EUROPEAN COMMISSION Brussels, 14.7.2021 SWD(2021) 609 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the document Proposal for a Regulation of the European Parliament and the Council amending Regulations (EU) 2018/841 as regards the scope, simplifying the compliance rules, setting out the targets of the Member States for 2030 and committing to the collective achievement of climate neutrality by 2035 in the land use, forestry and agriculture sector, and (EU) 2018/1999 as regards improvement in monitoring, reporting, tracking of progress and review {COM(2021) 554 final} - {SEC(2021) 554 final} - {SWD(2021) 551 final} - {SWD(2021) 610 final}



Table of contents 1.Introduction: Political and legal context 1.1.The European Green Deal 1.2.The “Fit for 55” package 1.3.The LULUCF sector 1.4.The current LULUCF Regulation 2.Problem definition 2.1.What are the problems? 2.1.1. Specific problem #1: Decreasing carbon removals in the land sector 2.1.2. Specific problem #2: Insufficient integration of the land sector into climate policies 2.1.3. Specific problem #3: Challenges to implement the accounting, monitoring and reporting rules as set out in the current LULUCF Regulation 2.1.4. Evaluation of the current policy framework 2.2.What are the problem drivers and how will the problem evolve? 2.2.1. Drivers behind decreasing carbon removals in the land sector 2.2.2. Drivers behind the insufficient integration of the land sector into climate policies 2.2.3. Drivers behind the implementation challenges 3.Why should the EU act? 3.1.Legal basis 3.2.Subsidiarity: Necessity of EU action

3.3.Subsidiarity: Added value of EU action 4.Objectives: What is to be achieved? 4.1.General objectives 4.2.Specific objectives 4.2.1. A climate-neutral land sector by 2035 4.2.2. A fair, flexible and integrated climate policy framework for the land sector 4.2.3. Simplification 5.What are the available policy options? 5.1.What is the baseline from which options are assessed? 5.2.Description of the policy options 5.2.1. Option 1: Self-standing LULUCF target 5.2.2. Option 2: Flexible LULUCF target 5.2.3. Option 3: Fully integrated agriculture and LULUCF target 6.What are the impacts of the policy options? 6.1.Impact indicators 6.1.1. Environmental impacts 6.1.2. Distributional impacts 6.1.3. Economic impacts 6.1.4. Administrative impacts 6.2.Impacts of Option 1: Self-standing LULUCF target

6.2.1. Option 1.1: Changing the accounting rules for managed forest land 6.2.2. Option 1.2: Setting a single removal target 6.3.Impacts of Option 2: Flexible LULUCF target 6.4.Impacts of Option 3: Fully integrated agriculture and LULUCF target 6.5.Summary of impacts 7.How do the options compare? 7.1.Effectiveness 7.2.Efficiency 7.3.Coherence 8.Preferred option 8.1.Methodological approach 8.2.Policy interactions 8.3.Preferred policy option 8.4.Coherence with other elements of the package 8.5.REFIT (simplification and improve efficiency) 9.How will actual impacts be monitored and evaluated? 9.1.Operational objective of the monitoring 9.2.Monitoring data and technology 9.3.Use of monitoring results 10.Annexes

10.1.Procedural information 10.1.1. Lead DG, Decide Planning / CWP reference 10.1.2. Organisation and timing 10.1.3. Consultation of the RSB 10.1.4. Evidence, sources and quality 10.2.Stakeholder consultation 10.2.1. Introduction 10.2.2. Feedback to the Inception Impact Assessment 10.2.3. Feedback to the Open Public Consultation 10.2.4. Feedback from expert workshop on reporting and accounting rules 10.3.Who is affected and how 10.3.1. Practical implications of the initiative 10.3.2. Summary of costs and benefits 10.4.Analytical methods 10.4.1. Overview of the modelling framework applied in this impact assessment 10.4.2. Approach to compute the targets 10.5.Results of target computations 10.6.Win-win solutions for climate, biodiversity, and bioeconomy 10.6.1. Biodiversity and climate change adaptation 10.6.2. A sustainable bioeconomy

10.6.3. A sustainable agricultural sector 10.6.4. A sustainable food system 10.7.Carbon farming 10.8.Monitoring technologies and data standardisation 10.8.1. Agricultural land 10.8.2. Forest 10.8.3. Settlements



Glossary Term or acronym Meaning or definition accounting The use of standardised rules for taking into account emission and removal estimates in the context of target compliance. biomass Organic material both above ground and below ground, and both living and dead, e.g. trees, crops, grasses, tree litter, roots etc. carbon pool A system which has the capacity to accumulate or release carbon. Examples of carbon pools are forest biomass, wood products, soils, and atmosphere. carbon stock Mass of carbon stored in a carbon pool. emission factor A coefficient that relates the activity data to the amount of chemical compound which is the source of later emissions. Emission factors are often based on a sample of measurement data, averaged to develop a representative rate of emission for a given activity level under a given set of operating conditions. forest reference level An estimate, expressed in tons of CO2 equivalent per year, of the average annual net emissions or removals resulting from managed forest land within the territory of a Member State in the periods from 2021 to 2025 and from 2026 to 2030, based on the criteria set out in Regulation (EU) 2018/841. forest management A system of practices for stewardship and use of forest land aimed at fulfilling relevant ecological (including biological diversity), economic and social functions of the forest. GHG Greenhouse gas harvested wood product Any product of wood harvesting that has left a site where wood is harvested. ILUC Indirect Land Use Change LULUCF Land Use, Land Use Change and Forestry natural disturbances Any events or circumstances that cause significant emissions in forests and the occurrence of which is beyond the control of the relevant Member State, and the effects of which the Member State is objectively unable to significantly limit, even after their occurrence, on emissions. NECP National Energy and Climate Plan LULUCF Regulation Regulation (EU) 2018/841 of the European Parliament and of the Council of 30 May 2018 https://europa.eu/!WC78xY removals any process, activity or mechanism that removes a greenhouse gas, an aerosol, or a precursor to a greenhouse gas from the atmosphere



1.Introduction: Political and legal context 2.The European Green Deal The European Green Deal aims to transform the EU into a fairer and more prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases by 2050 and where economic growth is decoupled from resource use. The climate neutrality objective has been endorsed by the European Council and Parliament and is laid down in a legally binding manner in the proposed European Climate Law . The European Green Deal also aims to protect, conserve and enhance the EU's natural capital, and protect the health and well-being of citizens from environment-related risks and impacts. At the same time, this transition must be just and inclusive. It must put people first, and pay attention to the regions, industries and workers who will face the greatest challenges. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on our health and economic well-being. Unprecedented near term investments will be needed to reverse the negative impacts of the COVID-19 crisis on jobs, incomes and businesses. In this regard, the agreed Next Generation EU recovery instrument and its centerpiece, the Recovery and Resilience Facility, with a budget of EUR 672.5 billion, will strongly support the green and digital transitions, with at least 37% allocation to the first and 20% to the latter.

3.The “Fit for 55” package With its Communication on stepping up Europe’s 2030 climate ambition (the 2030 Climate Target Plan), the Commission proposes to raise the EU's ambition on reducing greenhouse gas emissions to at least 55% below 1990 levels by 2030 in a responsible way. This is a substantial increase compared to the existing target of at least 40%. It is in line with the Paris Agreement objective to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C. The December 2020 European Council (hereafter referred to as European Council) confirmed these climate targets. It asked for delivering the target collectively by the EU in the most cost-effective manner possible, preserving EU’s competitiveness and taking account of Member States’ different starting points, specific national circumstances and emission reduction potential. It gave further guidance on key elements for a 2030 Climate and Energy Policy Framework. The European Council invited the Commission to rapidly present all the remaining relevant proposals to this end so as to swiftly inaugurate the legislative process. To this end, the Commission has started the next steps towards implementing these targets and will review the relevant climate-related policy instruments. This Impact Assessment focuses on the revision of the Land Use, Land Use Change and Forestry (LULUCF) Regulation, which covers the CO2 emissions and removals and other GHG emissions resulting from our management of land, forests and biomass, for the period 2021-2030. This Regulation has brought nature-based carbon removals in the EU climate framework for the first time, to reflect their role in reaching climate neutrality. The importance of the LULUCF sector has been reinstated when the European Commission proposed, with the Climate Target Plan, to include this sector in the formulation of the -55% target for 2030. The contribution of net removals to the 2030 Union climate target should be limited to 225 million tonnes of CO2 equivalent. In the context of the overall political agreement, the Commission reaffirmed in a corresponding statement its intention to propose a revision of the LULUCF Regulation in line with the ambition to increase net carbon removals to levels above 300 million tonnes of CO2 equivalent in the LULUCF sector by 2030. Therefore, this Impact Assessment aims to inform three policy options to increase net removals in the LULUCF sector, which were first identified in the Climate Target Plan: moving towards a more ambitious contribution from the sector, looking into the flexibility between the LULUCF and the Effort Sharing sectors, and creating a combined target for agricultural emissions and LULUCF emissions and removals. Among the other “Fit for 55” initiatives, the revision of the Effort Sharing Regulation (ESR) is the one that can mostly affect the scope, choices or impacts of this initiative. In particular, the choice about the scope of the ESR can directly affect the feasibility of a combined target for the LULUCF and the agriculture sector, because the agriculture sector is currently within the scope of the ESR. 4.The LULUCF sector The land use, land use change and forestry (LULUCF) sector covers anthropogenic greenhouse gas emissions and carbon removals occurring on land ecosystems, i.e. carbon stock changes in soils and biomass, as well as carbon removals in long-lasting wood products. This sector provides the basis for human livelihoods and well-being including the supply of food, freshwater and multiple other ecosystem services, as well as biodiversity. Actions that can protect the stored carbon or that can enhance the carbon sequestration capacity of the land include planting trees, restoring forests, practicing agroforestry, adopting agricultural and forestry practices that protect and enhance soil carbon, protecting wetlands, restoring peatlands, or promoting long-lasting and circular wood products. The climate impact of agricultural activities such as livestock rearing and fertiliser use are covered under the Effort Sharing Regulation. The views of stakeholders Stakeholders who replied to the Open Public Consultation on the revision of the LULUCF Regulation expressed their opinion on which kind of actions should be prioritised in the LULUCF sector. They considered the following actions as important or very important: Afforestation, reforestation and forest restoration (77%); Protection and restoration of wetland and peatland ecosystems (69%); Soil carbon increase in agricultural land (69%); Carbon storage in long-lasting wood-based materials and products (66%); Agro-ecology and agro-forestry, as well as grassland management (55%). See Annex 10.2.3 for more details. The LULUCF sector is connected to all ecosystems and economic activities that rely on the land and the services it provides. Therefore, the LULUCF Regulation presents synergies with many other EU policy initiatives that cover land-related activities. Figure 1 shows such relationships in a schematic manner. Figure 1- Relationship between the LULUCF Regulation and other EU policy initiatives 5.The current LULUCF Regulation The LULUCF Regulation primarily addresses Member States by establishing a minimum level of climate mitigation performance in the LULUCF sector; it does not set any reporting or compliance requirements for individual land managers. Under the current LULUCF rules, the minimum amount of removals that the LULUCF sector should provide at the EU level in 2030 is around -225 MtCO2eq; the minimum commitment levels in each Member State are designed to ensure that land management practices do not become worse from the perspective of climate change mitigation. If removals are smaller than these levels, a Member State may generate LULUCF debits, and if they are larger, it may generate LULUCF credits. The LULUCF Regulation commits Member States to avoid creating any debit; if this happens, a Member State must step up emission reduction efforts in its Effort Sharing sectors to compensate the deficit , or it can buy LULUCF credits from other Member States. Finally, Member States can use a limited amount of LULUCF credits to help achieve ESR national targets (so-called ‘flexibility’). More details about the LULUCF Regulation are provided in Section 5.1. 6.Problem definition 7.What are the problems? This section identifies three specific problems related to the contribution of the LULUCF sector to a higher climate ambition in 2030 and to climate neutrality in 2050. These are:

