on emitting GHG. The cap is annually reduced and consequentially the total emissions are reduced annually. The EU ETS is the largest existing cap & trade system, covering more than 13.000 installations. The carbon price is increasingly considered as an important policy to reduce emissions, and we will talk more about it in the next post.

The current annual reduction of the cap was defined to reach the 2020 target of 20% GHG emission reduction with respect to 1990 level, but this is not enough for the 2030 target of 40%. Moreover, in the past years, the system was criticised, in particular, for having a too low and volatile carbon price due to an over allocation of allowances. To face these issues and make the EU ETS stronger and in line with the proposed target, the EC undertook a reform of the system. This was not the first modification to the EU ETS. Since its adoption, in 2005, the EU ETS has being regularly revised and improved through a learning by doing process, being the first system ever of such size and complexity. Several measures were proposed for the post 2020 period, and a new system for allocating allowances that should create a more stable carbon price, (the so-called Market Stability Reserve), has been approved. In 2015, the EC proposed a revision of the EU ETS directive aimed to increase the cap reduction for reaching the 2030 target. This is currently under debate at the European Parliament.

For the non EU-ETS sectors, which include transport (except aviation), buildings, agriculture and waste, the current legislation sets national binding emission targets for 2020, this is called Effort Sharing Decision. The targets have been set based on the capacity of the countries and their relative wealth. Countries are responsible for the targets and for implementing policies to reach them. However, the EU has taken a series of measures, in particular to increase energy efficiency that are helping the Member States to reduce emissions in the non EU ETS sectors, such as standards for vehicles or regulation for buildings. For 2030, the EC is proposing the same framework, with update targets and measures. The overall target for the non-ETS sectors will go from 10% by 2020, to 30% by 2030 (compared to 2005).

Written by Claudio Marcantonini

Read the previous article: The Paris Agreement