REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Speeding up European climate action towards a green, fair and prosperous future EU Climate Action Progress Report 2021
Date: 2021-10-26
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Emissions Trading Scheme, EU emission allowance, EU environmental policy, adaptation to climate change, carbon neutrality, environmental cooperation, forestry policy, greenhouse gas, investment, land use

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.10.2021  COM(2021) 960 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Speeding up European climate action towards a green, fair and prosperous future           EU Climate Action Progress Report 2021 {COM(2021) 950 final} - {SWD(2021) 298 final}  
 
 
“This  is  the  make-or-break  decade  in  the  fight  against  the  climate  and  biodiversity 

crises.  Nine  in  ten  Europeans  agree  that  action  should  be  taken  to  cut  our  emissions 

and  make  the  European  Union  climate-neutral  by  2050.  The  EU  has  set  ambitious 

targets and the Commission’s proposals show how we can get there. Securing a green 

and  healthy  future  for  all  will  require  considerable  effort  in  every  sector  and  every 

Member State. Europe's transition will be fair, green and competitive.” 

Frans Timmermans, Executive Vice-President for the European Green Deal 

1 

 
 
 
 
 
 
 
 
 
1.  MEETING THE EU’S INTERNATIONAL COMMITMENTS 

The  EU  overachieved  its  2020  reduction  target  for  greenhouse  gas  emissions  while  a 
record drop was observed in 2020 due to the COVID-19 pandemic. 

In 2020, EU-27 domestic greenhouse gas (GHG) emissions, including international aviation1, 
were  down  by  31%2  from  1990  levels  and  reached  their  lowest  level  in  30  years.  If 
emissions  and  removals  from  the  land  use,  land  use  change  and  forestry  sector  (LULUCF) 
are  included,  this  results  in  a  net  emissions  reduction  of  34%3.  The  EU  has  thus 
substantially overachieved its target under the UN Framework Convention on Climate 
Change  (UNFCCC)  of  reducing  GHG  emissions  by  20%  by  2020  compared  with  19904. 
Thanks  to  sustained  decarbonisation  efforts  over  the  last  decade  this  was  already  the  case 
before  the  onset  of  the  COVID-19  pandemic.  Since  the  introduction  of  the  EU  Emission 
Trading System (EU ETS) in 2005, emissions in sectors covered (power generation, the bulk 
of industrial production and flights within the European Economic Area (EEA) have been cut 
by around 43%. This has contributed significantly to achieving the overall 2020 EU target. In 
sectors not  covered by the ETS  (such as  non-ETS  industry, transport, buildings,  agriculture 
and  waste)  emissions  were  16%  lower  than  in  2005,  i.e.  the  effort  sharing  target  for  2020              
(-10%)  was  also  overachieved.  According  to  preliminary  simulated  accounting  under  the 
Kyoto Protocol, annual accounted net credits from LULUCF decreased from 2013 to 2019.  

Since  1990  the  EU’s  combined  GDP  grew  by  more  than  50%  while  the  GHG  emission 
intensity of the economy, defined as the ratio between emissions and GDP5, fell to 271g CO2-
eq/EUR2015  in  2020,  less  than  half  the  1990  level.  This  shows  that  decarbonisation  and 
economic  growth  can  go  hand  in  hand  as  outlined  in  the  EU’s  new  growth  strategy  –  the 
European Green Deal6. 

Compared  with  2019,  GHG  emissions  fell  by  almost  10%  in  2020,  an  unprecedented 
temporary  fall  in  emissions  due  to  the  pandemic.  Emissions  from  stationary  installations 
covered by the EU ETS fell sharply by 11.4% and non-ETS emissions by 5.6%. The aviation 
sector  experienced  a  record  drop  (-63.5%)  in  emissions  from  flights  within  the  EEA  and 
globally (-54%) from international aviation7. However, a recent study8 shows that aviation's 
non-CO2  emissions  account  for  more  than  half  (66%)  of  the  aviation  Effective  Radiative 
Forcing  (in  2018).  This  results  in  a  need  to  consider  how  to  best  address  non-CO2  effects 
further to contribute to the EU's climate objectives and the Paris Agreement, complementary 
to climate action already being taken.    

1 All departures of flights from EU airports. 
2 Approximated EU GHG inventory based on Member States’ submissions. Gap-filling was done for BG using data from the 
EUTL, Eurostat, Eurocontrol, 2021 projections and previous years’ data. 
3 Data from Member States’ 2021 projections was used to gap-fill LULUCF for DK, EE, HR, HU, LV and SI.  
4  In  addition  to  the  target  under  the  UNFCCC,  the  EU-27,  together  with  IS  and  the  UK,  also  committed  to  a  binding 
emissions reduction for the second commitment period of the Kyoto Protocol (2013-2020). The target is to reduce emissions 
by 20%. See SWD for details. 
5  Ratio  given  for  illustration,  statistically  imprecise  as  GDP  (national  accounting)  and  emissions  (territory)  have  different 
scopes. 
6 COM(2019) 640 final. 
7 ICAO, C-WP/15209, May 2021. 
8 SWD(2020) 277 final. 

2 

 
 
 
                                                           
Despite  being  one  of  the  most  energy-efficient  modes  of  transport,  the  maritime  transport 
sector emitted around 3-4% of all EU CO2 emissions in 2018-2019, with around 60% of the 
emissions reported from voyages to or from a port outside the EEA9. In 2020 the sector was 
also  severely  affected  by  the  pandemic  (-15%  in  CO2  emissions  year-on-year)10.  Despite 
achievements so far, it is crucial to recall that a swift economic recovery may lead to a high 
and  rapid  increase  in  emissions,  unless  stimulus  measures  are  geared  toward  the  green 
transition.  Lastly,  given  the  unprecedented  climate  change  impacts11,  we  must  act  faster 
than ever before to secure a green, just and prosperous future.  

Figure  1:  Total  EU-27  GHG  emissions  (including  international  aviation)  and  removals  1990-2020,  targets, 
model-based projected emissions and removals 2020–205012 

9 Regulation (EU) 2015/757. 
10 Preliminary estimations based on THETIS-MRV data. 
11 IPCC, first part of the Sixth Assessment Report, 2021. 
12  (1)  Historical  GHG  emissions  and  removals  (1990-2020)  are  based  on  European  Environment  Agency’s  2021  GHG 
Inventory. (2) Projected emissions and removals (2021-2050) are based on the EU Reference Scenario 2020  (“reference”; 
grey  lines)  and  the  MIX  Policy  Scenario  (orange  lines)  supporting  the  “Delivering  the  European  Green  Deal”  policy 
initiatives. (3) GHG emissions and projections use global warming potentials of the 4th Assessment Report of the IPCC to 
convert  non-CO2  emissions  into  CO2-equivalent  emissions.  (4)  The  2030  target  (EU  Climate  Law)  is  defined  as:  ‘the  net 
GHG emissions, i.e. emissions after the deduction of removals, are reduced economy-wide and domestically by at least 55 % 
compared to 1990 levels’. For comparability, the ‘2030 target’ dot is represented at -55% of the net GHG emissions level in 
1990. 

