The climate change and renewable energy package includes a so-called "effort sharing" Decision which sets binding greenhouse gas emissions targets for individual EU Member States for sectors of the economy not covered by the EU Emissions Trading Scheme (ETS). The Decision provides an indication of the extent to which Member States will be required to address and reduce emissions from non-EU ETS sectors (such as surface transport, construction, and agriculture) over the next decade.

Member State targets

The targets for individual Member States amount to an average reduction of 10%. This reduction, combined with the agreed 21% reduction for EU ETS sector emissions, is designed to ensure that the EU meets its current overall target of a 20% reduction in emissions by 2020.

Those Member States with lower per capita income and strong prospects for future economic growth (mostly the "new" Member States) may increase their greenhouse gas emissions by up to 20% by 2020 compared to 2005 levels, whereas Member States with higher income per capita must reduce their emissions by up to 20% by 2020. A reduction target of 16% has been set for the UK, and a reduction target of 14% has been set for Germany and France. The individual targets are the same as those proposed by the Commission when it announced the climate and energy package in January 2008, but they will be reviewed if an international agreement succeeding the Kyoto Protocol can be agreed.

Annual limits will be binding

In order to set a trajectory to meet the target of a 20% reduction in emissions by 2020, the Decision also sets annual binding emissions limits for each Member State. Several flexibility measures are provided allowing Member States to:

  • bank and borrow up to 5% of limits between years;
  • transfer "overachieved" emissions reductions between Member States; and  
  • use, without limit, credits generated by emissions reduction projects within the EU.  

CDM and JI credits count towards national targets

Member States may use credits generated by CDM and JI projects to meet their national targets, which should provide an important spur to the market for those credits after 2012. In the Commission's original proposal, the annual level of use was limited to 3% of 2005 emissions. The same limit is included in the final Decision, although a greater use of credits will be allowed if an international agreement is reached which triggers an increase in the EU's current 2020 reduction target. Member States are also allowed to transfer any unused part of their 3% limit to other Member States.

The final Decision also allows Member States that are required to reduce their emissions, or are allowed to increase them by up to 5%, to use an additional amount of credits equal to 1% of 2005 emissions. These credits can come only from CDM projects in less developed countries and are only available to Member States that meet certain conditions (the only Member States that could benefit from this measure are Austria, Finland, Denmark, Italy, Spain, Belgium, Luxembourg, Portugal, Ireland, Slovenia, Cyprus and Sweden).

Enforcement action may be taken but no automatic penalty

Member States already monitor and report greenhouse gas emissions annually. If a report indicates non-compliance with a limit for a given year (taking into account any use of the flexible measures or CDM/JI credits) the Member State will have to submit a corrective action plan to the Commission detailing the measures they intend to take to rectify the situation. If a Member State fails to take corrective action, formal enforcement action can be taken.

The Decision does not however include the enforcement mechanism requested by the European Parliament which would have required a Member State that fails to meet its target to pay an "excess emissions penalty" equivalent to the fines payable under the EU ETS - ie, €100 per tonne of carbon dioxide emitted.