1.The fact that net LULUCF removals have been significantly decreasing in recent years; 2.The presence of unexploited opportunities to address climate action in the land sector in an integrated manner; 3.Challenges to implement the accounting, monitoring and reporting rules as set out in the current LULUCF Regulation. Figure 2 summarises these three specific problems (described in sections 2.1.1 to 2.1.3), their drivers (described in sections 2.2.1 to 2.2.3), and the corresponding objectives (described in sections 4.2.1 to 4.2.3). 8.Specific problem #1: Decreasing carbon removals in the land sector Land-based mitigation action can have very long lead times, which means that it can take years or decades for it to deliver the desired mitigation outcome; for instance, afforestation put in place now will only provide significant carbon removals in the next decade(s). This fact, and the fact that land-based carbon removals will play an important role in achieving the EU’s 2050 climate neutrality objective, means that the next decade will be crucial to take the actions needed to put the LULUCF sector on the right trajectory towards a climate-neutral EU. Such trajectory would require net LULUCF removals to increase from their current level to around -400 MtCO2eq in 2050 (depending on the parallel developments of technology-based carbon removals and of lifestyle changes). Unfortunately, the recent trend has been going in the opposite direction: in only five years, from 2013 to 2018, almost a fifth of the net carbon removals in the LULUCF sector were lost (see more info in Box 1 ). Thus, the first specific problem that this initiative will address is the decreasing carbon removals in the LULUCF sector. The LULUCF sector in the EU GHG inventory results in net carbon removals (that is, removals outweigh emissions, or the amount of carbon sequestered from the atmosphere is larger than the amount of stored carbon which is released back into the atmosphere). In terms of land use categories, only Forest land provides net removals. Cropland is the largest source of emissions, followed by Settlements, then by Wetlands. In recent years Grasslands has been a small source of emissions. CO2 emissions due to the combustion of biomass for energy are also captured under the LULUCF sector (when and where the biomass is harvested); see Annex 10.6 for more information on the treatment of biomass emissions in EU law. In addition, Harvested Wood Products store the carbon fixed by forests, delaying its emissions compared to wood used for energy. ‑‑Between 2013 and 2018, the EU27 saw its net LULUCF removals decline by 19%, from 325 MtCO2eq to 264 MtCO2eq, according to the 2020 national GHG inventory submission to the UNFCCC. This decline in carbon removals is driven by a mix of factors, including an increase in wood demand, an increasing share of forests reaching maturity in terms of production management, and an increase in natural disturbances such as insect infestations, storms, droughts and forest fires. This sharp decline contrasts with the general increase in removals that could be observed previously: between 1990, the beginning of GHG inventories, and 2006, year of the maximum reached, removals had grown from -255 MtCO2eq to -336 MtCO2eq. Not all land categories contribute equally to these variations. Between 2013 and 2018, forest net carbon removals have decreased by 18% (from -425 to -347 MtCO2eq) while net carbon removals in the Harvested Wood Product carbon pool have increased by 50% (from -28 to -42 MtCO2eq). Emissions from cropland have decreased by 10% (from 59 to 53 MtCO2eq) while emissions from grassland and wetlands have remained stable (respectively, around 8-9 and 17-18 MtCO2eq), and emissions from settlements have increased by 9% (from 41 to 45 MtCO2eq). Figure 3 shows the evolution of LULUCF emissions and removals in the EU27 from 2005 to the latest reported year, 2018. 9.Specific problem #2: Insufficient integration of the land sector into climate policies Besides its capacity to store and sequester carbon, land provides many other important products and services: it supplies the bioeconomy sectors with food, feed and feedstocks, provides habitats for biodiversity and many ecosystem services vital for life (e.g. water and air purification), and protects us from some of the consequences of climate change (e.g. floods and desertification). The interdependence between these functions and the capacity of the LULUCF sector to sequester carbon from the atmosphere calls for an integrated approach to climate action in the land sector, in order to optimise land use planning and identify win-win practices. The potential to increase land-based carbon removals and the associated costs are unevenly distributed across Member States. A key factor is the area available for climate action, which depends on topographic or economic factors. Furthermore, the type of soil and land use, combined with other climate-related factors and latitude, all impinge on the potential to enhance removals. The mitigation potential and costs also differ within the land sector; for instance, in the same Member State there can be more opportunities for increasing removals than for decreasing agricultural emissions, or vice versa. Thus, the policy framework needs to provide some flexibility to address the climate performance of the land sector. The current framework addresses this need by allowing to use the overachievement of ESR targets for LULUCF compliance, or vice versa (for more information on the current framework, see Section 5.1); however, the analysis of the National Energy and Climate Plans indicates that the current flexibility opportunities are not an integral part of Member States’ climate strategies (see section 2.2.2 for more details). This points to a need to revise the policy framework to make it more conducive to an optimisation of land use, and to promote a more strategic view of the role of the land sector in the achievement of Union and national climate targets. 10.Specific problem #3: Challenges to implement the accounting, monitoring and reporting rules as set out in the current LULUCF Regulation The LULUCF rules determine the extent to which mitigation performance in the LULUCF sector can contribute to the current 2030 EU target (-40%). The current 2030 EU target is expressed in terms of a reduction of emissions from other sectors than LULUCF; the LULUCF sector can affect its achievement via the flexibility with the ESR. Therefore, the LULUCF Regulation defines a set of accounting benchmarks to determine the threshold for this flexibility: this is the so-called “no-debit” target, whose under- or over-achievement triggers, respectively, a deletion of ESR allowances or the (limited) use of LULUCF credits for ESR compliance (for more information on the current Regulation, see Section 5.1). The preparation for the implementation of the LULUCF Regulation has shown that these accounting rules create some regulatory costs; in particular, the benchmark for Managed Forest Land, the so-called Forest Reference Level (FRL), is technically and politically complex (see more details in Section 2.2.3). A study analyzed further possible challenges with regard to technical implementation in view of LULUCF compliance. These accounting rules were originally designed in the Kyoto Protocol context, mainly to address issues such as lack of confidence in LULUCF estimates, additionality, permanence, and the risk to dilute efforts in other sectors. Importantly, these rules have always been applied when LULUCF was not included in the base year upon which the economy-wide emission reduction percentage was calculated (i.e. under the Kyoto Protocol and for the current –40% EU target in 2030). The “credits” or “debits” resulting from the application of the accounting rules were then added on top of the other sectors to assess compliance towards the emission reduction target. Therefore, this accounting approach may not be strictly needed anymore, given the way that the new 2030 target (55%) is expressed in the Climate Target Plan, and which is now under discussion in the context of the Climate Law. To be coherent with the economy-wide target recommended by the Paris Agreement and with the EU’s 2050 climate neutrality target, the new -55% target is expressed in terms of net emissions and thus fully includes the LULUCF sector. In this context, considering the full amount of LULUCF emissions and removals reported in GHG inventories for the compliance towards the 2030 target would ensure methodological consistency with the way LULUCF is included in the 1990 base year. This hints at the possibility to treat the LULUCF sector like any other sector, subject to a single removal target rather than governed by a set of accounting benchmarks. The LULUCF Regulation also introduced new monitoring and reporting requirements. These are necessary because the current systems used for monitoring and reporting LULUCF emissions and removals are not yet granular enough to pick up the impacts of measures taken at the individual actor level (e.g. measures supported by the Common Agricultural Policy); often the necessary data exist (especially in the CAP datasets) but they are not integrated in the climate inventories. This creates a policy gap; for instance, it is less important for a Member State to use budget from the CAP to promote climate-friendly action related to LULUCF if this action does not appear in the climate inventories and thus does not contribute to achieving national climate targets. Similarly, if monitoring and reporting systems do not provide specific climate information on areas of special importance for biodiversity (e.g. areas covered by restoration targets, areas covered by primary and old-growth forest) or distinguish between monocultures and bio-diverse forests, there is a missed opportunity to strengthen synergies between climate action and biodiversity action. Approaches to further improve monitoring and reporting systems will be discussed in Section 9. 11.Evaluation of the current policy framework In preparing for the implementation of the LULUCF Regulation (which only came into force in 2021), the Commission has carried out some steps. The analysis of the National Energy and Climate Plans (NECPs) overall showed that the LULUCF sector is yet to be treated as an integrated component of Member States’ climate strategies (Specific problem #2). The process of establishing the Forest Reference Levels for each Member State has revealed the challenges behind the implementation of this complex accounting rule, and capacity building activities to support some Member States in preparing for the implementation of the LULUCF Regulation have highlighted the challenges behind the gaps in national monitoring and reporting systems (Specific problem #3). 12.What are the problem drivers and how will the problem evolve? 13.Drivers behind decreasing carbon removals in the land sector