3 

 
 
 
 
                                                           
Major step up in European climate action 

In  line  with  the  Paris  Agreement,  the  EU  set  the  target  of  climate  neutrality  by  2050  in 
December  2019.  The  EU  also  adopted  the  European  Green  Deal  (EGD),  its  multi-sectoral 
roadmap  for  a  green  and  just  transition,  in  which  digital  technologies  are  playing  an 
increasingly  critical  role  for  climate  mitigation  and  adaptation.  In  December  2020  the 
European  Council  endorsed  a  more  ambitious  2030  target  of  at  least  -55%  net  emissions 
reduction  (previously  -40%  GHG),  following  the  publication  of  the  Commission’s  2030 
Climate Target Plan13 which proposes a more balanced path to climate neutrality. This led 
the  EU  and  its  Member  States  to  submit  updated  Nationally  Determined  Contributions 
(NDC) to the UNFCCC in December 2020. By October 2021, 20 Member States14 submitted 
their  long-term  strategies15  to  the  EU  but  Member  States  are  encouraged  to  consider  to 
update and, where possible, to increase their ambition. 

With the adoption and entry into force of the  European Climate Law16 in June 2021 both 
the  2030  and  2050  targets  became  legally  binding  in  the  EU.  The  law  also  limits  the 
contribution  that carbon  removals can make towards emission reductions  in  2030  to  ensure 
that  there  is  sufficient  mitigation  effort.  It  invites  sectors  to  prepare  roadmaps  towards 
achieving  the  climate  neutrality  objective  and  establishes  a  European  Scientific  Advisory 
Board on Climate Change.  

To  ensure  that  that  the  EU  policy  framework  is  fit  for  its  new  2030  climate  target,  the 
Commission  proposed  in  July  2021  the  most  comprehensive  package  of  climate  and 
energy  legislation17  ever.  The  package  seeks  to  introduce  changes  gradually  and  to  put 
forward a number of tools to support a transition that is socially acceptable. In terms of GHG 
emissions,  the  package  proposes  to  tighten  the  existing  EU  ETS  and  to  extend  the  carbon 
pricing  system  to  the  maritime  transport  sector.  It  also  proposes  ways  to  boost  the  use  of 
sustainable alternative fuels in the maritime and aviation sectors. Further, it proposes to phase 
out  free  emission  allowances  in  the  aviation  sector  and  to  implement,  as  appropriate,  the 
global  Carbon  Offsetting  and  Reduction  Scheme  for  International  Aviation  (CORSIA)  for 
extra-EEA flights. In addition, the package proposes a separate emissions trading system for 
fuels used in road transport and buildings, a higher reduction target for CO2 emissions of new 
cars and vans and a faster roll-out of the alternative fuels infrastructure. For sectors that are 
currently  not  subject  to  EU  ETS  (buildings,  road  and  domestic  maritime  transport, 
agriculture, waste and small industries), the package strengthens the binding GHG emission 
reduction  targets  for  each  Member  State.  Specific  targets  are  also  set  to  preserve  and  grow 
natural carbon sinks. The package also includes higher targets for the use of renewables and 
measures  to  accelerate  their  deployment  in  all  end-use  sectors  and  to  foster  energy  system 
integration. It also sets higher energy efficiency targets and requires broader energy savings 
measures,  including  higher  renovation  rates  of  public  buildings,  proposes  to  tax  energy 
sources  in  line with  climate goals  and puts  forward  measures to  prevent  carbon leakage.  In 

13 COM(2020) 562 and SWD(2020) 176 final. 
14 AT, BE, CZ, DE, DK, EE, EL, ES, FI, FR, HR, HU, IT, LV, LT, NL, PT, SE, SI, SK. A summary assessment table is 
provided in the SWD. In July 2021, LT presented an update of its initial LTS. In September 2021, Hungary adopted its final 
national long-term strategy confirming the goal to achieve climate neutrality by 2050. The strategy has not yet been formally 
submitted to the Commission. In July 2021, the government of Luxembourg adopted a draft national long-term strategy. A 
public consultation will be carried-out before its final adoption. 
15 In accordance with Article 15 of Regulation (EU) 2018/1999 stating that MS should submit their LTS by January 2020. 
16 Regulation (EU) 2021/1119. 
17 COM(2021) 550 final. See SWD for more details. 

4 

 
 
                                                           
 
July 2021, the Commission also adopted a new EU forest strategy for 203018. This recognises 
the  central  role  of  forests  and  the  entire  forest-based  value  chain  for  achieving  the  EU’s 
biodiversity objectives and the new GHG emissions reduction target and climate neutrality by 
2050.  

Given that Member States differ in their starting points and  will be differently impacted by 
the  green  transition,  it  is  essential  that  this  transition  is  just.  The  strengthened  emissions 
reduction targets for each Member State are based on their GDP per capita, with adjustments 
made  to  take  into  account  cost-efficiency  and  specific  national  circumstances.  To  address 
distributional  and  social  effects  of  the  transition  between  and  within  Member  States,  the 
package also proposes to increase the size of the Modernisation Fund and to channel part of 
the  revenues  from  the  new  ETS  for  road  transport  and  buildings  through  the  new  Social 
Climate Fund to vulnerable households, micro-enterprises and transport users.  

To adapt to the unavoidable impacts of climate change and become a climate-resilient society 
by  2050,  the  Commission  adopted  its  new  strategy  on  adaptation  to  climate  change19  in 
2021. It urges smarter, faster and more systematic adaptation to  reinforce adaptive capacity 
and minimise vulnerability to climate impacts of Member States and the EU as a whole and 
to  step  up  cooperation  with  partner  countries  around  the  world.  In  October  2021,  the  EU 
submitted  its  EU  Adaptation  Communication  to  the  UNFCCC,  setting  out  the  EU’s 
ambitions as defined by the EU Adaptation Strategy, as well as through examples of Member 
States’ good practices20. 

Financing the green transition 

The  green  transition  will  require  unprecedented  investments  in  innovation  and  new 
technologies in the years to come. The EU will need an estimated €390 bn annually21,22 in 
additional  investment,  compared  to  the  period  2011-2020,  to  meet  its  2030  emissions-
reduction  target,  alongside  the  €130  bn  per  year23  for  other  environmental  goals.  To  do 
this, alignment  of  all  sources  of  finance  –  public  and  private,  national  and  multilateral  –  is 
required. The new Multiannual Financial Framework (MFF), Next Generation EU (NGEU), 
regulatory  and  public-private  initiatives,  and  the  July  2021  package  are  all  proposing 
substantial increases of climate funding. 

To  help  unlock  private  investments24  the  Renewed  Sustainable  Finance  Strategy25  was 
adopted  in  2021.  To  reorient  private  capital,  the  Commission  adopted  the  Sustainable 
Finance  Taxonomy  Regulation26,  which  sets  a  framework  for  the  EU  taxonomy  -  a 
classification of environmentally sustainable economic activities for companies, investors and 
policymakers.  Its  first  part  focuses  on  climate  change  mitigation  and  adaptation  in  certain 

18 COM(2021) 572 final. 
19 COM(2021) 82 final. 
20 https://unfccc.int/documents/307266  
21 SWD(2021) 621 final.  
22 These estimates do not include investments such as reskilling and upskilling of the workforce; support for labour market 
transitions and restructuring; and direct income support to vulnerable households. 
23 COM(2020) 456 final. 
24‘Sustainable  finance’  refers  to  the  process  of  taking  due  account  of  climate,  environmental  and  social  considerations  in 
investment decision-making, leading to increased investments in longer-term and sustainable activities. 
25 SWD(2021) 180 final. 
26 Regulation (EU) 2020/852. 

