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EU Climate Policy

EU Climate and Energy Policy

Climate action is one of the European Union's political priorities. In the Paris Agreement of 2015, the international community committed to limiting global warming to below two degrees Celsius, or less than 1.5 degrees Celsius if possible, compared to pre-industrial levels. The goal is to limit the negative impacts of climate change.

To achieve a climate-friendly economy, the EU is basing its approach on overarching targets, EU-wide measures and binding national climate targets. Germany plays an active role in shaping European climate policy.

In its nationally determined contribution (NDC), the EU committed to reducing its greenhouse gas emissions by at least 40 percent by 2030 compared to 1990. With the timely submission of the EU NDC to the UNFCCC Secretariat in March 2015, the EU was among multiple actors that triggered a wave of NDC submissions. This made an important contribution to the successful conclusion of UN Climate Change Conference in Paris. EU member states, including Germany, are not submitting separate NDCs, but are working together to fulfil the EU NDC.

To improve long-term planning certainty and orientation for industry and society, the European Commission presented its vision for the transition to greenhouse gas neutrality by 2050 entitled "A Clean Planet for All". This will be discussed in the European Council and Parliament with a view to submitting a joint long-term climate strategy for the Paris Agreement by 2020. Under the decisions taken in Paris, all countries are called upon to submit a long-term climate strategy by 2020. With the adoption of the Climate Action Plan 2050 in 2016, Germany formulated an overarching reduction strategy. 

Key EU Instruments for Climate Action

The emissions trading system (ETS) and the Effort Sharing Regulation (ESR) are two core EU-wide instruments for reducing greenhouse gas emissions. While emissions trading focusses on the energy sector and industry, the Effort Sharing Regulation establishes targets for all activities in non-ETS sectors (in particular the transport, buildings and agricultural sectors, however not for aviation or LULUCF). Furthermore, the EU LULUCF Regulation will integrate land use changes into the European climate and energy framework from 2021 onwards.

EU Emissions Trading Scheme (EU ETS, Cap and Trade System)

The EU emissions trading system is the key instrument of the EU for reducing greenhouse gas emissions in the energy and industry sectors. The system establishes an upper limit (cap) on emissions for energy-intensive companies in these sectors. These companies may only produce emissions for which they have tradable emissions allowances. This creates market for these allowances (trade) as well as an economic incentive to cut emissions. Nevertheless, there has been a surplus in emission allowances for quite some time.

To ensure that the market is more flexible and can react to fluctuations in demand (for example triggered by an economic crisis), the market stability reserve (MSR) was set up in 2015 to gradually reduce the current allowance surplus. The emissions trading reform for the fourth trading period (2021 - 2030) ensured that the MSR will be able to reduce the surplus more quickly and sustainably from 2019. The cap on emissions will fall by 2.2 percent annually from 2021 onwards. This means that by 2030 the sectors covered by the EU ETS will reduce their greenhouse gas emissions by 43 percent compared to 2005 levels. In addition to strengthening emissions trading, rules for industry facing international competition were adapted to ensure that production and emissions are not moved from the EU to countries with less restrictive climate policies.

Effort Sharing

For sectors outside the EU emissions trading system (in particular, transport, buildings, agriculture and small industrial plants), the EU emission reduction targets are divided across the individual member states. With the Effort Sharing Decision (ESD), the EU set the target of reducing greenhouse gas emissions EU-wide in non ETS sectors by 10 percent by 2020 compared to 2005 levels. The Effort Sharing Regulation (ESR) of 2018 lays down an emissions reduction target of 30 percent for the period up to 2030.

Due to the vast regional differences within the EU, the contribution of each member state to achieving this reduction has been set on the basis of gross domestic product per capita. The 2020 targets range from a 20 percent emissions reduction for the richest member states to a 20 percent increase for the least wealthy. The new Effort Sharing Regulation (ESR) for the period 2021 - 2030 sets out minimum reduction targets in accordance with the economic strength of each member state ranging from 0 to 40 percent compared to 2005 levels. Germany is to reduce greenhouse gases in the relevant sectors by 14 percent by 2020 and by 38 percent by 2030.

Regulation on land use, land-use change and forestry (LULUCF Regulation)

Greenhouse gas emissions and emission removals from land use, land-use change and forestry (LULUCF) will be integrated into the EU climate and energy framework in the period 2021 - 2030. The LULUCF Regulation establishes how emissions and sinks (this means CO2 removals) from forests and soils are accounted and creates incentives to improve the greenhouse gas balance of the sector. As the land-use sector is subject to natural fluctuations, the greenhouse gas balance is not charged directly to the EU climate targets. Instead, each member state compares real CO2 removals from forests and soils using benchmarks defined in the regulation. A reduction in CO2 removals compared to the benchmark results in debits, an increase in credits.

To calculate the climate mitigation performance of soils, the greenhouse gas balance is compared to the period 2005 - 2009. For managed forests, every member state submits a reference level which also takes account of fluctuations caused by the age structure of the forest. Member states have submitted their national forestry accounting plans and forest reference levels to the European Commission for the period 2021 - 2025.

Member states must ensure that their balance reflects more credits than debits. Surplus debits must be compensated either through additional climate action within the land-use sector or in other non-ETS sectors. At the same time, a limited number of credits may be transferred to the sectors regulated by the Effort Sharing Regulation.

Germany's role in European Climate Action

German climate policy is closely linked to European climate policy. The energy concept of 2010 and the Climate Action Plan 2050 adopted in 2016 laid down a reduction target for Germany of 55 percent by 2030 compared to 1990. If the targets of the European climate instruments are calculated in comparison to 1990, this would mean a total emission reduction of approximately 53 percent for Germany. Furthermore, the land-use sector should be maintained as a carbon sink. The targets set out in the Climate Action Plan are therefore comparable to the German obligations under European climate legislation. Based on the long-term reduction target laid down in the Paris Agreement, Germany aims to achieve extensive greenhouse gas neutrality by 2050.