The EU s 2030 Effort Sharing Agreement

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Constance Shields
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The EU s 2030 Effort Sharing Agreement Brussels CEPS Workshop, 29.06.

org Research Fellow, Climate & Energy Policy, IDDRI Celine MARCY, IDDRI

1 The EU s 2030 Effort Sharing Agreement Brussels CEPS Workshop, Oliver Sartor, oliver.sartor@iddri.org Research Fellow, Climate & Energy Policy, IDDRI Celine MARCY, IDDRI Institute for Sustainable Development and International Relations 41 rue du Four Paris - France

2 Why do we want a flexibility mechanism? An insurance policy to ensure EU targets are met To limit costs for some Member States if short run costs are extreme To help all Member States take action in non-ets sectors, Spread action to more Member States Spill-over benefits for host country 2

Member States if short run costs are extreme To help all Member States

3 CY SK PT HU CZ HR RO PL EE SE BG UK EU28 DK FR GR SI MT NL DE LT LV FI IT AT ES BE IE LU Difference between projected 2020 emissions and target (as a % of 2005 GHG levels) Why does flexibility need to be «enhanced»? The 2020 experience of non-ets sector trading is limited But flexibility needs should be met via exchanges of existing supluses. Figure 1. Difference 2020 ESD targets and emissions projections for Member State as of end Gap to target WEM Gap to target WAM Source: Climate Strategies 2015 Source: Authors based upon EEA data, Note that WAM scenario estimates were not available for some Member States. 3

The 2020 experience of non-ets sector trading is limited But flexibility needs should be met via exchanges of existing supluses. Figure 1.

4 Net abatement needed to meet 2030 target (as % of 2005 emissions) Why does flexibility need to be «enhanced»? But the experience is currently forecast to be quite different. Figure 1. Abatement gap in the year 2030 by Member State, assuming an identical distribution of targets as the 2020 Effort Sharing Decision Total Surplus Reductions = 24,5MtCO2eq Total Emissions Reductions required = 297MtCO2eq EL BG HU PT HR RO LT MT DE CZ EE SK LV EU UK IT CY FR SI PL ES FI NL AT SE DK BE LU IE GDP/capita scenario (same as 2020 ESD) GDP/capita with Cost Effectiveness adjustment Source: Authors calculations based on EC, Impact Assessment, Source: Climate Strategies

Abatement gap in the year 2030 by Member State, assuming an identical distribution of targets as the 2020 Effort Sharing Decision 35 30 25 20 15 Total Surplus Reductions =

5 Why does flexibility need to be «enhanced»? MS are not profit-maxising risk optimising entities (sellers slow to sell; buyers reluctant to buy) How are project developers to be given transparent signals to invest in a timely way? How are transaction costs of 28 Member State governments searching for buyers/sellers/project developers to be managed efficiently? 5

reluctant to buy) How are project developers to be given transparent signals to invest in

6 End of Kyoto CP1 emissions surplus or deficit (% of target) JI experience Figure 1. Annex I countries only hosted projects if they were expecting a large surplus of AAUs under the first commitment period of the Kyoto Protocol 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% LV LT EE RO BG HU SK SE PL CZ GR BE FR FI NZ DE 0 ES Number of domestic projects implemented under flexibilty mechanism Source: authors, Data: UNEP Risoe/CDM-JI Pipeline 6

period of the Kyoto Protocol 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% LV LT EE RO BG HU SK SE PL CZ GR BE FR FI

7 An AEA Clearing House for non-ets projects Buyer MS Submit demand AEAs/ Central Clearing House AEAs Seller MS Offer projects MRV Project Developers Provides: - Better visibility for buyers and project developers - Reduces transaction costs due to transparent demand/supply - Clear reference prices & reduced trans. costs for sellers 7

Better visibility for buyers and project developers - Reduces transaction costs due

8 Further suggestions for non-ets sectors post-2020 Seperate agriculture and forestry into a seperate framework Seperates out forestry; synergies with agriculture. Convergence between top-down targets for GHG and bottom up policy measures for Energy Efficiency, Renewables, (and Transport) reinforces governance of EU targets. Protect legal status of ESD instrument As targets become tougher, a robust compliance framework necessary. Align new planning template for actions in ESD sector with information on financing for climate activities under future MFFs. Allow for one-way ETS-to-non-ETS exchange as a limited flexibility option of last resort. 8

Protect legal status of ESD instrument As targets become tougher, a robust compliance framework necessary.

9 Annex 9

10 Why does flexibility need to be «enhanced»? A significant number of new projects will probably need to be generated to meet demand Note: the inclusion of LULUCF doesn t change this result very much. 10

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