5 

 
 
                                                           
sectors.27 Other environmental and social dimensions will be completed in 2022. By the end 
of  2021,  the  Commission  will  publish  a  report  describing  the  provisions  required  to  cover 
economic activities that do not have a significant impact on environmental sustainability and 
economic activities that significantly harm environmental sustainability.28 The EU continues 
to  work  with  its  key  partners  in  the  International  Platform  on  Sustainable  Finance29  on 
how to facilitate cross-border sustainable investments, notably, through a potential Common 
Ground  Taxonomy.  Furthermore, 
the  Commission  has  proposed  a  Corporate 
Sustainability  Reporting  Directive  (CSRD)30  that  would  amend  existing  non-financial 
reporting  requirements,  extend  the  scope  of  reporting  to  all  large  companies  and  all 
companies listed on regulated markets, except listed micro-enterprises, and foresees the audit 
of reported information. This would greatly improve transparency.  

In the EU, industrial alliances are part of the policy toolkit to mobilise investments in key 
sectors. Those include the European Batteries Alliance, the Clean Hydrogen Alliance and the 
European Raw Materials Alliance. 

Towards a green and just recovery  

Since  the  outbreak  of  the  pandemic  in  2020,  the  EGD  has  been  at  the  centre  of  EU  efforts 
when designing the recovery package and the EU’s long-term budget (2021-2027). Following 
the  European  Council’s  agreement  last  year,  at  least  30%  of  the  €1.8  trillion  of  both  the 
temporary  recovery  instrument  NGEU  and  the  2021–2027  budget  will  be  used  for 
climate-related  policies  and  programmes,  amounting  to  €540  bn.  The  Commission  will 
finance  30%  of  NGEU  through  the  issuance  of  green  bonds,  building  on  the  climate 
expenditure under the Recovery and Resilience Facility (RRF). To receive support from the 
RRF31, a centrepiece of the NGEU, in 2021 Member States had to prepare national recovery 
and  resilience  plans  (RRPs)  on  how  they  intend  to  spend  their  national  allocations.  These 
plans  must  be  in  line  with  the  National  Climate  and  Energy  Plans,  meet  a  specific  37% 
climate expenditure target and comply with the principle of ‘do no significant harm’ (DNSH) 
to avoid any negative impact on climate and environmental objectives32. The Member States 
that have seen their RRPs assessed by the Commission have overachieved the above target by 
allocating around 40% to climate33.  

The Just Transition Mechanism was set up to ensure that the transition towards a climate-
neutral economy happens in a fair way, leaving no one behind. This new tool is expected to 
mobilise  around  €55  bn  to  alleviate  the  socio-economic  impact  of  climate  transition  in  the 
most affected regions and sectors. Member States are preparing Territorial Just Transition 

27  Commission  Delegated  Regulation  supplementing  Regulation  (EU)  2020/852  by  establishing  the  technical  screening 
criteria  for  determining  the  conditions under  which  an  economic  activity  qualifies  as  contributing  substantially  to  climate 
change  mitigation  or  climate  change  adaptation  and  for  determining  whether  that  economic  activity  causes  no  significant 
harm to any of the other environmental objectives (C/2021/2800 final). 
28 Report required under Article 26(2) of the Taxonomy Regulation. 
29 This brings together 17 countries representing over 55% of world GHG emissions. 
30 COM(2021) 189 final. 
31 Regulation (EU) 2021/241. 
32 For instance investments in fossil fuels and infrastructure, investments in new roads or waste incineration are not allowed.  
33  The expenditures reported for the RRF are estimates processed by the Commission based on the information on climate 
tracking published as part of the Commission’s analyses of the recovery and resilience plans. The data reported covers the 22 
national recovery and resilience plans assessed and approved by the Commission by 5 October and the amount will evolve as 
more plans are assessed. 

6 

 
 
                                                           
 
Plans  (TJTPs)  identifying  the  most  negatively  affected  territories  and  outlining  their 
transition process and. To achieve the energy and climate targets it is crucial that investments 
support  reskilling  and  upskilling  of  workers  in  sectors  negatively  affected  by  the  transition 
and smoothen labour market transitions34.  In addition, a Just Transition Platform35 has been 
set  up  to  assist  regions  relying  on  solid  fossil  fuels  and  carbon-intensive  industries,  and 
provide space for open dialogue and exchanges.  

Cities and citizens increased climate action  

The fight against climate change is a collective responsibility. People and cities across the EU 
are increasingly taking action. In December 2020, the Commission launched the  European 
Climate  Pact36  to  give  citizens  a  greater  role  in  designing  both  mitigation  and  adaptation 
actions,  and  an  effective  platform  to  do  so.  By  July  2021  there  were  more  than  1000 
applications to join the Pact, and over 500 citizens are already fully active ambassadors37. 

By the end of 2020, some 9900 European cities had joined the EU Covenant of Mayors38, 
with a collective commitment to reducing GHG emissions by 30% by 2020 and by 47% by 
2030  compared  with  2005.  Under  the  Horizon  Europe  programme  for  research  and 
innovation,  the  Commission  is  also  launching  the  mission  ‘climate-neutral  and  smart 
cities’ for at least 100 cities to become climate-neutral by 2030 and to foster experimentation 
and innovation while other missions – on adaptation to climate change, on oceans and inland 
waters  and  on  soil  health  –  will  promote  climate  action  through  broad-based  citizen 
engagement.   

34 2020 Employment and Social Developments in Europe review. 
35https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/finance-and-green-deal/just-transition-
mechanism/just-transition-platform_en 
36 https://europa.eu/climate-pact/index_en  
37 https://europa.eu/climate-pact/ambassadors/meet-our-ambassadors_en 
38 https://www.covenantofmayors.eu/about/covenant-initiative/covenant-in-figures.html  

7 

 
 
 
 
                                                           
2.  THE EU EMISSIONS TRADING SYSTEM  

The EU Emissions Trading System (ETS)39 presently covers around 36% of EU's total GHG 
emissions  from  close  to  9500  power  stations  and  manufacturing  plants  (i.e.  stationary 
installations),  and  flights  within  the  EEA40.  In  total,  by  2020  EU  ETS  emissions  from 
stationary  installations  had  already  fallen  by  43%  since  200541.  This  decrease  was  mostly 
driven  by  the  electricity  and  heat  production  sectors  (-15%),  reflecting  both  previously 
identified  decarbonisation  trends  (such  as  switching  from  coal  to  natural  gas-fired  power 
generation  and  replacement  of  fossil  fuels  by  renewable  energy  sources  driven  by  EU  and 
Member States renewable energy policies) and, in 2020, reduced electricity consumption due 
to the pandemic. In 2020, it is estimated that, due to the effects of the pandemic, emissions 
from  stationary  installations  decreased  by  11.4%,  while  emissions  from  industry  saw  the 
greatest decrease (-7%) since the start of EU ETS phase 3 in 2013 and aviation saw a record 
drop (-63.5%).  

