### 4.2 Sectoral dimensions of EU climate policy

#### 4.2.1 The EU’s energy and climate package

In January 2008, the European Commission presented a package of legislative proposals to achieve a target of reducing GHG emissions by 20% below 1990 levels by 2020 (which will be raised to a 30% reduction if there is a new international agreement for the post-2012 period) and an increase in the share of renewable energy to 20% by 2020. The package included proposals for strengthening and broadening the EU’s Emissions Trading Scheme (EU ETS) from 2013 and for sharing the emissions reduction effort in non-ETS sectors among member states. In December these proposals were approved by both the European Council and the European Parliament, meeting the initial timeframe.

Dividing mitigation efforts between the sectors in the EU ETS and the non-ETS sectors is one sectoral dimension of the package. The EU ETS mainly covers electricity and industry sectors. Non-ETS sectors include agriculture, transport, buildings and households. More precisely, the EU translates the overall target of a 20% cut from 1990 levels into a 14% reduction from 2005 levels, and further breaks down the 14% target into a 21% reduction in GHG emissions below 2005 levels for the ETS sectors and a 10% reduction for the non-ETS sectors, ranging from -20% to 20% across member states. Non-ETS sectors are subject to ‘effort sharing’ among member states (for individual limits on member-state GHG emissions, see appendix 1), whereby commitments are differentiated according to an economic efficiency approach (i.e. least cost) and a wealth indicator (i.e. relative wealth).

Another sectoral dimension is to assign a single EU-wide cap but apply different allocation methods by ETS sector (e.g. the power sector and industry sectors) for a transition period. For electricity generation, full auctioning will be introduced from 2013. A compromise has been reached, however, for a transitional free allocation of allowances in the sector under certain conditions, which will primarily apply to the new member states. Free allocation for the modernisation of electricity generation must not exceed 70% in 2013 and will decrease to nil in 2020. For the industrial sector, auctioning will be phased in over a period of time: in 2013 installations will receive 80% of allowances free, then 30% by 2020 and nil (i.e. full auctioning) in 2027.

Moreover, against the background of growing concerns about carbon leakage and according to Art. 10a (13) of Directive 2009/29/EC, $ ^{13} $ the European Commission identified the industry sectors that are considered particularly exposed to international competition at the end of 2009 (European Commission, 2010a). These sectors would receive free allocation for a limited period. There were difficulties in deciding the timing of such an announcement because the EU did not want to reveal precise figures prematurely (e.g. the amount of free allowances) to its negotiating partners.

The next section looks more closely at the role of sectoral benchmarks in cap setting, the allocation of allowances and linking with other emissions trading schemes.

A further dimension is to include the aviation sector in the EU ETS. In February 2009, an EU Directive (2008/101/EC) incorporating aviation into the EU ETS entered into force. $ ^{14} $ From 2012