Emissions and removals by forests are the largest components of the LULUCF balance. An in-depth analysis of the recent GHG inventory highlights that the forest regrowth period that took place from 1960 to 2005 started to reverse in 2005 due to a combination of problems. Since about 2013, the annual removals on forest land have been decreasing at roughly 12 MtCO2eq per year, a trend that emerged in a number of EU regions (to varying amounts). The change since 2013 is due to a mix of factors, including an increase in wood demand, an increasing share of forests reaching harvest maturity and an increase in natural disturbances. Already in 2017 and 2018 several European countries, in both Southern and Northern Europe, were hit by unprecedented forest fires, which coincided with record droughts and heatwaves. The last two decades have shown that an increasing amount of forests in Europe has become vulnerable to insect outbreaks, especially to bark beetles attacks in Central and Eastern Europe, which can lead to salvage logging. Finally, the ageing of forests leads to declining forest growth rates. Afforestation and deforestation play less of a role in the total LULUCF performance, although afforestation has also decreased since 2010. In addition, emissions from organic soils have still not decreased significantly, in particular due to the continuation of cropping practices that disproportionately contribute to emissions; an example are drained peatlands, a type of land which stores approximately five times more carbon than forests and about half of Europe’s total soil organic carbon. Wetlands in Europe have been suffering from a continued degradation from multiple pressures. Finally, and despite a reduction in the last decade, land take in EU28 still amounted to 539km2/year between 2012 and 2018 (EEA 2019); half of the deforestation emissions results from the conversion of forest land to settlements. The views of stakeholders The stakeholders who replied to the Open Public Consultation on the review of the LULUCF Regulation selected the following as the most important drivers behind the decline of land-based removals: Conversion of carbon rich land; Unsustainable land management practices; Natural Disturbances. See Annex 10.2.3 for more details. Before the start of the new 2021-2030 compliance period under the LULUCF Regulation, emissions from the LULUCF sector were not included in the national climate targets under EU law. This may have stopped Member States from internalising in their national policies some important positive and negative climate externalities related to land management. Examples of such externalities are the benefits of embedding carbon into long-lasting and circular bio-based products, or the emissions from the burning of biomass for the production of bioenergy (a clear issue was that the use of biomass for energy was directly incentivized, as the corresponding emissions were not counted towards domestic climate targets until the LULUCF Regulation entered into operation in 2021). Furthermore, the potential contribution of soil protection (e.g. peatland protection and restoration) to reducing GHG emissions has not yet been incorporated into soil protection law, and the activities necessary for soil protection under the CAP are generally not prioritised due to the low level of awareness among national and local authorities. This lack of incentives at the Member State level has trickled down to the individual land managers, who do not get any revenue from climate mitigation action: in particular, farmers are price takers in oligopolistic markets and have little ability (and incentives) to differentiate products according to their climate footprint. Besides, climate action sometimes comes with large opportunity costs for land managers (for example, the income foregone and the decrease in land price when converting agricultural land to forest land, or rewetting it if it was drained). Since there is no value assigned to carbon storage, there is also no incentive to protect this ‘carbon asset’ beyond some regulatory standards and subsidies (e.g. under the CAP). Negative externalities from land activities that create emissions are not sufficiently internalised in the final prices; a more ambitious “polluter-pays” approach would trigger the price signals that are needed to also drive behavioural change at the level of consumers. Lack of technical knowledge and support at the level of farmers also hampers the uptake of new practices and technologies. Finally, there are some specific barriers to change related to forests. For instance, one third of private European forests consists in small parcels owned by multiple small owners who do not actively manage their forest, and forest rotations range from 40 to 140 years, which confers substantial inertia to forest management and its responsiveness to price signals. Likely evolution of this problem Climate change and biodiversity loss will exacerbate the natural disturbances that have been driving LULUCF emissions in recent years, such as forest fires, heatwaves, droughts, storms or pests. Slow onset events, such as land and ecosystem degradation or sea level rise are equally destructive over the long-term. Forest growth is generally projected to increase in northern Europe and to decrease in southern Europe, but with substantial regional variation. At the same time, forest tree species are shifting towards higher altitudes and latitudes as a result of climate change. This migration – and indeed other adaptation actions – lags behind the changes in climate, which may lead to a decline in European land biodiversity and removals due to increased natural disturbances. Global warming will likely increase disturbances from fires and insect outbreaks in increasingly large areas of Europe; the probability of high-to-extreme wildfire danger is projected to rise as a result of changing weather patterns, and forest insect pests are projected to increase in most regions of Europe. These combined impacts affect forests considerably, as well as the functioning of related ecosystems and services. Overall, both the current and the projected trends of the carbon removal determinants (forest growth, natural mortality, harvest), as well as the Member State projections up to 2025, suggest declining net forest carbon removals in the short term. Non-forest ecosystems including grasslands, wetlands and soils, are also affected by increasing impacts of climate change such as drought. ‑On the more positive side, the 2018 EU inventory showed a slight rebound of removals compared to 2017, a year which was heavily affected by forest fires in Italy and Portugal. While the impact of natural disturbances will be noticed at the level of individual land managers and small Member States, the overall impact on total removals at the EU level is expected to be limited over the next 10 years. The Commission’s Policy scenario, which considers changes in the biomass demand from the energy sector, projects that LULUCF removals could in the next decade remain around today’s level at no additional cost (i.e., assuming no carbon price). Moreover, a much higher level of removals (above 300MtCO2eq in 2030) could still be achieved via a range of relatively inexpensive near-term mitigation actions (e.g. improved forest management, set-aside of organic soils), even considering the likely increased pressures on forests and harvesting rates due to the higher demand for short-lived products and bioenergy (see Annex 4 for more details). In contrast, the national projections provided by Member States in the National Energy and Climate Plans estimate that net LULUCF removals in 2030 may be approximately one third smaller than they were in 2005. In addition, the minimum compliance level set out in the LULUCF Regulation is only approximately -225 MtCO2eq. in 2030, which would still represent a loss of 13% of the average removals reported in 2016-2018 (-267.7 MtCO2eq) (see Figure 4 ). All in all, without a revised and more ambitious policy framework, there is a risk that national policies will not drive LULUCF performance to the level that is considered feasible in the Commission’s modelling scenarios, with negative consequences also for adaptation, biodiversity, and a sustainable and circular bio-economy. 14.Drivers behind the insufficient integration of the land sector into climate policies Separation of Agriculture and LULUCF The current policy framework maintains a regulatory separation between Agriculture, which is fully included in the national emission targets under the ESR, and LULUCF, which only contributes to the EU-wide climate target through the ESR-LULUCF flexibility (as explained in Section 2.1.3). Thus, emissions from agricultural activities and emissions or removals from other land uses may take place on the same land parcel and yet be recorded under two different pieces of legislation and with two different approaches. This separation does not allow for a fully integrated and comprehensive view of the climate benefits and costs of land-based action at the Union level but also at the Member State level; it creates barriers that may hinder effective policy design and implementation. Limitations of the ESR-LULUCF flexibility rules Most NECPs provided information on planned mitigation actions in the LULUCF sector, but only very few of them gave indications on the intended use of the ESR-LULUCF flexibility rules to achieve national climate targets. Almost all plans mentioned that they intend to achieve the “no-debit” (minimum) commitment, without any plan to overachieve it and generate LULUCF credits. Some implementation-specific drivers (e.g. uncertainty about LULUCF estimates, the fact that the lengthy FRL process was not yet completed by the time of drafting the NECPs) play an important role for this lack of an integrated approach to mitigation action across ESR and LULUCF sectors. Another fundamental role is played by the expectation that the demand for LULUCF credits will be quite small, which depresses the incentives to produce such credits. This low demand is driven by three factors. First, LULUCF targets are often below the current LULUCF performance in most Member States, so there is no expected need to buy LULUCF credits from another Member State for compliance with the LULUCF target. Similarly, ESR targets are also considered by Member States to be attainable without any need for LULUCF credits. Third, even if ESR targets were made more stringent with the current revision, the fact that a Member State can only use ‘domestic’ LULUCF credits for its ESR compliance (and not credits purchased from another Member State) significantly reduces the pool of potential ‘buyers’ of LULUCF credits. Lack of a climate target for the land sector