Figure  2:  Verified  (historical)  ETS  emissions  2005-2020  in  Mt  CO2-eq42,  Member  State  projections  with 
existing measures 2021-2030, ETS cap phases 2, 3 and 4, and accumulated surplus of ETS allowances 2008-
2020, including UK (Northern Ireland), Norway and Iceland 

The last couple of years of phase 3 were marked by a reinforced carbon price signal. This was 
also the case in 2020 and 2021 when, despite the difficult economic situation in industry and 
aviation  due  to  the  pandemic,  the  carbon  price  remained  strong  due  high  gas  prices  and 
market  anticipation  of  the  increased  2030  climate  ambition.  Carbon  prices  have  increased 

39 Covers EU-27, Iceland, Liechtenstein, Norway and Northern Ireland. Until 2021 it covered the UK.  
40 Covers only CO2 emissions from flights within the EEA, departing flights to Switzerland and the UK. 
41 Verified emissions from Union Registry. 
42 Due to ETS scope changes, time-series are not consistent before 2013. The figure includes all countries participating in the 
EU ETS in the respective years. Cap phase 4 with existing 40% target.  The cap for 2021-2030 reflects the UK withdrawal.  

8 

 
 
 
                                                           
over  2021,  which  contributed  to  higher  electricity  wholesale  prices  but  to  a  much  smaller 
extent than the increased gas price. 

Each  year,  the  Commission  publishes  the  surplus  of  allowances  for  the  preceding  year.  In 
May 2021, the 2020 surplus was around 1.58 bn43, somewhat higher than in 2019 (1.39 bn), 
as emissions kept decreasing due to the pandemic. Given the current surplus, auction volumes 
from September 2021 to August 2022 will be reduced by 378 m allowances. The first review 
of  the  Market  Stability  Reserve44,  operational  since  2019,  showed  that  it  has  fulfilled  its 
objective to reduce the historical surplus and stabilise the market, even in the face of reduced 
emissions  due  to  the  COVID-19  outbreak.  Namely,  it  led  to  an  intake  (reduced  auction 
volumes) of nearly 1.1 bn allowances so far, and this is expected to continue in the coming 
years.  

Regarding international credits, at the onset of phase 3, market analysts estimated that the 
quantity  of  international  credit  entitlements  used  over  phases  2  and  3  (2008-2020)  would 
amount  to  approximately  1.6  bn  credits.  As  of  May  202145,  the  total  number  used  or 
exchanged was around 1.565 bn, accounting for almost 98% of the estimated maximum. In 
phase  3  alone  (2013-2020),  506.3  m  international  credits  were  exchanged.  As  per  the 
provisions of the EU ETS Directive, international credits may no longer be used for EU ETS 
compliance in the system’s fourth trading period (2021-2030). 

Revenues from the auctioning of allowances on the European carbon market continued 
to  grow  in  2020  due  to  an  increasing  carbon  price.  Total  revenues  generated  by  Member 
States, the UK and EEA countries  from  the auctions between 2012 and 30 June 2021 were 
close  to  €83.5  bn.  In  2020  alone,  the  generated  total  revenues  were  €16.5  bn  (EU27  plus 
EEA) or €19 bn when including the UK. In the first six months of 2021 revenues (EU-27 plus 
EEA) were close to €14 bn46.  

Actions in aviation and maritime transport 

Emissions from extra-European aviation, i.e. resulting from incoming flights to the EEA and 
flights  departing  to  other  countries,  with  the  exemption  of  flights  departing  to  the  UK  and 
Switzerland,  are  currently  not  priced  under  the  EU  ETS,  in  accordance  with  the  “stop  the 
clock” provision in the EU ETS Directive.  

During  2021,  the  EU  continued  to  support  the  implementation  of  the  initial  International 
Maritime  Organisation  GHG  reduction  Strategy  with  a  focus  on  short-term  measures.  The 
Commission  also  signed  a  memorandum  of  understanding  for  a  new  Horizon  Europe 
Partnership  that  will  invest  up  to  €3.8  bn  in  research  and  innovation  to  develop  and 
demonstrate  deployable  zero-emissions  solutions  for  all  main  ship  types  and  services  by 
2030.  In  July  2021  the  Commission  proposed  to  extend  the  EU  ETS  to  include  emissions 
from the maritime transport and to boost the use of sustainable alternative fuels in the sector.  

43 C(2021) 3266 final.  
44 Annex 7 of SWD (2021) 601 final. 
45 The exchange of international credits was possible until end of April 2021 i.e. the end of the 2020 compliance cycle.  
46All amounts include allowances auctioned for the Innovation and Modernisation Funds.  

9 

 
 
 
 
                                                           
3.  EFFORT SHARING EMISSIONS  

Emissions  from  sectors  not  included  in  the  ETS,  such  as  transport,  non-ETS  industry, 
buildings, agriculture and waste, are covered by the EU effort sharing legislation. The Effort 
Sharing  Decision  (ESD)  sets  national  emissions  targets  for  2020,  expressed  as  percentage 
changes from  2005 levels.  It also  sets  annual  emissions  allocations (AEAs) which Member 
States47  must  respect.  Similarly,  the  successor  Effort  Sharing  Regulation48  (ESR)  sets 
national emissions targets for 2030 and AEAs for the period 2021-2030, including for Iceland 
and Norway49. Iceland and Norway took further steps to implement the ESR and by now both 
countries have submitted their national plans to the Commission50,51.  

Since the effort sharing system was launched in 2013, EU-wide emissions have been below 
the overall limit each year. EU-27 emissions covered by the ESD were almost 11% lower in 
2019 in comparison to 2005. Thus, the 2020 target (-10%) was over-achieved already before 
the COVID-19 crisis set in (Figure 3). 

Figure  3:  Emissions  in  sectors  covered  by  effort  sharing  legislation  2005-2030  and  annual  emission 
allocations (AEAs), EU-27 and Iceland and Norway (Mt CO2-eq)52  

47 Under the Withdrawal Agreement, the UK continues to apply key ESD provisions. 
48 Regulation (EU) 2018/842. 
49 ESA decision No. 204/21/COL of 21 July 2021.  
50 December 2019: Norway’s National Plan related to the Decision of the EEA Joint Committee No. 269/2019 of 25 October 
2019. 
51  November  2020: Iceland’s  National Plan  –  Issued  in  accordance  with  Declaration  related to  the Decision of  EEA  Joint 
committee No 269/2019 of 25 October 2019. 
52  Figure  based  on  reported  projections  by  Member  States  under  the  Regulation  (EU)  2021/1119,  compiled  and  quality 
checked  by  the  European  Environment  Agency.  Until  2020  figures  include  EU-27  only  and  as  of  2021  also  Iceland  and 
Norway.  

10 

 
 
 
                                                           
Member State compliance with effort sharing obligations 2013-2020 

All Member States have complied with their  effort sharing obligations in 2013-2018. Malta 
exceeded its AEAs in each of these years, but covered the deficit by purchasing AEAs from 
Bulgaria.  In 2018, Austria, Belgium, Bulgaria,  Cyprus, Estonia,  Finland,  Germany,  Ireland, 
Luxembourg  and  Poland  also  exceeded  their  AEAs  but  could  use  saved  surpluses  from 
previous  years.  Sweden  and  UK  cancelled  AEA  surpluses  in  2018  to  improve  the 
environmental integrity of the system53. All other Member States banked surplus allocations 
for possible later use. No international project credits from the clean development mechanism 
or joint implementation were used to comply with the effort sharing obligations. 

