COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) 2018/842 on binding annual greenhouse gas emission reductions by Member States from 2021 to 2030 contributing to climate action to meet commitments under the Paris Agreement
Date: 2021-07-14
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Member State, EU emission allowance, EU environmental policy, adaptation to climate change, climate change, environmental monitoring, greenhouse gas, international agreement, pollution control, reduction of gas emissions

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   EUROPEAN COMMISSION  Brussels, 14.7.2021  SWD(2021) 612 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) 2018/842 on binding annual greenhouse gas emission reductions by Member States from 2021 to 2030 contributing to climate action to meet commitments under the Paris Agreement {COM(2021) 555 final} - {SEC(2021) 555 final} - {SWD(2021) 553 final} - {SWD(2021) 611 final}  
 
 
Executive Summary Sheet  

Impact assessment on the Revision of the Effort Sharing Regulation   

A. Need for action 

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

The Effort Sharing Regulation (ESR) sets national greenhouse gas reduction targets for the sectors that are 
currently not covered by the EU Emission Trading System such as buildings, road transport, agriculture 
and  waste.  However,  with  a  step  up  to  a  new  overall  EU  economy  wide  target  of  at  least  55%  net 
greenhouse gas reductions by 2030 compared to 1990, the current targets set for the ESR are inadequate to 
contribute sufficiently to the increased overall EU target. Secondly, the possible extension of the Emission 
Trading  System  and  the  possible  change  in  scope  of  the  Land  Use,  Land  Use  Change  and  Forestry 
Regulation warrants the consideration of the scope of the ESR itself as part of the overall climate policy 
architecture. Thirdly, in its design the ESR is based on fairness, solidarity and cost-efficiency, and these 
features must be preserved in the revision.  

What should be achieved? 

The general objective of this initiative is to contribute to reaching at least 55% net greenhouse gas (GHG) 
emission reductions by 2030 compared to 1990, with a view to achieving climate neutrality (i.e. net zero 
GHG emissions) by 2050 in a gradual and balanced way. There are three specific objectives for the review 
of the ESR: firstly, to define the scope and collective ambition of the ESR coherently within the Fit for 55 
package and notably considering a possible new extended Emission Trading System covering sectors such 
as buildings and road transport. Secondly, to make sure additional efforts are shared in a consistent, fair 
and  equitable  manner  between  Member  States.  Thirdly,  to  promote  cost-efficient  solutions  for  the 
reduction of emissions in effort sharing sectors using target adjustments and flexibilities.  

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

Climate  change  is  a  transboundary  problem  where  coordinated  EU  action  supplements  and  reinforces 
national  and  local  action  effectively.  Coordinated  action  allows  for  high  EU-wide  ambition  while 
recognising subsidiarity  and different capabilities to act  among Member  States, since  the ESR  primarily 
addresses  Member  States,  while  allowing  for  increased  cost  efficiency  through  appropriate  flexibilities 
within  and  between  Member  States  and  with  other  sectoral  legislation  (Emission  Trading  System,  Land 
Use, Land Use Change and Forestry Regulation). 

B. Solutions 

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

The main options of this impact assessment relate to potential changes to the scope of the ESR: 

o  Option  1:  Keep  current  ESR  sectoral  scope  in  parallel  to  extending  emissions  trading,  with  two 

variants: 1.1. strong increase in ESR ambition and 1.2. limited increase in ESR ambition.  

o  Option 2: Maintain in the ESR only the sectors not covered by emissions trading, notably a reduced 
scope  without  buildings  and  transport  with  two  variants:  2.1.  targets  increased  to  cost-efficient 
projections of remaining ESR sectors; 2.2. current ESR targets maintained 
o  Option 3: Phase out of the ESR and replacement by other policy instruments. 

 
 
 
 
 
Next to options of scope, the assessment also examines if the existing flexibilities within the ESR are 
adequate to deliver the increase climate ambition in a cost-effective manner. 

Given  the  strong  role  of  subsidiarity  in  many  of  the  EU  policies  applying  in  the  sectors  covered,  an 
increased ambition with the ESR in line with the overall climate ambition while keeping the current scope 
of  the  ESR  is  seen  as  the  preferred  option,  ensuring  Member  States  are  accountable  and  have  the  right 
incentives  to  implement  both  national  and  EU  policies  in  an  ambitious  manner,  while  giving  Member 
States the flexibility to take into account their national circumstances. 