The land sector has no integrated climate target. The agricultural sector contributes to the overall non-ETS target set by the Effort Sharing Regulation (ESR), together with transport, buildings, waste and F-gases, while the LULUCF sector has its own accounting target. In its proposal for the next CAP, the Commission introduced several climate-related elements, established a legal obligation on Member States for greater overall ambition on environment and climate, and indicated that the CAP Strategic Plans should be consistent with the overall national climate strategies and with measures as described in the National Energy and Climate Plans; however, the CAP is not a climate policy, and therefore does not include an explicit climate mitigation target. A single climate target for the land sector could give a clearer direction to the climate ambition of the CAP Strategic Plans and to national land-related policies in general. Risks related to this problem Without a more integrated policy framework, and without stronger incentives to use flexibility rules towards a cost-effective creation of LULUCF removals, there is a risk that mitigation opportunities do not happen where they are the most cost-efficient, and that the LULUCF sector continues to be considered as an outsider in climate policies and strategies. Continuing with a fragmented policy approach to land-based climate mitigation could undermine the incentives for Member States to act on land use and forestry, and hinder the potential of the LULUCF sector to deliver the carbon removals that are needed to put the EU on the path to climate neutrality in 2050. 15.Drivers behind the implementation challenges In 2019, capacity building activities were conducted in eleven Member States to support the establishment of Forest Reference Levels (FRLs) and the improvement of monitoring and reporting systems. During this activity, some clear challenges were identified. In the case of the FRLs, the main difficulties encountered by Member States were: documenting forest characteristics in the reference period (2000-2009), selecting and calibrating the right modelling framework, ensuring that the modelling framework was able to reproduce the historical trends, and modelling emissions and removals in deadwood. The process for laying down FRLs for the first compliance period of the LULUCF Regulation (2021-2025) took two years with another year of preparations of FRLs in Member States, and required a very high level of technical competence in Member States. The process to review and assess FRLs has been time consuming (15 meeting days of the LULUCF Expert Group with approximately 70 participants). The Commission estimated at around EUR 4.5 Mio the shared cost of this process between Commission and Member States. Despite all efforts, there is still ambiguity in interpretations of specific components of the FRL, which results in heterogeneity among Member States FRLs. The main drivers behind the gaps in national monitoring and reporting systems include : low awareness of existing datasets due to weak inter-institutional arrangements, data gaps (in particular for establishing historic baselines), lack of human resources and lack of specialised skills. While monitoring and reporting systems for forests are quite well advanced in all Member States, they may not be fully fit for providing a rapid indication of changes caused in particular by disturbances, increasing harvesting levels, or even afforestation and reforestation. Furthermore, soil data is scarce, incomplete and uncertain, due to the high costs of extensive and repeated soil monitoring, and to the fact that there have been little economic and policy incentives for improving these data so far. In particular, the policy incentives to invest in better monitoring of agricultural land have up until recently been weak because LULUCF was not yet part of the 2020 EU targets, and accounting for agricultural land was not mandatory under the Kyoto Protocol (only seven Member States included it in their Kyoto Protocol accounts). Analysis carried out to support this Impact Assessment estimated that very large carbon gain and losses from soils go unreported; accurate estimates of emissions and removals, based on good information on land use activities and local emission factors, cover at most 37% of EU cropland, because most Member States use default IPCC methods. As long as soils remain such a ‘blind spot’ of climate policies, it is challenging to design effective policies and incentives. For more information on how to improve reporting systems in a cost-effective way, see Section 9 and Annex 10.8. Likely evolution of this problem If the Forest Reference Level concept is maintained, the process to establish the national levels would have to be repeated in 2024-2025 for the 2026-2030 compliance period. If the accounting rules are not simplified with the current revision, there is a risk of high regulatory costs combined with a difficulty in designing, implementing and communicating about national LULUCF policies. Without exploiting the opportunities offered by digital and satellite-based technologies, and in the absence of targeted policy interventions to build capacity and simplify reporting frameworks, there is a risk that gaps in monitoring and reporting systems persist, which would undermine effective policy implementation and policy planning. 16.Why should the EU act? 17.Legal basis The proposal is based on Article 192(1) of the Treaty on the Functioning of the European Union (TFEU), which gives the Union the right to act in order to achieve objectives of its policy on the environment. The objectives of the Union policy on the environment as defined in Article 191(1) of the TFEU include, inter alia, preserving, protecting and improving the quality of the environment; a prudent and rational utilisation of the natural resources such as land and forests and promoting measures at international level to deal with regional or worldwide environmental problems, in particular combating climate change. 18.Subsidiarity: Necessity of EU action Climate change is by its nature a trans-boundary problem. Its effects are global, irrespective of the location of e.g. sources of GHG emissions. Similarly, opportunities to remove and store carbon and reduce emissions in the land sector are unequally distributed across the EU. Therefore, these challenges cannot be solved by national or local action alone, since individual action is unlikely to lead to optimal outcomes. Coordinated EU action can effectively supplement and reinforce national and local action and enhance climate action. Coordination of climate action is necessary at European level and, where possible, at global level, and EU action is justified on grounds of subsidiarity. Since 1992, the EU has worked to develop joint solutions and drive forward global action to combat climate change. 19.Subsidiarity: Added value of EU action The coordination of the reduction of greenhouse gas emissions across the European Union benefits from coordination at the EU level given the EU’s single market. An increase in the 2030 target for EU GHG reductions will impact most, if not all, sectors across the EU economy. The increase of that target may furthermore require policy responses in many fields, including beyond climate, forestry and land use policy. The impacts of such ambition increase and related policies on growth and jobs creation, fairness and cost-effectiveness are examples of elements that can be better considered at the EU level. The LULUCF Regulation sets a framework to ensure that Member States take the necessary actions related to land use and forestry. As such, it depends on action by Member States (reflecting the externalities related to land management) and has strong linkages with other policies, in particular agriculture, biodiversity and habitat protection, adaptation, and also energy policy due to the renewable energy aspects. There are many reasons for regulating the LULUCF sector at the EU level: interdependencies between the different policies involved and their cross-national impact, setting emissions reduction and removal targets per Member State as well as setting out principles, on which basis the Member States will report on their achievements and measure their progress towards reaching their individual targets and targets of the EU as a whole, as specified in the monitoring and reporting rules laid down in Regulation (EU) 2018/1999. Action at the EU level is therefore indispensable and coordinated EU policies have a much bigger chance of leading to a true transformation towards a climate neutral economy by 2050. Coordinated action at the EU level furthermore facilitates the full consideration of the different capabilities to act among Member States. The EU single market moreover acts as a strong driver for cost-efficient change. Finally, EU-level climate policy adds significant value for international climate action and global efforts to halt biodiversity loss. Since 1992, the EU has worked to develop joint solutions and drive forward a global agreement to fight climate change. These efforts have helped to achieve the Paris Agreement in 2015. International climate policy and climate and environmental diplomacy have been strengthened as a result of coordination of European climate policy at the EU level, both of which are crucial in a world in which the EU accounts for only around 10% of global GHG emissions.

20.Objectives: What is to be achieved? 21.General objectives The European Green Deal is the crucial stepping stone towards making Europe a climate-neutral continent (i.e. achieve net zero GHG emissions) by 2050. The frames the Commission proposals for the 2030 Climate Target Plan. The general objective of this initiative is to make the LULUCF Regulation fit for reaching at least 55% net greenhouse gas emission reductions by 2030 compared to 1990, in line with the 2030 Climate Target Plan, as a staging post to achieving climate neutrality by 2050. 22.Specific objectives 23.A climate-neutral land sector by 2035 The 2018 Commission Communication “A Clean Planet for All” makes clear that we need carbon removals to increase significantly if we are to achieve climate neutrality in 2050. Thus, to be on track for climate neutrality in 2050, the EU needs to reverse the recent decline in land-based removals and start implementing actions to increase removals already in this decade, in order to account for the long lead times of land-based climate mitigation. The views of stakeholders The need to enhance land-based carbon removals was well recognized by stakeholders who provided feedback to the Commission’s Inception Impact Assessment (see Annex 10.2.2). However, while respondents from the bio-based sector favour an approach that rewards active forest management and views Harvested Wood Products (HWPs) as an important type of removals, environmental NGOs strongly disagree with this approach and would rather see a preservation of the existing carbon storage and removals. The modelling behind the Climate Target Plan shows that the at least -55% target would be economically feasible even if the LULUCF sector becomes as small as -225Mt in 2030 (which is the minimum level of removals required to comply with the current LULUCF Regulation, according to current LULUCF accounting rules). Nevertheless, the same modelling also shows that keeping carbon removals at today’s level (around -260Mt) is possible with no additional policies by Member States, and that, with additional action, an integrated land sector (LULUCF and Agriculture) “would have the potential to become rapidly climate-neutral by around 2035 in a cost-effective manner, and subsequently generate more removals than greenhouse gas emissions” (see Figure 5 ). In a more detailed discussion about the actions needed to realise these projections, the Impact Assessment accompanying the Climate Target Plan (in its section 9.2) explains that the mitigation potential of non-CO2 agriculture emissions (currently covered by the Effort Sharing Regulation) relies on actions such as: anaerobic digestion with biogas recovery, livestock breeding, feed additives, nitrification inhibitors, more efficient fertilizer use, as well as changes in dietary choices and alternative protein production from aquaculture. As regards the LULUCF sector, the Climate Target Plan projections (see Figure 5 below) assume that the use of biomass for energy will remain stable until 2030, while the mitigation potential in the short-term is based on limiting deforestation and some additional soil carbon sequestration and sustainable forest management practices. Another highly promising action, i.e. protecting organic soils from intensive agricultural use, is not covered directly by the modelling in the Climate Target Plan, but another Commission study considers it as one of the most efficient solutions to reduce GHG emissions in agriculture. Thus, the first specific objective of this initiative is to achieve a climate-neutral land sector by 2035. This objective breaks down in two parts: ·An increase in LULUCF net removals, and ·A decrease in agricultural emissions. Based on the graph in Figure 5 , in order for the land sector to be on track for climate neutrality in 2035, in 2030 net removals should be above -300MtCO2eq, while agricultural emissions should be around 360 MtCO2eq. The second part of this objective – the reduction of agricultural emissions – is also covered in the ESR impact assessment because agricultural emissions are currently within the scope of the ESR. While the primary focus of the “Fit for 55” package is to achieve the 2030 climate target, in the case of the land sector it is considered important to signal a further, mid-term target for 2035. First, because nature-based actions have long lead times, notably for improved land use management practices, the development of large scale sustainable afforestation and the restoration of habitats. A mid- to long-term policy orientation can thus avoid lock-in of measures that may be counterproductive in the long-term. Planning certainty for the land sector appears even more important when one considers that this sector is projected to become the largest one in the EU GHG flux profile in 2050 (as fossil emissions become significantly reduced); it is therefore crucial to anchor it to a trajectory that can effectively deliver the long-term objective of EU-wide climate-neutrality in 2050. Last but not least, a 2035 policy horizon can provide for a clear long-term direction for the future (2028-2035) Common Agricultural Policy. 24.A fair, flexible and integrated climate policy framework for the land sector As the opportunities to increase carbon removals are unevenly distributed across Member States, and the multi-functionality of land creates synergies and trade-offs, the revision of the LULUCF Regulation will need to ensure a fair, flexible, and integrated policy framework. A fair policy framework should allocate any potential national target based on principles such as historical performance (e.g. past emissions) and capability (available land, cost-effective mitigation potential).