The compliance cycle for 2019 is ongoing. Based on the annual inventory review under the 
ESD,  Malta’s  emissions  exceeded  its  AEAs  by  22%  and  therefore  it  will  again  need  to 
purchase them. Emissions in nine other Member States54 exceeded the 2019 AEAs by up to 
18%.  Except  for  Ireland  and  Germany,  these  countries  have  enough  AEA  surplus  banked 
from  previous  years.  Proxy  inventory  data  for  2020  shows  that  Bulgaria,  Cyprus,  Finland, 
Germany,  Ireland  and  Malta  exceeded  their  AEAs,  ranging  from  0.4%  (Finland)  to  14% 
(Ireland).  Member  States  which  do  not  have  banked  surplus  AEAs  (Ireland,  Germany  and 
Malta) can use the ESD flexibility mechanisms (beyond banking and borrowing AEAs).  

53 Sweden deleted 5.8 Mt and the UK 27.4 Mt. 
54 AT, BE CY, DE, EE, FI, IE, LU, PL.  

11 

 
 
                                                           
Malta
Ireland
Germany
Poland
Finland
Luxembourg
Austria
Estonia
Sweden
Belgium
France
Lithuania
Denmark
Czechia
Latvia
Bulgaria
Italy
Spain
Romania
Netherlands
Slovenia
Portugal
Slovakia
Hungary
Croatia
Greece
Cyprus

EU-27

United Kingdom

-110%

-11%
-3%

87%

6%

25%

0%
1%
1%
6%
9%
11%
12%
13%
16%
34%
41%
48%
58%
60%
62%
67%
83%
85%
127%
136%
145%
149%
163%
173%

43%

6%

33%

-150%

-100%

-50%

0%

50%

100%

150%

200%

Cumulative surplus of AEAs
FR, SE, UK: cumulative surplus of AEAs, deleted
Bulgaria, Malta: traded AEAs
Germany, Ireland: cumulative deficit

Figure 4: Cumulative surplus of AEAs as percentage of 2005 base year emissions, 2013-2019 for EU-27 and 
the UK 

Progress towards the 2030 effort sharing targets  

Member  States  are  planning,  adopting  and  implementing  policies  and  measures  to  achieve 
their  current  2030  effort  sharing  targets  under  the  ESR.  If  currently  implemented  national 
policies  are  aggregated,  the  EU-27  would,  compared  with  2005,  reduce  effort  sharing 
emissions by 22% by 2030. This is well below the current 30% overall emissions reduction 
target  and  the  more  ambitious  target  of  40%  proposed  in  July  2021.  Even  if  all  additional 
policies reported by Member States were to be implemented, the 30% would be just met. This 
underpins the strong and imminent need for Member States to plan and implement additional 
climate action in the effort sharing sectors.  

12 

 
 
 
Figure  555:  Gaps  between  2030  ESR  targets  and  projected  emissions56  with  existing  measures  and  with 
additional  measures  as  a  percentage  of  2005  base  year  emissions  for  EU-27,Iceland  and  Norway.  Positive 
values  indicate  projected  overachievement  of  targets;  negative  values  indicate  that  projected  targets  are 
not going to be met. 

55 The aggregated AEAs for the 27 Member States do not exactly match the current EU-level effort sharing reduction targets 
expressed in percent. See SWD for more details.  
56 European Environment Agency gap-filled missing “projections with additional measures” with “projections with existing 
measures”. The original data have different metrics, which a conversion approximately corrects. The gaps are thus provided 
here for illustrative purposes only. See SWD for more details.  

13 

 
 
 
                                                           
Policies in key sectors 

In the road transport sector, the second largest source in the EU, emissions had – after a dip 
following the financial crisis – again reached their 2005 level in 2019. They are expected to 
rebound  after  the  pandemic  and  are  not  likely  to  fall  without  additional  measures.  CO2 
emissions  standards  for  new  cars  and  vans  and  for  heavy-duty  vehicles  are  thus  key 
drivers  for  reducing  road  transport  emissions.  Average  emissions  from  new  cars  decreased 
from 122.3 g CO2/km in 2019 to 107.8 g CO2/km in 2020.57 This is by far the greatest annual 
decrease since CO2 standards were introduced in 2010, thanks to the phase-in of a stricter EU 
fleet-wide CO2 target in 2020. In addition, it shows the effect of targeted recovery measures 
put  in  place  by  Member  States  which  stimulated  the  uptake  of  zero-  and  low-emission 
vehicles and investments in recharging infrastructure. In 2020 electric car registrations tripled 
compared with 2019 (up from 3.5% to over 11%, of which 6% are full electric vehicles and 
5%  plug-in  hybrids).  In  2020  average  emissions  for  new  vans  also  decreased  to  155.7  g 
CO2/km, thanks to stricter standards (Figure 6). Heavy-duty vehicles, such as lorries, heavy 
vans,  buses  &  coaches,  contribute  about  30%  of  road  transport’s  total  CO2  emissions. 
Existing legislation requires average CO2 emissions of a manufacturer’s fleet of new heavy 
lorries to be reduced by 15% and 30%, as from 2025 and 2030, respectively, compared with 
the 2019 baseline. 

57 Provisional data published by the European Environment Agency. 

14 

 
 
 
 
                                                           
Figure 6: Average emissions (g CO2/km) for newly sold cars and vans and fleet-wide targets58 

Another tool used in the transport sector to decrease emissions is the Fuel Quality Directive, 
which  requires  life-cycle  GHG  emissions  intensity  of  fuels  to  be  reduced  by  6%  by  2020, 
compared with 2010. The average GHG intensity of fuels supplied in 2019 was 4.3% lower 
than in 2010 (Figure 7). The progress achieved varies greatly across reporting countries and 
almost all Member States need swiftly to take further action to meet the 2020 target. In July, 
the Renewable Energy Directive revision proposed a GHG intensity reduction target of 13% 
for  all  transport  fuels  by  2030.  In  addition,  Member  States  need  to  meet  sub-targets  for 
renewable fuels of non-biological origin (2.6%) and advanced biofuels (2.2%). 

58 Targets for 2020-2024 to be calculated in the Worldwide Harmonised Light Vehicle Test (WLTP). 

15 

 
 
 
                                                           
Figure 7: Reductions in GHG intensity of fuels achieved by EU fuel suppliers in 27 Member States and the UK, 
2010-2019 

the  EU  must  also  comply  with  consumption 

Fluorinated gases (F-gases) are very powerful GHG and their emissions are counted under 
the  ESD.  Since  2019 
limits  for 
hydrofluorocarbons  (HFCs)  under  the  Montreal  Protocol  on  substances  that  deplete  the 
ozone layer. The current Regulation on F-gases59 aims to cut emissions by promoting a shift 
from highly warming F-gases towards gases with a lower global warming potential. In 2020, 
the amount of F-gases supplied to the EU market had already been reduced by 40% compared 
with  2015,  when  measured  in  terms  of  its  potential  climate  effect.  Also,  the  EU  was  well 
below  its  2020  HFC  consumption  limit  under  the  Protocol.  In  2021  the  Commission 
continued to expand its  real-time monitoring system - the EU Single Window Environment 
for  Customs  -  so  as  to  help  Member  State  competent  authorities  prevent  illegal  imports  of 
HFCs not covered by the quota system. 

