August 2016 - As part of the EU 2030 Climate and Energy Framework agreed in October 2014, which among others sets a binding greenhouse gas emission (“GHG”) reduction target and emphasises the importance of renewables, energy efficiency and the reform of the EU Emission Trading System (“2030 Framework”), the European Commission (“Commission”) has published a package of measures to accelerate the transition to a low carbon economy (“Emission Reduction Package”), which includes the following legislative proposals and communications:

  1. Commission Proposal for Regulation on binding annual GHG reductions from 2021-30 for sectors not covered by the EU Emission Trading System (“Effort Sharing Regulation”);
  2. Commission Proposal for Regulation on the inclusion of GHG emissions and removals from land use, land use change and forestry into the 2030 Framework (“LULUCF Regulation”);
  3. Communication from the Commission on a European Strategy for Low-Emission Mobility (“Low-Emission Mobility Strategy” or “Strategy”); and
  4. Communication from the Commission on Accelerating Europe’s transition to a low carbon economy, which explains the context for the adoption of the whole package.

The Emission Reduction Package together with last year’s proposal for the revision of the EU Emission Trading System are important milestones to implement the EU commitments under the Paris Agreement on climate change and the 2030 Agenda on Sustainable Development. The package is also part of the Commission’s strategy for a resilient Energy Union with a forward-looking climate change policy. More specifically, the package contributes to delivering the Energy Union’s fourth dimension to decarbonise the economy.

The Emission Reduction Package is addressed primarily at Member States and does not create direct obligations for businesses and stakeholders. However, depending on the nature and scope of the adopted national measures, certain stakeholders might be affected and new business opportunities may arise.

The Emission Reduction Package presents binding GHG reduction targets for sectors that are not covered by the EU Emission Trading System - transport, buildings, agriculture, waste management, land-use and forestry (non-ETS sectors), as well as a strategy on low-emission mobility setting the course for the development of EU-wide measures on low and zero-emission vehicles and alternative low-emission fuels.

The purpose of this newsletter is to draw the attention of the stakeholders in the CEE EU Member States to the public consultation to be initiated simultaneously by the Commission and to give a brief overview in respect of the envisaged changes and potential business opportunities in the affected non-ETS sectors.

Effort Sharing Regulation

The proposal is effectively continuing the effort for GHG reductions in the non-ETS sectors for the period between 2021-2030. It is a follow-up to the Effort Sharing Decision (Decision No. 406/2009/EC) that established national emission targets in the non-ETS sectors between 2013 and 2020.

According to the proposal, each Member State is assigned with an individual target for GHG reductions, which represents a percentage compared to the Member State’s level of emissions in 2005. Individual targets are distributed equitably between Member States, based on their relative wealth. Therefore, the proposal will have higher impact on the more economically advanced Member States. The targets range between 0% and -40%, e.g., 0% for Bulgaria, -2% for Romania, -7% for Hungary, -12% for Slovakia and -14% for the Czech Republic. The United Kingdom has a target of  -37% and it is currently unclear how Brexit might affect this target.

Further steps

According to the Commission’s view measures to be adopted by Member States will potentially include traffic management, shifts away from carbon-based transport, taxation regimes, biofuels, urban and transport planning and improved energy performance standards for buildings.

LULUCF Regulation

At present, the emissions and removals of GHG in land use, land use change and forestry (“LULUCF”) are covered by international obligations under the Kyoto Protocol, which will expire in 2020. The proposed regulation follows-up and consolidates the applicable rules that will apply post-2020 and the way in which the LULUCF sector will be included in the 2030 Framework.

The new rules require each Member State to ensure compliance with the “no debit rule”. This rule means that accounted land use carbon dioxide emissions have to be entirely compensated by an equivalent removal of such emissions from the atmosphere. For example1, if a Member State cuts down its forests (deforestation), it must compensate by planting new trees (afforestation) or by improving the sustainable management of forests, croplands and grasslands.

Further steps

The proposal creates a general framework for Member States to incentivise more climate-friendly land use. Measures could potentially include forest management and planting new trees, better nutrient management in agriculture, mitigation of emissions from fertilisers and performance of carbon audits to identify relevant actions at the private-farm level. Some of the measures will probably require additional incentives to be provided by the Member States, which has the potential to create new and additional business opportunities, e.g., farmers can engage in afforestation activities.

1 Removal is the reverse process of emitting GHG. It occurs when CO2 is absorbed from the atmosphere, which happens, for example, when trees and plants grow.

Low-Emission Mobility Strategy

The main objective of the Strategy is to set a course for the development of EU-wide measures on low and zero-emission vehicles and alternative low-emission fuels.

Based on this document, the focus of the Strategy will be on the following three areas:

  1. higher efficiency for transport system;
  2. low emission alternative for energy transport; and
  3. low and zero emission vehicles.

Given that road transportation is responsible for over 70% of GHG in the transport sector and for much of the air pollution in the EU, the Strategy focuses mainly on road transport. However, developments in other sectors of transportation (e.g. aviation, shipping) should also contribute to the overall goal.

In order to encourage the optimisation of the transport system and improve its efficiency, the Strategy emphasises digital mobility solutions, fair and efficient pricing in transport, and multi-modality, such as a revised regulatory framework for the railway sector, the modernisation of combined transport or the further development of domestic bus and coach services.

Currently transport in the EU still depends on oil for about 94% of its energy needs. Therefore, another important aspect of the Strategy is its goal to promote the establishment of an effective framework for low-emission alternative energy and to create a new infrastructure for alternative fuels such as advanced biofuels. A crucial part of promoting the use of alternative energy will be the proposed interoperability and standardisation for the electro-mobility industry.

Pursuant to the Strategy there should be vital changes in respect of how vehicle emissions are measured and verified. New “real driving” emission tests will be introduced in order to regain consumer trust.

Many horizontal initiatives and actions are needed to support the transition at all levels. Tax incentives and other financial support schemes should be introduced to bring research, innovation and competitiveness to this area.