A flexible policy framework should allow Member States to choose which mitigation actions to prioritise across the economy, and to have access to inter-MS trading mechanisms to ensure that action happens where it is the most cost-effective. Finally, an integrated policy framework should require Member States to reflect on the role of the LULUCF sector in their wider national climate strategy in a more integrated manner than what emerged from the NECP exercise, starting from the obvious connections to mitigation strategies in the agricultural sector, but also taking into account synergies with other land-related objectives (adaptation, biodiversity, sustainable and circular bioeconomy). In the long term (i.e. beyond 2030), a cost-efficient policy framework to implement climate neutrality for the land sector (and further on net carbon removals, to achieve climate neutrality at the level of the whole economy) will be a market-based carbon trading system, operating at the level of the land or removal entity manager. Conceptually, this approach will be analogous to the way in which the ETS requires compliance at the level of the industrial entities. Unlike the ETS, however, emissions allowances in a land-based carbon trading system should be progressively tied to removal certificates, to enforce a transparent pathway towards climate neutrality. Such a system would ensure a level-playing field for the internal agricultural market. This approach will require a robust certification system and a widespread capacity of land managers to monitor their emissions and removals. Both these objectives are on the EU agenda for the years running up to 2030: a Carbon Removal Certification mechanism will be proposed by 2023 (as announced in the Circular Economy Action Plan), and by the end of 2021 a Carbon Farming Initiative (announced in the Farm to Fork Strategy) will promote result-based payments for land managers. Meanwhile, the CAP will continue to support the uptake of sustainable land management practices and technologies and to enable access to advisory services and monitoring tools. Thus, while other parallel policy initiatives will provide incentives for land-based mitigation at the level of individual land managers, the current revision of the LULUCF Regulation aims primarily to encourage Member States to design more ambitious land mitigation strategies. Nevertheless, by modernising the governance framework and upgrading the monitoring requirements, this revision also takes the first steps towards a more cost-efficient and integrated policy framework post-2030. Figure 6 shows the different elements of an integrated policy approach to the land sector, creating both an overall policy framework (addressed to Member States) and direct incentives (addressed to land managers). 25.Simplification As argued above, the current LULUCF rules are often complex and no longer needed given the new formulation of the -55% target; based on the lessons learnt, in particular with regard to the setting of the FRLs, a number of accounting concepts can be optimised and simplified. This can reduce implementation costs and improve the integration of the LULUCF sector in the overall national climate strategies. In addition, monitoring and reporting systems need to better reflect the climate performance of the sector. Thanks to evolutions in land monitoring technologies, there are opportunities to map land use changes at low cost and in a timely fashion (e.g. by using approaches based on remote sensing, including from satellites such as the Copernicus Sentinels and/or commercially available services); these maps will not only facilitate GHG reporting but also guide mitigation action to areas with highest potential for emission reductions, and more in general enable environmental action, biodiversity, nature protection and land planning. 26.What are the available policy options? 27.What is the baseline from which options are assessed? The baseline is the current LULUCF Regulation, which from 2021 integrates emissions and removals from the LULUCF sector into the EU climate policy framework for the first time; the Regulation addresses Member States and puts no direct requirements on individual land managers. Today the Regulation establishes rules to determine which emissions and removals are taken into account towards the target (so-called ‘accounting’ rules), in the same spirit as international conventions established under the Kyoto Protocol: ·For managed cropland / grassland / wetland: take into account emissions and removals in each compliance period minus the average emissions and removals in the base period 2005-2009 . ·For afforested or deforested land: the accounting rule takes into account all emissions and removals in each compliance period . When a unit of land is afforested, it remains under this accounting rule for 20 years before being considered managed forest land; similarly, when a piece of land is deforested, it remains under this accounting rule for 20 years before being considered as the type of land use that it was converted to. ·For managed forest land (which also includes the carbon stored in harvested wood products): take into account emissions and removals in each compliance period minus the emissions and removals described by a benchmark (the ‘Forest Reference Level’) . A reference level is a projection of future emissions and removals, against which the actual emissions and removals in a given year are compared. This concept was first employed in the EU under the 2nd commitment period of the Kyoto Protocol; in that context, the projections (called Forest Management Reference Level, FMRL) could include policy assumptions, with the risk of inflating the real impact of mitigation actions. Instead, in the LULUCF Regulation, the forest reference level (FRL) is exclusively based on the continuation of forest management practices and wood use as documented in a historical reference period (2000-2009), taking into account the age-related forest dynamics but excluding policy assumptions. As a result, the impact of any change in management or wood use will be reflected in the climate accounts, like in any other GHG sectors. The only difference with other sectors is the impact of forest age dynamics: for instance, where forests are getting older, the FRL projection will take into account that continuing the past management may involve increasing total harvest. The rationale of this approach is to avoid penalising Member States for choices taken decades or centuries ago that have affected the age structure of their forests. Beyond the impact of age-related dynamics on total harvest, any change in the forest management practices or in the ratio between energy and material use of wood relative to 2000-2009 will be fully reflected in the LULUCF accounts. The FRLs provide a more realistic counterfactual than the FMRLs; notably, they project a level of removals that is 59 MtCO2eq more stringent than that projected under the FMRLs. However, as discussed in Section 2.2.3, the technical complexity of the FRLs required a notable effort from the Member States and a long review process by the Commission and the LULUCF Expert Group. These efforts need to be weighed in when considering the benefits of the FRL approach for future policy development. Taken together, these rules set out an accounting target, i.e. a baseline that is the minimum compliance level for the LULUCF sector. This level is expected to be around ‑225 MtCO2eq per year on average, at EU27 level, , and it can be considered as a ‘no-backsliding’ provision: it is designed to ensure that land management practices do not become worse from the perspective of climate change mitigation. However, this level is far from being aligned with the trajectory towards a climate-neutral land sector in 2035, which would require removals above -300 MtCO2eq in 2030. It is also well below the removal potential estimated by the Commission’s policy scenario: according to the projections in this scenario, a level of removals of -256 MtCO2eq can be achieved at zero additional cost per ton of CO2 by 2030, implying that the LULUCF targets in the baseline could be increased by up to 31 MtCO2eq of removals in 2030 without entailing any additional cost.