In  many  cases,  F-gases  replaced  ozone-depleting  substances  (ODS),  which  are  often  also 
very  potent  GHG  gases.  By  now  the  EU  has  phased  out  ODS  and  it  successfully  met  its 
obligations under the Montreal Protocol. However, since ODS may still be used for certain 
exempted activities, it is essential to continue to enforce related policies.  

59 Regulation (EU) 517/2014. 

16 

 
 
 
 
 
 
 
                                                           
4.  LAND USE, LAND USE CHANGE AND FORESTRY (LULUCF) 

LULUCF can generate GHG emissions into the atmosphere but also remove CO2 from it. Between 
2013 and 2020, Member States committed to ensure that GHG emissions and CO2 removals from 
additional action are accounted towards the reduction target under the Kyoto Protocol. As of 2021, 
the EU’s 2030 Climate and Energy Framework integrates emissions and removals from the land 
sector using a set of accounting rules adapted from the Kyoto Protocol.  

The  LULUCF  Regulation60  requires  each  Member  State  to  ensure  that  accounted  GHG 
emissions from land use, land use change and forestry are balanced by at least an equivalent 
accounted removal of CO2 from the atmosphere from 2021-2030 (the “no-debit” rule). Forest 
Reference Levels of the Member States for the period 2021-2025 have also been set61. The 
EFTA Surveillance Authority (ESA) adopted these levels for Iceland and Norway62 following 
a similar process.  

Figure  8.  Reported  (R)  and  preliminary  accounted  (A)  emissions  and  removals  under  the  Kyoto  Protocol, 
second commitment period, EU-27 63 

Figure 8 shows for the 2013-2019 period a decreasing sink of ‘reported’ emissions and removals 
per activity for the EU with average net removals of - 344.9 Mt CO2-eq.  Applying the specific 
Kyoto Protocol accounting rules, the ‘accounted’ balance produced an average sink (or credit) of -
to  
115.0 Mt CO2-eq. 

accounted 

decreased 

credits 

-153.3 

from 

The 

net 

60 Regulation (EU) 2018/841. 
61 Delegated Regulation (EU) 2021/268, accompanying SWD/2020/0236 final and scientific analysis (Vizzarri, M., Pilli, R., 
Korosuo,  A.  et  al.  Setting  the  forest  reference  levels  in  the  European  Union:  overview  and  challenges.  Carbon  Balance 
Manage 16, 23 (2021)).  
62 ESA Decision No 157/20/COL of 16 December 2020.  
63 Reported emissions and removals from LULUCF under the Kyoto Protocol shown here are based on specific activities and 
are not the same as land-based reported emissions and removals from LULUCF under the UNFCCC Convention inventory 
in Figure 1.  

17 

 
 
 
                                                           
-85.3 Mt CO2-eq64.  These  quantities  include  both  ‘mandatory’,  i.e.  afforestation/reforestation, 
deforestation and forest management, and ‘elected’ activities under the KP65. 

The main driver for  the  EU  LULUCF sink decline is the  decrease in reported  net removals 
and  accounted  net  credits  by  Forest  Management  for  2013  -201966.  The  decline  in  carbon 
removals  is  due  to  a  mix  of  factors,  including  an  increase  in  wood  demand  (e.g.  2018  in 
Finland),  an  increasing  share  of  forests  reaching  harvest  maturity  (Estonia,  Latvia)  and  an 
increase  in  natural  disturbances  such  as  insect  infestations  (Czechia  since  2015),  storms 
(2019 in Poland), droughts and forest fires (e.g. 2017 in Italy and Portugal)67. According to 
preliminary estimates, using the accounting rules for the Kyoto Protocol second commitment 
period, Cyprus, Finland and Netherlands have average net LULUCF debits smaller than 1 Mt 
CO2-eq per year. Higher levels of debits are forecasted for Czechia, Latvia and Slovenia (2.6, 
2.4 and 3.9 Mt CO2-eq per year, respectively).  

To reverse the decline in LULUCF net removals, the Commission proposed a new target of -
310  Mt CO2 eq.  in  2030  for  the  carbon  sink  and  a  climate  neutral  land  sector  combining 
LULUCF net removals and emissions from livestock and fertilisers in 203568. 

64 The pattern in the time series of reported emissions and removals for the EU differs from accounting due to the application 
of accounting rules, notably by applying a cap to credits by Forest Management equal to 3.5% of total GHG emissions in the 
base year. 
65  DK,  DE,  IE,  ES,  IT  and  PT  elected  to  include  in  their  accounts  Cropland  Management;  DE,  DK,  IE,  IT  and  PT  also 
elected Grazing Land Management; RO elected Revegetation. 
66 Other noteworthy trends or dynamics: net removals or credits by Afforestation/Reforestation decreased by 7 Mt CO2-eq in 
2017; net emissions (credits) by Cropland Management decreased (increased) by 5 Mt CO2-eq over the 7-year period. 
67 Grassi, G., Fiorese, G., Pilli, R., Jonsson, K., Blujdea, V., Korosuo, A. and Vizzarri, M., Brief on the role of the forest-
based  bioeconomy  in  mitigating  climate  change  through  carbon  storage  and  material  substitution,  Sanchez  Lopez,  J., 
Jasinevičius, G. and Avraamides, M. editor(s), European Commission, 2021, JRC124374. 
68 This is based on land-based LULUCF emissions and removals reported to the UNFCCC. The average EU net removals in 
the LULUCF sector were -268 Mt CO2-eq between 2016-2018. 

18 

 
 
                                                           
5.  ADAPTING TO CLIMATE CHANGE  

Climate adaptation is now mainstreamed into EU policies and the long-term EU budget. By 
2020, all Member States had put in place a national adaptation strategy or plan. The Climate-
ADAPT  platform  has  become  a  reference  for  adaptation  knowledge.  In  2021,  the 
Commission adopted its  new EU  strategy  on  adaptation  to  climate  change69,  which  sets 
out the path on how to prepare for the unavoidable impacts of climate change and to become 
climate  resilient  by  2050.  This  by  improving  and  exchanging  knowledge  (e.g.  via  EU 
platforms and observatories), and collecting more and better data on climate-related risk and 
losses.  The  strategy  highlights  that  policy  developments  at  all  levels  and  sectors  should  be 
supported,  especially  local  and  just  resilience.  It  explores  the  macro-fiscal  relevance  of 
climate change and natural disaster risks and underlines the importance of integrating climate 
resilience into national fiscal frameworks. It also emphasises nature-based solutions.  

Swifter adaptation solutions will be tested and scaled up through the Horizon Europe mission 
on adaptation to climate change. The aim is to support at least 150 regions and communities 
and to test at least 75 deep demonstrations. Horizon Europe missions on Soil health, Climate-
neutral cities, and Oceans and inland waters are also directly relevant to action on adaptation.  

First assessment of reporting on national adaptation policies 

Starting in 2021 Member States are required to report on their national adaptation policies70. 
All Member States have completed this reporting. While it is still premature to assess actual 
progress in implementation, a snapshot of observed key hazards and future risks can be taken, 
against which progress can be measured in 202371.  

