In a Nutshell

The Effort Sharing Regulation (ESR) is one of the three central pillars of EU climate policy, together with the LULUCF Regulation and the EU ETS. The ESR primarily governs greenhouse gas emissions (GHG) from sectors currently not covered by the EU ETS, including transport, buildings, agriculture, and non-ETS industry and waste, which generate nearly 60% of total EU GHG emissions. It spans all EU Member States, as well as Iceland and Norway.

The original ESR, adopted in 2018, foresaw overall emissions reductions across all EU member states in the covered sectors by 30% in 2030 below 2005 levels. The 2021 proposed revision is part of the ‘Fit for 55′ package, which aims to reduce EU-wide net GHG emissions by 55% in 2030 below 1990 levels and to decrease GHG emissions in the sectors covered by ESR to 40% by 2030 below 2005 levels (compared with the existing target of a 29% emission reduction).

The Regulation establishes binding emissions reduction targets for member states, which differ from country to country, primarily depending on the countries’ GDP per capita (spanning from 10% to 50%). The new proposal aims to establish more ambitious national targets for 2023-2030. Together with the LULUCF Regulation and the ETS, the ESR allows for flexibilities in net emissions reductions among the three policies to achieve climate change mitigation goals more efficiently.

While the ESR is not primarily concerned with carbon removals, it allows countries to make use of excess carbon removals achieved in the LULUCF sector to reach their ESR targets. The EU-wide maximum for carbon removals, which may be used to reach the 55% emissions reduction goal, is limited to net 225 million tons of CO2e until 2030.

What's on the Horizon?

The provisional political agreement reached between the European Parliament and Council in December 2022 needs to be formally adopted before the Regulation can enter into force: 

Agreed changes compared to the Commission proposal include eliminating an initially proposed additional voluntary reserve of unused LULUCF removal credits that would have been allowed to count towards Member States’ 2030 ESR target.

Deep Dive

Together with the ETS and LULUCF, the ESR is one of the three central pieces of EU climate legislation, which steer efforts to reduce total greenhouse gas emissions by 55% in 2030 below 1990 levels as outlined in the European Climate Law. All three have been revised to increase ambition and ratchet up the 2030 target through the ‘Fit for 55’ package and negative emissions will potentially be able to play a role in each of them.

A key aspect of the ESR is the flexibilities of countries to reach their targets more efficiently. These flexibilities are intended to decrease a country’s burden, and give the ESR some characteristics of a carbon market:

1.Temporal and international flexibilities:

  • Banking: If a country’s GHG emissions are lower than its annual allocation under the ESR, it may use part of its surplus in the following years and until 2030;
  • Borrowing: If a country’s GHG emissions are higher than its annual allocation under the ESR, it may borrow from the following year’s allocation (up to 7.5% of the annual allocations from 2021 to 2025 and up to 5% from 2026 to 2030);
  • Trading: Countries may buy or sell allocations to meet their annual targets (up to 10% of their annual allocations from 2021 to 2025 and 15% from 2026 to 2030).

2. Sectoral flexibilities:

  • ETS and ESR: Nine member states’ allowances (with national reduction targets above the EU average and their cost-efficient reduction potential) may make use of a limited percentage of ETS emissions to reach their ESR reduction targets;
  • LULUCF and ESR: Countries may use a constrained number of net carbon removals in the LULUCF sector to meet their emission reduction targets under the ETS.

Under the proposed amendment of the ESR, the total net carbon removals which may be considered for reaching ESR targets, may not exceed 225 Mt CO2e across all member states. Previously the maximum was 280 Mt CO2e. The quantity of net carbon removal was also determined and limited for each member state individually. To avoid emissions reduction deterrence, the new proposal also foresees additionally capping the use of carbon removals under the ESR in two time periods, the maximum allowance equally split between 2021-2025 and 2026-2030.

Timeline

30 May 2018
16 December 2018
14 July 2021
8 November 2022
17 May 2023
30 May 2018

Entry into force of the original Effort Sharing Regulation

16 December 2018

Commission Implementing Decision setting out annual emission allocations of the Member States for 2021- 2030

14 July 2021

Proposal to revise the Effort Sharing Regulation as part of the Fit for 55 package

8 November 2022

Provisional political agreement between co-legislators on the revised Effort Sharing Regulation

17 May 2023
Revised regulation enters into force

Status

Year

2021

Official Document

Last Updated

24/04/2023