Figure 7 shows these estimated baseline targets, that is, the minimum levels of reported GHG removals (or, in some cases, emissions) for each Member State.For most Member States (17), these targets are lower than their recent (2016-2018) LULUCF performance: these Member States could still be meeting the target even if they produced more LULUCF net emissions than currently, lose a large part of their current removals, or even go from delivering net removals to delivering net emissions. Other Member States, in particularly those that saw a sharp decrease in LULUCF removals in recent years due to the impact of natural disturbances (e.g. forest fires, pest outbreaks, droughts) currently have a baseline target that is much more stringent than what their LULUCF sector has been able to deliver in recent years; this is because the FRL concept, which is the main driver of the target, is not meant to reflect recent natural disturbances. A similar comparison can be made between the targets in the baseline and the projected mitigation performance of the LULUCF sector in the policy scenario. Here, almost half (12) of the Member States have a target that is below their mitigation potential, including two cases where the target allows for the production of LULUCF net emissions while the policy scenario projects a potential to deliver net removals. The view of stakeholders A majority (52%) of the stakeholders that participated in the Open Public Consultation on the LULUCF Review agreed that there should be more ambitious LULUCF targets than in the current baseline. Finally, Member States can create up to 262 MtCO2eq of LULUCF credits (i.e. removals in excess of the minimum compliance levels) over the 10-year period 2021-2030, i.e. an average of 26.2 MtCO2eq per year; these can be used to help achieve ESR national targets (so-called ‘flexibility’). For each Member State, the availability of LULUCF credits for ESR compliance is adapted to the share of agricultural emissions in ESR sectors. This is done to recognise that Member States with larger emissions from agriculture may find it more difficult to achieve their ESR targets, because the mitigation potential of agriculture is considered lower than in other sectors. The available quantities of LULUCF credits are shown as the lighter areas in Figure 7 , assuming that they are equal to 1/10th of the overall flexibility amounts allocated to each Member State over the 10-year period. Member States can effectively transfer their accumulated LULUCF credits at the end of each compliance period to the ESR. As presented in Section 2.1.2, the assessment of National Energy and Climate Plans (NECPs) shows that most Member States plan to ensure that their LULUCF performance is just good enough to meet their target, but very few of them give any indication of the extent to which they plan to generate and use LULUCF credits for ESR compliance. Thus, while providing for a flexible framework, the current rules do not create enough incentives for additional action beyond the “no-debit” targets. Because of the fact, mentioned above, that recent performance is already better than the accounting targets in many Member States, up to 84 MtCO2eq of LULUCF credits could potentially be generated in 2030, whereas the demand for such credits would only be around 52 MtCO2eq . These estimates indicate that, in the baseline, the potential supply of LULUCF credits is likely to largely outweigh the demand, depressing the potential revenues from (and thus the incentives for) an overachievement of the target. 28.Description of the policy options In line with the specific objectives of this Impact Assessment, the proposed policy options will: increase the legislative incentives for climate mitigation in the land sector; distribute the efforts fairly across Member States; set more efficient incentives; simplify the administration and compliance; and create synergies with other policy instruments. Option Main elements Option 1 Self-standing LULUCF target in 2030 Option 1.1 Changing the accounting rules for managed forest land ·MS benchmarks for managed forest land: historic average instead of Forest Reference Level ·No other changes of accounting rules ·Intra-LULUCF flexibility, but no flexibility with Effort-Sharing Regulation (ESR) Option 1.2 Setting a single removal target ·A single removal target per MS (based on recent emissions and removals and area of managed land) instead of complex accounting rules ·Intra-LULUCF flexibility, but no flexibility with ESR Option 2 Flexible LULUCF target in 2030 ·MS target based on recent emissions and removals ·Broader flexibility with ESR Option 3 Fully integrated agriculture and LULUCF targets in 2030 towards land-based climate neutrality in 2035 ·EU trajectory towards land-based climate neutrality in 2035 (based on recent emissions and removals and area of managed land) ·Planning exercise for MS action ·MS targets for integrated land-sector in 2030 and 2035 29.Option 1: Self-standing LULUCF target As described in Section 5.1, the current framework uses accounting rules to define a minimum climate performance for each land accounting category. This first option looks at alternative ways to design national LULUCF targets, either by simplifying the accounting benchmark for managed forest land (Option 1.1) or by setting a single removal target based on all emissions and removals reported in the inventory (Option 1.2). Under this first option, it is assumed that no flexibility channel exists between the LULUCF sector and the ESR sectors. The level of removals resulting from the amended accounting rules (Options 1.1) or a single target (Option 1.2) corresponds to the climate ambition which is set for the LULUCF sector on its own, and not as a threshold that defines the interaction between LULUCF and ESR sectors (as in the current Regulation). Although this feature was not part of any of the options outlined in the Climate Target Plan communication, it is included here to acknowledge the support for this approach by many stakeholders (see box below). Option 2 will address the flexibility dimension. The views of stakeholders A separate target for carbon removals, with no flexibility with other sectors, is often indicated by some categories of stakeholders (in particular NGOs) as a choice that would ensure the environmental integrity of the framework. This was confirmed by the responses to the Open Public Consultation, in which the policy option to strengthen the flexibility with the ESR received the strongest opposition in the open text response out of all policy options. Many stakeholders wanted to fully remove any flexibility with the ESR and have a separate LULUCF target. The most often named reason why stakeholders opposed the concept of ESR/LULUCF flexibility was that it would lead to inaction in the ESR sectors by enabling offsetting of emissions. Option 1.1: Changing the accounting rules for managed forest land This option proposes to change the accounting rule for managed forest land (which includes forest land which remains forest land, and the carbon that is stored in wood products which are harvested from this type of land) by using a historical benchmark instead of the FRL benchmark. One of the main reasons why the reference level approach was retained from the Kyoto Protocol framework was that it recognises the link between the age structure of forests and their mitigation potential. Indeed, a large part of the mitigation potential of existing forests depends on their age structure, which in turn depends on land management decisions made a long time ago; the point of the FRL projection is to cancel out the effects of the age structure to avoid creating winners or losers based on the legacy of past management decisions, and reflect mitigation action taken during the compliance period (see Box 2 ). However, as argued in Section 2.2.3, this approach has been criticised for being too burdensome and open to interpretation. In order to simplify the accounting framework while also mitigating age structure effects, the reference period for the benchmark should be as close as possible to the compliance period. Indeed, the closer the reference period is to the compliance period, the less important will be the effect of forest age structure.

For the purposes of the impact assessment, therefore, the calculations are carried out based on the latest available reported data, here aligned with the start level in the current ESR implementation, i.e. 2016-2018 . 13 years (from the middle of the reference period to target date 2030) is a relatively short period in terms of forest management, which typically covers a cycle of 40 to 140 years in a production forest. Possibilities for management-driven changes to the age class structure would therefore be limited. The average reported emissions and removals from Managed Forest Land in the period 2016-2018 was -351.0 MtCO2eq, which corresponds to 34.8 MtCO2eq of additional removals with respect to the Forest Reference Levels (-316.2 MtCO2eq). This simplification of accounting rules, therefore, raises the ambition of the LULUCF Regulation from the current ‑224.9 MtCO2eq to -259.7 MtCO2eq. The distribution of this increase in the target across Member States is provided in Annex 10.5. Option 1.2: Setting a single removal target Another approach to step up the ambition of the LULUCF rules is to define directly the amount of net removals that must be delivered at the EU level in 2030. In other words, a LULUCF target is set as the amount of removals reported in the greenhouse gas inventories, instead of through a set of accounting benchmarks. As argued in Section 2.1.3, the accounting approach creates complexity and hinders the integration of the LULUCF sector in the overall policy framework; beside its simplification benefits, a single removal target based on reported values is also coherent with the 2030 climate ambition as formulated in the Climate Target Plan, where all reported LULUCF removals contribute to the -55% target. The design of this option requires two decisions: the overall target for net removals at the EU level, and the criterion to allocate the effort among Member States. In this assessment, based on the emissions and removals as reported in the GHG inventory submission of 2020, the target is assumed to be -310 MtCO2eq in 2030, in line with a trajectory towards a climate-neutral land sector in 2035 (the first specific objective, see Section 4.2.1). The proposed allocation across Member States is based on two elements: ·Each Member State maintains its recent level of reported removals and emissions; in this assessment the average of the period 2016 to 2018 – the same start level as applied under the ESR – resulting in an EU starting level of 267.7 MtCO2eq. ·The remaining gap to the EU-target of 310 MtCO2eq in 2030 (e.g. 42.3 MtCO2eq of removals if compared to the average of 2016 to 2018) is allocated in proportion to the area of managed land in each Member State. Annex 10.4.2 provides more details on how the targets are computed. 30.Option 2: Flexible LULUCF target A flexibility mechanism from the LULUCF sector to ESR sectors can provide incentives to enhance LULUCF removals beyond the minimum compliance level. Land-based mitigation action could become cheaper or easier to implement than foreseen at the moment of deciding targets. It is therefore important that a Member State can consider land-based mitigation as an integrated part of its mitigation toolkit, and be incentivised to overachieve its LULUCF target if this appears to be the most cost-effective tool at its disposal. Under the current rules, access to the flexibility mechanism reflects a ‘no-backsliding’ principle : it requires that the mitigation performance of the LULUCF sector should not be worse than in a counterfactual where management practices had remained the same. However, under these rules the level of LULUCF removals is allowed to become as small as -225MtCO2eq in 2030 – lower than the current performance of the sector. Option 2 therefore proposes a stricter interpretation of the ‘no-backsliding’ principle. It requires that the mitigation performance of the LULUCF sector should not be worse than its recent level: only if the performance is better than its recent level can a Member State generate LULUCF credits for compliance with its ESR target. For the purposes of the impact assessment, this option calculates an EU target of -267.7 MtCO2eq, based on the average of the latest available data from 2016 to 2018. Like in Option 1.2, the target is set in terms of the overall amount of emissions and removals reported in the inventory, and not against accounting benchmarks. The result of this target allocation for each Member State is provided in Annex 10.5. Contrary to Option 1.2, the incentives for additional action beyond the recent level of mitigation would not come from a higher LULUCF target but from the demand for LULUCF credits from the ESR. To increase the power of this trading incentive, it is proposed that the use of this trading flexibility should be broader: Member States should have the possibility to use LULUCF credits not just for compensating their own ESR debits but also to sell them to other Member State for their ESR compliance. Obviously, there are other possibilities: it would be perfectly possible to combine the incentives for additional action that this impact assessment analyses under Option 1.2 (e.g. a target of ‑310 MtCO2eq in 2030) with those arising from ESR-driven demand, as analysed under Option 2. Such possibilities have not been identified in this Impact Assessment as separate options for reasons of simplicity of the analysis, as well as because a choice of this kind would be highly dependent from choices made in respect of the future architecture of the ESR (as explained further in Section 7.3). 31.Option 3: Fully integrated agriculture and LULUCF target In this option, emissions from agriculture are put together with LULUCF emissions and removals under a single “land sector” pillar. This option features three elements: (i) a planning process to ensure land-based climate neutrality in 2035; (ii) national binding targets for the land sector in 2030; (iii) national binding targets for the land sector in 2035. Thus, this option differs from the other options in two ways. First, it has a wider sectoral scope, in order to better capture the interaction between livestock farming, fertiliser use and land management, and to promote an integrated policy approach to land-based climate mitigation. Second, it extends beyond 2030, in order to directly address the first objective of this revision: by setting a trajectory towards a climate-neutral land sector by 2035, it provides planning certainty to address the long lead times of land-based mitigation action. An integrated policy framework that explicitly aims at a climate-neutral land sector can also be seen as a prototype to develop the implementation of the climate-neutral EU-wide economy in 2050, an objective laid out in the 2018 Communication “A Clean Planet for All” and enshrined in the proposal for an EU Climate Law . The land sector is a prime candidate to pilot this implementation approach, because it encompasses both emissions and removals (indispensable to achieve neutrality) and is projected to become the largest sector in the EU GHG flux profile in 2050 (as fossil emissions become significantly reduced). ·Planning process