The  most  frequently  observed  acute  hazards  in  Member  States  are  heatwaves  and  droughts 
(in all countries), heavy precipitation (leading to floods), storms, landslides and wildfires (a 
high number of countries in each climatic zone72). Most frequently observed chronic hazards 
are  changing  temperatures,  changing  precipitation  patterns  and  types  (as  well  as  increased 
variability)  and  coastal  erosion.  There  are  also  some  hazards  that  stand  out  but  are  only 
reported in specific climatic zones: water scarcity, soil degradation and erosion appear to be 
almost absent in the north; the change in wind patterns is reported to affect mainly the north 
and the east; saline intrusion is especially problematic in the south. Overall,   Finland, France 
and  Spain  reported  the  highest  number  of  hazards  and  Ireland,  Italy  and  Luxembourg  the 
lowest.  More  than  60%  of  Member  States  mentioned  health,  agriculture  and  food,  forestry, 
biodiversity,  water  management,  tourism  and  energy  as  sectors  that  are  mostly  affected  by 
future  climate-induced  risks.  Portugal,  Spain  and  Sweden  reported  the  highest  number  of 
sectors subject to future risks. 

69 COM(2021) 82. 
70 Article 29 of Regulation (EU) 2018/1999. 
71 See details in the SWD. 
72 Country grouping into climatic zones according to a frequently used nomenclature in climate-related assessments of the 
European Environment Agency and of the Commission: northern (DK, EE, FI, IE, LT, LV, SE), eastern (BG, CZ, HU, PL, 
RO, SK), southern (CY, EL, ES, HR, IT, MT, PT, SI) and western (AT, BE, FR, DE, LU, NL). 

19 

 
 
 
 
                                                           
6.  FINANCING CLIMATE ACTION 

Mainstreaming climate policies into the EU budget  

As  shown  in  Chapter  1,  the  transition  to  climate  neutrality  and  climate  resilience  requires 
substantial investments. At least 30% – the highest share ever – of the next EU long-term 
budget  (2021-2027)  is  allocated  for  climate  action  (up  from  20%  in  the  2014-2020).  This 
means around €625 bn compared to around €210 bn in the previous period. Specific spending 
programmes have higher climate targets (Horizon Europe - 35%, Cohesion Fund - 37%, CAP 
- 40%, Connecting Europe Facility  (CEF) - 60%,  LIFE -  61%, the Just  Transition  Fund73 - 
100%), contributing even a larger share to the overall budget ambition.  

To be able to benefit from loans and grants for up to €723.8 bn under the RRF, Member 
States  were  preparing  Recovery  and  Resilience  Plans  (RRPs)  in  2021.  These  Plans  include 
investments and reform initiatives that have an added value for the EU as a whole, such as, 
the development and use of renewables including hydrogen, building renovation and energy 
efficiency, and roll-out of infrastructure for alternative fuels or railway transport. The specific 
target  of  37%  of  expenditure  on  climate  has  been  overachieved,  as  the  combined  climate 
investments  of  22  assessed  RRPs  approved  by  the  Commission74  amounted  to  €177  bn,  or 
around 40% of the total RRF funds allocated. About 43% of the amount allocated to climate 
measures  will  target  renewable  energy  and  networks  and  energy  efficiency,  and  35% 
sustainable  mobility.  Thus,  RRPs  can  already  help  Member  States  achieve  the  more 
ambitious  targets  for  2030.  The  Commission  has  integrated  the  technical  screening  criteria 
from  the  EU  Taxonomy  where  feasible  to  track  climate  spending  under  the  RRF  and 
structural  funds.  The  NGEU  green  bond  framework75  adopted  in  September  2021  provides 
the necessary guarantees that proceeds will finance green and climate investments under the 
RRF. 

The  Just  Transition  Mechanism  (JTM)  is  expected  to  mobilise  around  €55  bn  (2021-
2027) of investments and consists of three pillars:  

1.  Just Transition Fund of at least €25 bn;  
2.  InvestEU  "Just  Transition"  scheme  -  a  budgetary  guarantee  under  the  InvestEU 

programme to mobilise private investments; 

3.  Public Sector Loan Facility which will combine €1.5 bn of grants from the EU budget 
with €10 bn of loans from the European Investment Bank (EIB) to mobilise around €18 
bn of public investment.  

As  of  2021,  parts  of  different  EU  programmes  that  contribute  to  the  EGD  such  as  CEF, 
Horizon  Europe  programme,  Innovation  Fund,  LIFE  programme,  Loan  Facility  under  JTM 
etc.  will  be  managed  by  a  single  entity  -  the  European  Climate,  Infrastructure  and 
Environment Executive Agency (CINEA). 

73 Regulation (EU) 2021/1056. 
74 See footnote 33 for explanations on methodology used.   
75 SWD(2021)242. 

20 

 
 
 
 
 
                                                           
Member State use of revenues from the auctioning of EU ETS allowances  

With  the  significant  carbon  price  increase  in  phase  3,  auctioning  revenues  increased 
accordingly – up from €3.1 bn in 2013 to €14.4 bn in 2020 in the EU-27. Based on annual 
reporting,  it  is  estimated  that  75%  of  total  revenues  (€56.5  bn)  was  used  for  climate  and 
energy purposes during phase 3 and 72% in 2020. In practice, Member States spend more on 
climate change and energy than their auctioning revenues76. 

Figure 9: Auctioning revenues and reported usage (€ bn), 2013-2020, EU-27 

During phase 3 the additional annual revenues from rising carbon prices were mainly spent 
domestically while the reported annual international spending has been fairly stable (ca €100-
200  million/year).  The  latter  has  been  mostly  channelled  to  developing  countries  via 
multilateral  funds  and  institutions.  Figure  10  shows  how  the  reported  revenues  have  been 
spent since 2013.   

76 See SWD for overview of revenues and reported spending per year.  

21 

 
 
                                                           
Figure  10:  Reported  domestic  and  international  share  of  revenues  spent  on  climate  change  and  energy, 
2013-2020, EU-27 

Lastly, in 202077, Member States spent most of their reported revenues on direct support i.e. 
on the installation of technologies that reduce emissions (e.g. renewables).  

Figure  11:  Reported  share  per  type  of  support  spent  on  climate  change  and  energy  domestically  (incl. 
planned) in 2020, EU-27 

77  In  2020  Member  States  reported  for  the  first  time  on  the  type  of  support  used  domestically  as  per  Article  5  of  the 
Implementing Regulation (EU) 2020/1208. 

22 

 
 
 
 
 
 
 
                                                           
NER 300 programme 

in 

the  EU 

The  NER  300  is  a  large-scale  funding  programme  for  innovative  low-carbon  energy 
demonstration  projects 
technologies  and 
environmentally  safe  carbon  capture  and  storage  (CCS)  on  a  commercial  scale.  The 
programme  is  funded  from  the  monetisation  of  300  m  emission  allowances  from  the  New 
Entrants  Reserve  under  ETS  phase  3.  In  total,  39  projects  have  been  awarded  €2.1  bn  of 
funding in 20 Member States. Projects are at different stages but 23 were withdrawn due to 
difficulties in raising sufficient equity and/or attracting additional financial support.  

to  renewable  energy 

linked 

These  withdrawals  led  to  a  release  of  almost  €1.5  bn.  The  amended  NER  300  Decision 
allowed  to  reinvest  €708.7  m  of  unused  funds  through  the  existing  financial  instruments. 
Under  the  InnovFin  Energy  Demonstration  Projects  (InnovFin  EDP)  and  the  CEF  Debt 
Instrument,  both  managed  by  the  EIB,  another  three  innovative  projects  on  charging  and 
energy storage, hydrogen production and distribution benefited from funding. The remaining 
unspent funds will be channelled to the Innovation Fund with €746.6 m already having been 
transferred. This shows that the blending mechanism put in place is working efficiently with 
the perspective of full allocation of undisbursed funds by the end of 2022. 