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

In terms of ambition the vast majority of stakeholders who replied to the public consultation agreed that 
Member  States  should  step  up  efforts  and  pursue  more  ambitious  targets.  As  regards  scope,  60%  of 
respondents favoured that sectors covered in future by an extended Emission Trading System should also 
remain under the ESR, while 26% were against. If an extended Emission Trading System is introduced, 
many  respondents  highlighted  the  need  for  a  test  period  before  deciding  whether  the  scope  of  the  ESR 
should be changed. On 1 June 2021, EVP Timmermans and Commissioner Schmit held a social partners 
hearing  to  discuss  the  economic  and  social  dimension  of  the  Fit-for-55  package.  The  social  partners 
provided support to the 55% reduction target and indicated their views as regards the different proposals 
of the package. 

C. Impacts of the preferred option 

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

The preferred option provides for a policy framework that ensures a high level of environmental integrity, 
fairness  and solidarity in the distribution of efforts  and provides for adequate flexibilities to  achieve the 
objectives in a cost-efficient way.   

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

The overall costs of the prefered option are assessed as part of the overall economic analysis of the step-up 
to  at  least  55%  emission  reductions.  Economy  wide  projections  that  combine  both  regulatory  measures 
and the introduction of an extended Emission Trading System see energy system costs increase over the 
next decade by 0.3% to 0.6% of GDP (the latter when including the impact of carbon pricing) as compared 
to  the  reference  scenario.  Such  costs  include  both  additional  investment  costs  at  both  the  supply  and 
demand side, as well as fuel savings. Macro economic impacts are limited and can be positive, depending 
on how for instance revenues from carbon pricing are recycled into the economy. 

What are the impacts on SMEs and competitiveness?  

The ESR primarily addresses Member States as institutional actors and thus mostly affects their national 
administrations directly. With respect to businesses in general and SMEs in particular there are no direct 
reporting  obligations  for  SMEs  or  other  enterprises  under  the  ESR  and  the  policy  options  would  not 
change this status. However, many SMEs, for instance in transport, energy and agriculture, are among the 
covered sectors of the ESR. Overall all sectors in the economy are expected to see increased greenhouse 
gas  ambition  contributing  to  a  modernisation  of  the  economy,  but  also  seeing  some  sectors  decline,  for 
instance those related to fossil fuel extraction and distribution.  

Will there be significant impacts on national budgets and administrations?  

 
 
 
 
 
The  practical  implications  for  the  Member  States  due  to  the  implementation  of  national  policies  and 
measures in ESR sectors depend on the measures chosen in each specific country and presented in their 
updated National Energy and Climate Plans (NECPs) and  assessed by the European Commission in line 
with the Governance Regulation.  

Will there be other significant impacts?  

The ESR will result in national authorities taking additional action to reduce greenhouse gas emissions in 
sectors such as buildings, road transport, small industry and agriculture. The transformation will often be 
associated  with  increased  investment  needs  resulting  in  increased  efficiency  and/or  decreased  operating 
costs.  Impacts  will  thus  relate  to  investment  challenges  and  how  to  address  those,  for  instance  in  low 
income households. Within the ESR, this is addressed by setting targets in a differentiated manner largely 
based on GDP per capita rather than an approach purely based on cost efficiency to define targets, which 
would result in relatively larger impacts in low income Member States. 

Proportionality?  

Achieving increased ambition in greenhouse gas emission reductions will require additional action, both at 
the EU level and at Member States level. The ESR is a tool to incentivise action by EU Member States in 
a  flexible  and  appropriate  manner,  and  does  so  in  coherence  with  other  EU  legislation.  The  proposed 
action is proportionate in order to achieve the climate objectives that the EU has committed itself to. 

D. Follow up 

When will the policy be reviewed?  

The  ESR  is  expected  to  be  in  place  at  least  until  2030.  Progress  is  being  assessed  as  part  of  the  annual 
monitoring,  reporting  and  verification  system  for  greenhouse  gas  emissions.  A  regular  review  will  be 
foreseen  in  the  legislation.  It  will  be  aligned  with  the  review  of  other  climate  legislation  such  as  for 
example  the  EU  Emission  Trading  System  Directive,  the  Land  Use,  Land  Use  Change  and  Forestry 
Regulation and the Regulation setting CO2 standards for cars and vans.