Promoting cost-efficient emission reductions: updating the quantity of cancelled EU ETS allowances to be used for Effort Sharing compliance for some Member States

The European Commission adopted an amendment to the Implementing Decision (EU) 2020/2126, reflecting changes in the use of the “ETS flexibility” under the Effort Sharing Regulation (ESR).

Revised in 2023, the ESR sets an overall EU target to reduce greenhouse gas (GHG) emissions in the sectors it covers by 40% by 2030, compared to 2005 levels. The ESR covers the following sectors: domestic transport, buildings, agriculture, small industry, and waste.

The overall EU target is translated into binding national targets Member States need to comply with by the end of the decade. These range from -10% to -50%, compared to 2005 emission levels. Member States’ 2030 targets are differentiated based on their relative Gross Domestic Product (GDP) per capita, with limited adjustment for their domestic capacity to reduce GHG emissions in a cost-efficient manner. The ESR outlines options for Member States to meet their targets, so that the overall EU target can also be achieved cost-efficiently.

The so-called “ETS flexibility” allows nine Member States (Belgium, Denmark, Ireland, Luxembourg, Malta, the Netherlands, Austria, Finland, and Sweden) to cancel a limited amount of EU ETS allowances and not auction them. These allowances are deducted from the amounts that would normally be auctioned under the EU ETS by the respective Member States. In return, those Member States receive an equivalent amount of allocations under the ESR to cover emissions from the sectors it covers.

By December 2019, the eligible Member States notified the Commission on how much of the maximum amount set in the legislation they intended to use during the 2021-2030 Effort Sharing compliance period. The corresponding amounts were published in Implementing Decision (EU) 2020/2126.

The recent ESR revision allowed Belgium, Malta, the Netherlands, and Sweden to notify the Commission by 31 December 2023 of the EU ETS allowances they want to cancel for the 2025-2030 period, in exchange for additional allocations under the ESR. The notified amount can not exceed the limit determined for each Member State in the ESR. Malta and Sweden informed the Commission of their intention to use this flexibility, while the Netherlands expressed their intention to use it in the future, if deemed necessary.

The decision reflects these changes and notifications.

The nine eligible Member States will have the possibility to revise their notified percentages by 31 December 2024 and 2027.