A governance system is set up to ensure that Member States collectively achieve the 2035 land neutrality objective, based on a planning process that outlines strategies to decrease agricultural emissions and increase land-based net removals in an integrated manner, through existing policies (first and foremost, the Common Agricultural Policy) and financial incentives for the reduction of agricultural emissions and the increase of carbon removals. In this option, Member States submit national plans where they explain their contribution to the 2035 objective. The plans should include considerations of the linkages with adaptation, biodiversity and bio-economy goals, in order to address all synergies and trade-offs related to land planning and land management. They should also explain the expected role of different sources of finance, such as CAP funds, EU regional funds, other national funds, State Aid, or private sources (e.g. creation of carbon farming voluntary markets – see a description of carbon farming business models in Annex 10.7). The planning process should be integrated as a new element within the existing National Energy and Climate Plans (NECP) process. The Commission would review the plans and provide recommendations in case the progress would be insufficient towards the targets, which are defined below. ·2030 binding targets for the land sector Due to the different biophysical conditions across the Member States, it would neither be fair nor efficient to expect that each Member State reaches climate neutrality on its own in 2035. In some Member States the combined land sector will deliver net removals, while in others it may still create net emissions, depending on the combined reduction potential of livestock, fertiliser, and land management activities. As explained in Annex 10.4.2, this option proposes two formulas to compute each Member State’s contribution to the 2035 neutrality objective. The first formula distributes the contributions proportionally across Member States based on their recent emissions and removals. The second formula is based on the same principles as the fairness distribution key of the Effort Sharing Regulation, taking account of the differences in GDP per capita. The 2030 targets are then found on the linear trajectory between the 2016-2018 reference period and these 2035 contributions. It is important to note that Member States would not have separate targets for land-based removals and for non-CO2 emission reductions; only the overall balance, or the aggregate sum, of emissions and removals would count for the achievement of the 2030 targets. ·2035 binding targets for the land sector Binding national targets for 2035 will be established after the completion of the planning process outlined above and be based on a dedicated Impact Assessment. This process will take place following the review task set for the Commission in the current legislation, “no later than six months after each global stocktake” (art. 17 of the current LULUCF Regulation). This would place the discussion on the process and modalities for implementing the EU-wide land-based neutrality objective at a binding Member State level in late 2023 or 2024. The computation of these targets could include an adjustment of the trajectories defined for the determination of the 2030 targets; in particular, the starting levels could be updated with data from newer inventories. In such a way, unforeseen circumstances such as new trends in forest removals or progress on agricultural land management under the CAP can be reflected in the 2035 targets. The 2035 targets could be complemented with EU-level measures. These could include: the creation of an emission / removal trading system specific to the land sector; the creation of a fund to purchase land-based credits certified according to a Carbon Removal Certification mechanism ; EU targeted measures to reduce agricultural emissions. If appropriate, these EU measures will be based on a dedicated Impact Assessment that will take the most recent data and policy context into account. 32.What are the impacts of the policy options? 33.Impact indicators The assessment and comparison of the various options is based on the following quantitative and qualitative indicators. 34.Environmental impacts The most important impact of the revision will be an increase in LULUCF removals, to enhance the contribution of the sector to the more ambitious EU 2030 climate target announced in the Climate Target Plan (-55%). This is linked to the first objective of this Impact Assessment, a climate-neutral land sector by 2035 (see Section 4.2.1). This impact affects Member States authorities, who will need to design ambitious land policies to deliver these targets, and land managers (farmers, forest managers) who will be the actors on the ground; more in general, this impact affects all European and world citizens, as climate action is a public good that is cross-border in nature. This impact is assessed by comparing the EU removal target in 2030 to: ·the trajectory for land-based climate neutrality in 2035 (as indicated in Section 4.2.1, LULUCF removals should be above -300 MtCO2eq in 2030 to put the sector on this trajectory); and ·the mitigation potential of the LULUCF sector projected by the Commission’s policy scenario (MIX), according to which keeping carbon removals at a level around -256 MtCO2eq (slightly lower than today) is possible with no additional costs per ton of CO2eq. In the case of Option 3, where the target covers the entire land sector (i.e. not only the LULUCF but also the agricultural sector), the assessment will compare the target only to the projected mitigation performance of the land sector; alignment with the objective of a climate-neutral land sector is ensured by the way the targets are computed. All proposed targets are attainable by implementing a range of different actions, from peatland restoration to improved forest management, from afforestation to the promotion of long-lasting wood products (e.g. in construction).

The views of stakeholders In the feedback to the Inception Impact Assessment, the following expected environmental impacts were mentioned most frequently in relation to a more ambitious LULUCF Regulation: increased carbon sequestration; preservation of landscapes and ecosystems, including water systems and peatlands; preservation of forests as carbon sinks and biodiverse systems; afforestation and reforestation where there has been intense logging; improved soil fertility and carbon content; reduction of emissions and substitution of fossil-based materials. While the only environmental impacts assessed here are quantified in terms of GHG emissions and removals, action to enhance removals is highly synergistic with nature-based solutions and sustainable management of agricultural and forestry resources; a careful selection of the actions needed to achieve the targets will lead to win-win outcomes in terms of other environmental objectives. Annex 10.6 provides many examples of win-win solutions for mitigating climate change while at the same time preserving biodiversity, landscapes and ecosystems (see also Box 3 below), improving land adaptation and resilience to climate change impacts, and replacing fossil-based materials to produce energy or other goods. For instance, a recent JRC report on the use of woody biomass for energy production in the EU finds that afforestation on former agricultural land with mixed species plantations or with naturally regenerating forests would be beneficial both for climate change mitigation and for biodiversity (see Figure 19 in Annex 10.6.2). The optimal mix of actions for carbon removals is not determined only by the ambition of LULUCF targets, but rather corresponds to an integrated policy approach that enhances these synergies and balances many types of financial and regulatory incentives; indeed, in many cases, there are considerable synergies between higher removal targets, adaptation strategies, the higher ambition in the EU Biodiversity strategy, enhanced sustainability requirement for EU biomass, and more sustainable food production. The EU also promotes research and innovation activities in this area: for instance, Horizon Europe (Cluster 6) will allocate at least €123 million to support the contribution of the agriculture and forestry sectors to the European Green Deal. Thus, the revision of the LULUCF Regulation is only one element in a set of EU policy initiatives which, together, will encourage Member States to design national policies that harness these win-win solutions. See Annex 10.6 for more information on the articulation between the relevant EU policy initiatives on land-related topics. Climate change and biodiversity loss are interdependent and mutually reinforcing emergencies and closely interconnected threats, and therefore they need to be addressed together: climate change is one of the main drivers of biodiversity loss, while biodiversity loss and ecosystem degradation have implications for climate change through feedbacks, and for the capacities and limits of nature-based adaptation and mitigation efforts. Synergies and trade-offs between mitigation, adaptation and biodiversity have been the object of strong research efforts and raised policy interest to put forward nature-based solutions, with a particular focus on land. Meeting higher carbon removal targets and higher resilience of land while addressing biodiversity challenges will require strong actions to change land management practices, in combination with adequate spatial planning, including the expansion of protected areas, the restoration of degraded areas and the sustainable management of land and forests, targeting a balance between CO2 removals and higher carbon stocks in all carbon pools. More information on this topic can be found in Annex 10.6.1. Other environmental impacts The modelling underpinning this Impact Assessment does not include impacts of higher net removals on air pollution or ecosystems health. However, the Impact Assessment accompanying the Climate Target Plan analysed these impacts in economy-wide scenarios that achieve the -55% reduction in net emissions in 2030. It found that, in those scenarios, air pollution would decrease by 60%, with positive impacts on human health (reduction in premature deaths and morbidity) and other positive economic implications (reduced air pollution control costs, reduced health damage). Achieving the -55% target would also reduce the areas of ecosystems subject to acidification (by 4.7 thousand km2) and to excess nitrogen deposition (by 8.7 thousand km2). 35.Distributional impacts The options include different proposals on how to define benchmarks and targets at the level of Member States; Annex 10.5 provides graphs and tables for an overview of these targets across Member States. The fairness of the target distribution is assumed to be related to the capacity of a Member State to deliver mitigation action in the LULUCF sector. Like the environmental impacts, also this impact mainly affects Member States who need to design policies to achieve the target; it is assumed that the distribution of the targets among Member States trickles down to the various groups of actors on the ground in a proportional manner. To assess this impact, the analysis will compare the target distribution to: ·The recent mitigation performance of the LULUCF sector. This indicator looks at how well the proposed target distribution reflects the latest LULUCF inventory (average 2016-2018), which takes into account the recent circumstances of the sector (e.g. impacts of natural disturbances, recent management practices). ·The 2030 mitigation potential: this indicator reflects the alignment of the proposed target distribution with its projected capacity to deliver land-based mitigation according to Commission’s policy scenario (MIX) (see Annex 10.4.1 for a more detailed description of this scenario). The comparison relies both on absolute differences to identify how many Member States receive a target that is more ambitious than their recent or projected performance, and on correlations to assess the extent to which higher targets are assigned to Member States with the highest recent or projected performance (a high correlation coefficient indicates that the distributional allocation is very similar and can thus be considered fair). 36.Economic impacts Economic impacts will affect both national policy-makers, who decide on how to use the flexibility opportunities provided by the policy framework, and actors of the bio-economy that deliver climate action on the ground. The views of stakeholders In the feedback to the Inception Impact Assessment, the economic impact mentioned most frequently in relation to a more ambitious LULUCF Regulation was the growth of the bio-based sector through increased use of HWPs in substitution of fossil-based materials. The expected social impacts included: the creation of new business opportunities, the promotion of territorial cohesion, and repopulation in rural areas. The analysis assesses: ·The overall costs of achieving the targets are mainly associated with the actions put in place by the actors of the bio-economy, and in particular: forest management (change rotation length, thinning and harvest intensity), avoided deforestation, afforestation, and fallowing of histosols. These cost estimates are based on Marginal Abatement Cost (MAC) curves from Commission’s modelling tools. MAC curves depend on the number and quantity of technologies for mitigation action and the opportunity costs for those actions. The curves simulate emission reduction potentials at a given carbon price (equal to the marginal cost for the abatement of a ton of CO2eq) for a specific scenario and year. Emission reduction potentials are non-linear over time; for instance, the mitigation potential of afforestation after a modelling period of 10 years are small compared to the potentials after 30 or 50 years. The choice of the best pathway to achieve the national targets should depend not only on cost considerations, but also on the interconnected need to protect the biodiversity and promote a sustainable bio-economy. For instance, higher removal targets could drive bioenergy subsidies towards more sustainable and biodiversity-friendly sources of biomass (in synergy with the sustainability criteria for biomass established under the Recast Renewable Energy Directive, which are also being revised as part of the Fit for 55 package), and other bioeconomy sectors could receive a boost (for instance, the production of long-lasting wood products for furniture or construction materials, which would be accounted as temporary carbon removals). Thus, higher LULUCF targets could promote a shift of the bio-economy sectors towards sustainable, long-lasting and circular uses of natural resources, leading to jobs and growth in these sectors. Annex 10.6.2 gives more information on these links while Annex 10.4.1 includes an explanation of how they are modelled in the Commission’s scenarios. ·The expected revenues from land-based climate action. The views of stakeholders Stakeholders who replied to the Open Public Consultation on the Review of the LULUCF Regulation identified the following financing approaches as important or very important: Subsidies (e.g. Common Agricultural Policy or national policies) (72%); a dedicated EU or national fund (61%); revenues from selling land-based carbon credits (49%). See Annex 10.2.3 for more details. Three sources of revenues can be identified: public subsidies, private markets, and inter-Member State trade of LULUCF credits.