Innovation Fund 

The  Fund  is  financed  from  the  auctioning  of  450  m  allowances  between  2020  to  2030  and 
any unspent funds from the NER300 programme. It pools together around €25 bn (at a carbon 
price of €50/tonne) until 2030 and is one of the world’s largest programmes for commercial 
demonstration  of  innovative  low-carbon  technologies  in  energy  intensive  industries, 
innovative renewables, energy storage, and CCUS.  

In 2020, first calls for proposals attracted significant interest from companies of all sizes and 
from  various  sectors  in  the  EU-27,  Iceland  and  Norway.  For  small-scale  projects,  32  were 
selected and invited for grant preparation for a total volume of € 118 m. Under the large-scale 
call 66 best-ranked projects (out of 311 applications) submitted complete proposals worth €6 
bn (against a call volume of €1 bn). Of these, 15 large-scale projects were selected for Project 
Development Assistance (€4 m).  

Modernisation Fund 

The  Modernisation  Fund,  operational  since  2021,  is  one  of  the  key  funding  instruments 
supporting decarbonisation in 10 lower income Member States, including just transition. It is 
financed  from  the  auctioning  of  more  than  640  m  ETS  (2020-2030)  allowances,  which 
includes voluntary transfers from beneficiary Member States, and pools together around €31 
bn (at a carbon price of €50/tonne) until 2030.  

In  the  first  biannual  disbursement  cycle,  six  multiannual  schemes  worth  €304  m  are  being 
funded in Czechia, Hungary and Poland targeting renewables, energy efficiency, smart grids, 
and development of the power grid and energy communities.  

LIFE programme 

The LIFE programme is the EU’s funding instrument for the environment and climate action 
and  co-finances  projects  with  European  added  value.  For  2021-2027  period  the  budget  has 
been substantially increased to €5.43 bn and allocated to four sub-programmes: 

23 

 
 
Figure 12: Budget allocation for LIFE 2021-2027 (€ bn)  

The  number  of  proposals  submitted  under  the  2020  LIFE  Climate  Action  calls  was 
considerably  higher  than  in  previous  years.  In  addition,  the  new  sub-programme  Clean 
Energy  Transition  contributes  directly  to  climate  change  mitigation  and  most  of  the 
Environment projects also bring related climate benefits. 

Technical Support Instrument (TSI) 

Tailored  technical  support  for  design  and  implementation  of  climate  reforms  continued  to 
expand with almost one in three TSI 2021 projects supporting the EGD. Some Member States 
received  technical  support  when  preparing  their  RRPs  while  more  than  60%  of  TSI  2021 
projects  support  their  implementation,  including  the  DNSH  principle,  and/or  the  green 
components of their Plans. In 2021 a training on green budgeting took place and 17 Member 
States received support to prepare their TJTPs.  

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7.  INTERNATIONAL CLIMATE ACTION 

The  EU  continued  to  lead  by  example  on  how  to  achieve  climate  neutrality  and  climate 
resilience  by  2050.  In  line  with  the  Paris  Agreement,  the  EU  raised  its  2030  target  and 
submitted  updated  NDCs  to  the  UNFCCC.  In  implementing  the  Paris  Agreement,  the  EU 
cooperates  with  international  partners,  encourages  and  assists  delivery  of  highest  possible 
ambitions,  and  has  shown  solidarity  in  addressing  the  impacts  of  climate  change.  After  the 
EU, over 50 other countries representing over half of the world economy have committed to 
net-zero emissions around mid-century, including the China, the United States and Japan. In 
recent  months,  the  EU  initiated  new  climate  dialogues  with  India  and  the  US,  and  a  green 
alliance with Japan.  

Western Balkans and the European Neighbourhood  

The  EU  continued  to  support  the  development  of  long-term  strategies  and  monitoring 
reporting  and  verification  systems  to  help  improve  governance  and  to  mobilise  resources, 
both in the Pre-Accession and the Neighbourhood countries. 

At  the  end  of  2020,  the  Western  Balkans’  leaders  committed  to  climate  neutrality  by  2050 
and to reduce fossil fuel subsidies and endorsed an Economic and Investment Plan of €9 bn. 
This  funding  can  be  used  to  leverage  €20  bn  through  the  new  Western  Balkans  Guarantee 
Facility. The Energy Community78 intensified its work to adopt the 2030 Energy and Climate 
Framework,  a  Decarbonisation  Roadmap  and  the  Governance  Regulation79,  and  Renewable 
Energy and Energy Efficiency Directives.  

Good progress in dialogue on climate issues has been made in the framework of the Union 
for  the  Mediterranean,  especially  with  Morocco  and  Jordan.  Eastern  Partnership  countries 
have  confirmed  their  commitment  to  step  up  cooperation  and  adopted  an  Economic  and 
Investment Plan in 2021. To align its policies and legislation with the EGD, Ukraine started a 
dedicated  dialogue  with  the  EU.  The  EU  also  supported  the  update  of  NDCs  for  Moldova, 
Georgia and Armenia through the regional project EU4Climate.  

Supporting developing countries  

The  EU  and  its  27  Member  States  are  the  world’s  largest  provider  of  international  public 
climate  finance  and  make  a  substantial  contribution  to  the  developed  countries’  collective 
goal to provide USD100 bn per year to support climate action in developing countries. This 
contribution  has  more  than  doubled  since  2013  reaching  almost  €22  bn  in  2019.80  As  an 
example,  the  Global  Climate  Change  Alliance  Plus  (GCCA+)  initiative  helped  fund  80 
climate  resilience  and  NDCs  preparation  projects  in  Africa,  Asia,  the  Caribbean  and  the 
Pacific. 

The 2021 EU strategy on adaptation  aims to  scale up international  finance to  build  climate 
resilience and promote sharing of best-practices and expertise while promoting sub-national, 
national  and  regional  approaches  in  partner  countries.  The  global  Technical  Assistance 
Facility  was  launched  in  2020  to  help  enhance  NDCs,  formulate  and  implement  national 

78 Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Georgia, Moldova, Montenegro, Serbia and Ukraine. 
79 Regulation (EU) 2018/1999. 
80 2020 data forthcoming. 

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adaptation  plans,  land  policies  and  practices,  disaster  risk  reduction  strategies  and  low-
carbon/climate-neutral  development  strategies.  In  2021,  the  EU  outlined  actions  to  further 
mainstream  climate  change  impacts  and  environmental  factors  into  humanitarian  aid  policy 
and practice81. 

Finally,  between  2021  and  2027  Global  Europe  is  expected  to  dedicate  some  €28  bn  to 
climate  action  by  combining  all  EU  external  action  programmes  into  one  financing  tool. 
Programming  work  at  country,  regional  and  thematic  levels  is  currently  underway  and 
prioritises climate change in for example peace-building and crisis response.  

81 COM(2021) 110 final. 

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