COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757
Date: 2021-07-14
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Emissions Trading Scheme, EU emission allowance, EU environmental policy, adaptation to climate change, greenhouse gas, maritime transport, pollution control measures, pollution from ships, reduction of gas emissions, tradeable emission permit

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   EUROPEAN COMMISSION  Brussels, 14.7.2021  SWD(2021) 602 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757 {COM(2021) 551 final} - {SEC(2021) 551 final} - {SWD(2021) 557 final} - {SWD(2021) 601 final}  
 
 
Executive Summary Sheet 

Impact assessment accompanying  the proposal for a Directive of the European Parliament and of the 
Council amending Directive 2003/87/EC and Decision (EU) 2015/1814 to strengthen the EU Emissions 
Trading System and extend it in line with the Union’s increased climate ambition for 2030  

A. Need for action 

What is the problem and why is it a problem at EU level?  

There  are  three  types  of  problems.  First,  those  associated  with  the  need  to  strengthen  the  existing  EU 
Emissions Trading System (ETS) in a commensurate way with the increased net greenhouse gas emissions 
reduction target by 2030, compared to 1990, of at least 55%, while avoiding supply/demand imbalances. 
Second, certain sectors contribute insufficiently to the achievement the increased target. Finally, both the 
required strengthening of the existing ETS and the possible expansion of emissions trading to additional 
sectors  will  require  increased  investment  and  greater  capacity  to  address  the  distribution  of  impacts  of 
emission reduction measures, while funds remain limited.  

What should be achieved? 

The objective is to revise the ETS in a cost-effective and coherent way in line with the increased climate 
target, while taking into account the need for a just transition and the need for all sectors to contribute to 
the EU climate efforts.  

What is the value added of action at the EU level (subsidiarity)?  

Climate change is a transboundary problem. As a carbon market, the ETS incentivises emission reductions 
by  the  most  cost-efficient  solutions  first  across  the  activities  and  countries  it  covers,  achieving  greater 
efficiency  by  virtue  of  its  scale.  Implementing  a  similar  measure  nationally  would  result  in  smaller, 
fragmented carbon markets, risking distortions of competition and likely lead to higher overall abatement 
costs. The same logic holds for the extension of carbon pricing to new sectors.  

B. Solutions 

What are the various options to achieve the objectives? Is there a preferred option or not? If not, 
why? 

A key element is the strengthening of the existing ETS to increase its ambition in line with the net at least 
-55% 2030 target. The options differ in when the linear reduction factor is tightened and if the tightening 
starts  from  the  current  cap  trajectory  or  from  a  new  basis.  Any  of  the  options  would  be  effective  and 
efficient to achieve the 2030 objective. The choice between the different ETS strengthening options and 
related packages with other options, e.g. on the Market Stability Reserve, remains therefore a political one. 
There  is  a  need  for  a  more  targeted  protection  against  the  risk  of  carbon  leakage  while  incentivising 
innovation, which could take the form of strengthened benchmarks for free allocation. There are four main 
options  to  extend  the  climate  policy  framework  to  maritime  transport:  integration  in  the  existing  ETS, 
which could also be combined with a carbon intensity standard, a separate ETS and an emission levy. The 
preferred option is the integration in the current ETS, which, depending on political choices, could cover 
emissions from  intra-EEA voyages or could extend further, to  include half of the  emissions from extra-
EEA voyages. For the possible extension to other sectors, the set-up of a separate ETS either for buildings 
and transport or for all fossil fuel combustion emissions are the two main options retained, complementing 
strengthened other policies of the Fit for 55 package, which target technology support, non-price related 

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barriers and continued incentives for national action reflecting national circumstances. The main benefit of 
a scope covering only buildings and road transport compared to an extension to all fossil fuel combustion 
is  economic  efficiency,  notably  as  it  would  avoid  the  creation  of  a  new  carbon  leakage  risk  protection 
regime. There is a need to support low carbon technologies by increasing the Innovation Fund. However, 
the  selected  amount  is  ultimately  a  political  choice  which  is  linked  with  the  decisions  on  existing  ETS 
ambition  and  with  the  decision  on  the  extension  of  emissions  trading  to  new  sectors.  The  solidarity 
provisions  to  address  distributional  challenges  between  Member  States  could  be  further  developed, 
without  prejudice  to  an  ETS  contribution  to  new  EU  own  resources.    All  indications  of  the  preferred 
measures  are  to  be  considered  indicative,  without  prejudice  to  adjustments  to  preserve  overall 
effectiveness, efficiency and coherence of the Fit for 55 package . 

What are different stakeholders' views? Who supports which option?  