In the agricultural sector (and, to some extent, in the forestry sector), the main source of public subsidies is the Common Agricultural Policy (CAP). With a budget of 344 EUR billion in the 2021-2027 period (of which 40% earmarked for climate action), the new CAP gives Member States a large flexibility to design their support schemes to achieve a set of 10 specific objectives, one of which is climate change mitigation and adaptation. Available instruments to compensate or reward climate action are: the design of basic standards (conditionality), hectare-based payments for practices that contribute to climate change mitigation or adaptation on agricultural land (eco-schemes), compensation for climate-friendly management practices or investments in rural areas (Rural Development measures). Some of the specific drivers behind the decline in LULUCF removals, such as farmer’s lack of knowledge and low uptake of new practices and technologies, can also be targeted by CAP measures. Another important potential source of public support is the budget made available under the “Next Generation EU”, which can be channelled to the land sector through the Recovery and Resilience Plans, submitted by Member States and currently being assessed and adopted. Private markets can reward climate action via, for instance, labelling schemes to target consumers willing to pay a higher price for climate-friendly products. In recent years, another major source of private funding has emerged: corporations, but also private citizens, buy land-based carbon removals in voluntary carbon markets in order to compensate for their (residual) climate footprint. A Carbon Farming Initiative, announced by the Commission in the Farm to Fork Strategy, will promote this new business model for rural areas, creating new income and jobs for rural areas (see Annex 10.7 for an overview). To support carbon farming approaches, the Commission will propose in 2023 a regulatory framework on the certification of carbon removals. As mentioned in the Circular Economy Action Plan and in the EU Adaptation Strategy, carbon removals should be carried out in full respect of the biodiversity objectives. Finally, the flexibility mechanisms within LULUCF as well as with the ESR allow Member States to trade LULUCF credits among them, which can create additional revenues for governments who overachieve their LULUCF target. These mechanisms are designed to allow Member States to achieve their climate target in the most cost-efficient way by focusing resources on the actions with lower abatement costs, and are essential to achieve a flexible policy framework (Specific Objective #2, Section 4.2.2). Given that the LULUCF Regulation addresses primarily Member States, this impact indicator will focus on the last type of revenues. Clearly, higher removal targets will affect national policies which will in turn impact individual bio-economy actors; however, when it comes to assessing the revenues resulting from different options on these actors, it can be assumed that the national revenues will trickle down proportionally to the individual level through the available types of public support mentioned above. For each option, this indicator will assess the extent to which flexibility mechanisms are likely to be used, based on the expected demand and supply for these credits; these are estimated by looking at the gap between the proposed national targets and the projected performance of the sector in each Member State, based on the Commission’s scenario modelling. Three levels of flexibility exist: intra-LULUCF flexibility is the possibility to sell LULUCF removals in excess of the target to other Member States (Options 1 and 2); ESR-LULUCF flexibility is the possibility to use LULUCF removals in excess of the target to achieve ESR targets (Option 2); and full land flexibility is the possibility to achieve the land targets with integrated action in either the agricultural or the LULUCF sector (Option 3). 37.Administrative impacts Administrative impacts are understood in terms of regulatory costs that affect Member States authorities in charge of the implementation of LULUCF and other land-related policies. These include the costs of implementing the policy, the costs due to low integration with other policies, and the monitoring costs. ·Implementation costs: this qualitative indicator assesses the extent to which the implementation of the policy has been simplified (Specific Objective #3, Section 4.2.3). At a minimum, this is related to abandoning the FRL concept compliance period (option 1.1). An additional layer of simplification is represented by those options that, besides moving away from the FRL concept, also move away from other accounting benchmarks by setting a single target based on reported emissions and removals (options 1.2, 2, and 3): this approach decreases the regulatory costs linked to the compliance exercise and simplifies the communication about the policy (this last impact is not tangible but should nevertheless be mentioned, because the complexity of the LULUCF accounting rules has been likely to hinder full integration of this sector into climate policy-making). ·Synergies: this qualitative indicator is linked to the objective of an integrated policy framework for the LULUCF sector (Specific Objective #2, Section 4.2.2). While Option 1 presents very little or no integration of the LULUCF sector in the overall climate policy framework, Option 2 presents some integration via the flexibility between the LULUCF Regulation and the ESR; Option 3 offers the highest level of integration by setting a climate target that covers the land sector in a comprehensive way. A comprehensive target for the land sector would provide a clear climate steer to the Common Agricultural Policy and promote synergies with other land-related policies (e.g. climate adaptation, biodiversity). These synergies are likely to result in more effective and cost-efficient policy design in the long term, as the policy approach is made ‘future-proof’ and in line with the projected contribution and needs of the land sector. ·Monitoring costs: this qualitative indicator is linked to the costs of improving national systems to monitor the climate performance of the LULUCF sector in a robust way. The current monitoring and reporting systems have improved during the implementation of the LULUCF Decision (2013-2020) but they are still not granular enough to reflect climate action taken on the ground in an accurate way (see Section 2.1.3). In particular, enhancements and synergies with monitoring under other policy areas (biodiversity, agricultural policy) should be leveraged. Thus, for all the options to be implemented effectively (and in particular those with targets based on reported emissions and removals, that is, option 1.2, 2 and 3), it is necessary to improve these systems significantly in the next years; specific requirements are discussed in Section 9. While these requirements will entail some costs , there is also large scope for cost-efficient improvements by drawing on existing datasets and remote sensing technologies; moreover, better policy monitoring allows to better target areas with the largest mitigation potential, thus resulting in more effective and cost-efficient policy making. As these requirements are proposed as a horizontal element of the revision, and not as a specific feature of some selected options, these impacts can be considered to be the same across all options. 38.Impacts of Option 1: Self-standing LULUCF target 39.Option 1.1: Changing the accounting rules for managed forest land ·Environmental impacts This option would require EU removals at the level of approximately -259.7 MtCO2eq. This level is just below the recent mitigation performance of the LULUCF sector and just above the projected mitigation potential under the policy scenario; it would not be enough to put the EU on track for a climate-neutral land sector. ·Distributional impacts For 14 Member States, the target under this option is less stringent than their recent performance from 2016 to 2018. The same is true for 15 Member States with regard to their potential projected by the policy scenario. For the remaining Member States, the target is more ambitious but in most cases still very close to the Member State’s recent and projected performance (at zero marginal cost per tonne in the MIX projection). Overall, the targets under Option 1.1 correlate very well with the recent performance or with the projected potential: the correlation coefficient is, respectively, and . Targets based on a recent historic benchmark for managed forest land perform very well in terms of allocating more stringent targets to the Member States that show t