Stakeholders  responding  to  the  public  consultation  support  the  strengthening  of  the  existing  ETS  to 
increase  its  ambition  in  line  with  the  new  2030  target.  A  large  majority  of  respondents  agrees  with  the 
Market Stability Reserve as instrument and is in favour of amending the carbon leakage framework, but 
with mixed views on the different policy options. As regards a possible extension to other sectors, there is 
some  support  to  include  maritime  transport  in  the  current  ETS,  while  respondents,  and  notably  private 
sector actors, prefer the set-up of a separate ETS, complemented by other policies, either for buildings and 
transport  or  for  all  fossil  fuel  combustion  emissions.  Private  sector  actors,  trade  unions  and  NGOs  are 
rather  sceptical  on  an  integration  in  the  existing  ETS,  and  EU  employer  and  employee  umbrella 
organisations on extending emissions trading in general, while citizens and academia tend to favour it. A 
large majority of respondents expressed support for an increase in the Innovation Fund. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise of main ones)?                                     

All options would ensure achieving the necessary additional emission reductions to achieve -55% by 2030 
compared  to  1990  in  a  cost-efficient  way  and  with  more  certainty  than  other  instruments.  The  annual 
revenues  could  be  used  to  increase  the  Innovation  and  Modernisation  Funds,  foster  low  carbon 
investments including in industry, address distributional impact between Member States, social impacts on 
households  and  contribute  to  EU  own  resources.  The  strengthened  and  extended  ETS  contributes  to 
avoided  health  damages  through  reduced  air  pollution  of  EUR  17.6  to  35.2  billion  in  2030  and  to 
improved energy security. The Impact Assessment for the Communication on Stepping up Europe’s 2030 
Climate Ambition (2030 Impact Assessment)1 has quantified benefits for growth and jobs.   

What are the costs of the preferred option (if any, otherwise of main ones)?                                    

The  projected  2030  carbon  prices  range  between  EUR  50,  assuming  strong  complementary  Green  Deal 
policies  as  well  as  the  full  anticipation  of  future  decarbonisation  requirements,  and  EUR  85  with  less 
strong complementary policies. They increase average fuel prices for industry, transport and households, 
with stronger relative increases for buildings than for transport and industry. If cost-efficient investments 
to  achieve  -55%  are  realised,  then  the  share  of  fuel  expenses  for  buildings  in  household  expenditures 
would  not  increase  and  could  decrease  for  low  income  households  by  more  than  0.1  percentage  points. 
However  increases  of  cost-effective  annual  capital  costs  could  be  double  in  lower  income  households, 
increasing  by  up  to  1.4  percentage  points  of  consumption  expenditures.  For  vulnerable  households  this 
raises an affordability issue. The analysis in the 2030 Climate Target Plan Impact Assessment has shown 

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that  distributional  measures  could  compensate  for  that.  The  analysis  also  quantified  negative  sectoral 
activity  and  employment  impacts  in  particular  in  fossil  fuel  extraction  and  to  a  limited  extent  in  some 
fossil fuel intensive industries.  

What are the impacts on SMEs and competitiveness?  

Competitiveness impacts for industry are mitigated by more targeted free allocation. For most options the 
need  for  an  application  of  the  Cross-Sectoral  Correction  Factor  reducing  free  allocation  for  all 
beneficiaries  is  limited.  Small  emitters,  still  falling  under  the  scope  of  the  ETS  (albeit  not  necessarily 
SMEs)  can  still  be  exempted  from  the  existing  ETS  if  equivalent  measures  are  taken  by  respective 
Member  State.  The  envisaged  extension  to  maritime  would  build  on  existing  monitoring,  reporting  and 
verification mechanisms that exempt small ships. The new ETS for other sectors would apply upstream, 
building on existing provisions regulating tax warehouses or fuel suppliers. The additional administrative 
costs would be moderate for gas and oil. For coal, which is only used in a few Member States for heating, 
administrative costs would be higher, as it is often less regulated and there are many small suppliers.  

Will there be significant impacts on national budgets and administrations?  

Under the existing ETS, most of the auctioning revenues accrue to Member States. There are potentially 
significant  positive  impacts  on  national  budgets  if  there  will  be  a  new  ETS  for  road  transport  and 
buildings. The direct impact on national budgets also depends on to which extent additional revenues will 
be directed to EU own resources. For the existing ETS, there are no additional administrative impacts on 
national  administrations.  The  impacts  of  the  extensions/new  ETS  could  be  limited  by  using  the  same 
administrative infrastructures. 

Will there be other significant impacts?  

Depending  on  its  geographical  scope,  an  extension  of  EU  climate  policies  to  maritime  transport  could 
impact third countries and trade and investment flows. 

Proportionality?  

All main policy options are proportional to what is necessary to achieve the at least -55% emission 
reduction objective. They do so in an as cost-efficient way as possible.  

D. Follow up 

When will the policy be reviewed?  

As currently the case, a regular review is foreseen in the legislation. It is aligned with the review of other 
legislation such as in the proposal for the Effort Sharing Regulation and the CO2 standards for cars and 
vans.  

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