REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL EU Climate Action Progress Report 2023
Date: 2023-10-24
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Emissions Trading Scheme, EU environmental policy, adaptation to climate change, carbon neutrality, environmental cooperation, forestry policy, greenhouse gas, investment, land use, pollution control measures

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.10.2023  COM(2023) 653 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL EU Climate Action Progress Report 2023 {SWD(2023) 338 final} - {SWD(2023) 339 final}  
 
 
1  EMISSION TRENDS AND PROGRESS IN CLIMATE 

ACTION 

GREENHOUSE GAS EMISSIONS AND THE EU’S INTERNATIONAL COMMITMENTS  

In March 2023 the Intergovernmental Panel on Climate Change (IPCC) confirmed that global 
warming,  induced  by  anthropogenic  greenhouse  gas  (GHG)  emissions  is  increasing  the 
frequency and severity  of climate and weather  extremes, leading  to widespread and  adverse 
impacts on people and nature across the globe. Every increment of warming will intensify the 
impacts, and urgent global climate action is needed to limit global warming and to adapt to its 
impacts.  Global  GHG  emissions  need  to  fall  by  43%  by  2030  and  by  84%  by  2050  below 
2019 levels, while global net zero CO2 emissions must be reached in the early 2050s if we are 
to limit temperature increase to 1.5oC with no or limited overshoot. Reducing GHG emissions 
has many co-benefits, including for air quality, health, biodiversity and energy security.1  

Europe  has  been  warming  twice  as  much  as  the  global  average  since  the  1980s,  with  far-
reaching impacts on the region’s socio-economic fabric and ecosystems.2 The year 2022 saw 
further devastating impacts associated with a warming climate, with extreme weather events 
becoming  more  and  more  common.  The  late  spring  and  summer  heatwaves,  with  record-
breaking temperatures in many locations, resulted in a record number of days with very strong 
heat  stress,  leading  to  over  61 000  excess  deaths  across  Europe.3  Hot  and  dry  spring  and 
summer  conditions,  which  triggered  drought  across  most  of  Europe,  and  fuelled  numerous 
large  wildfires,  were  followed  by  heavy  precipitation  and  intense  flooding  in  the  autumn, 
causing  dozens  of  fatalities.4  Overall,  summer  2022  was  Europe’s  warmest  ever  recorded.5 
Temperature records continued to be  broken in 2023, confirming the  extra-ordinary pace  of 
climate change. July was the hottest month on record with global temperatures 1.5oC warmer 
than the pre-industrial average. The rising temperatures and increasing frequency of extreme 
events contributed to numerous wildfires, and by the end of July 2023, they had affected more 
than  182 000  hectares  across  the  EU,  40%  above  the  2003-2022  average,6  while 
unprecedented floods hit parts of Europe.7 

In  2022,  global  emissions  were  back  to  their  pre-pandemic  increasing  trend,  reaching  53.8 
billion tonnes of CO2 equivalent (CO2-eq), well above 2019 emissions. Preliminary JRC data8 
show  that  global  GHG  emissions  rose  by  1.4%  in  2022  compared  to  2021  levels,  against  a 
3.4%  growth  of  global  GDP  over  the  same  period,  as  the  global  economy  continued 
rebounding from the pandemic. Transport was the main driver  of  increased  GHG  emissions 
(+4.7%,  or  361  MtCO2-eq),  although  still  below  the  pre-pandemic  level,  followed  by  fuel 

1  IPCC,  2023.  Climate  Change  2023:  Synthesis  Report.  A  Report  of  the  Intergovernmental  Panel  on  Climate  Change. 
Contribution  of  Working  Groups  I,  II  and  III  to  the  Sixth  Assessment  Report  of  the  Intergovernmental  Panel  on  Climate 
Change [Core Writing Team, H. Lee and J. Romero (eds.)]. IPCC, Geneva, Switzerland, 36 pages. (in press). 
2 WMO, State of the climate in Europe 2022. WMO-No. 1320. 
3 Heat-related mortality in Europe during the summer of 2022 | Nature Medicine  
4 European State of the Climate 2022 by Copernicus: ESOTCsummary2022_final.pdf (copernicus.eu)  
5 For key facts on extreme whether events, see EEA Extreme weather: floods, droughts and heatwaves (europa.eu). 
6 OBSERVER: Global Wildfire Watch: Copernicus EMS and CAMS Monitor Wildfires in 2023 | Copernicus 
7 Copernicus Emergency Management Service 
8  EDGAR  (Emissions  Database  for  Global  Atmospheric  Research)  Community  GHG  Database  comprising  IEA-EDGAR 
CO2, EDGAR CH4, EDGAR N2O, EDGAR F-GASES version 8.0, https://edgar.jrc.ec.europa.eu/report_2023.  

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production9  (+2.6%,  or  157  MtCO2-eq)  and  power  (+0.9%,  or  136  MtCO2-eq).  Among  the 
larger  emitters,  the  most  significant  increases  were  in  Indonesia  (+10%,  or  113  MtCO2-eq) 
and  India  (+5%,  or  189  MtCO2-eq),  while  China  showed  a  limited  increase  (+0.3%,  or  52 
MtCO2-eq).  
In  the  EU,  provisional  data10  for  2022  show  that  total  GHG  emissions  (excluding  land  use, 
land-use  change,  and  forestry,  and  international  aviation)  decreased  by  2.4%  compared  to 
2021,  continuing  the  30-years  descending  trend,  whilst  EU  GDP  grew  by  3.5%  in  the  year 
2022 (Figure 1.a). Emissions covered by the EU Emissions Trading System (EU ETS) fell by 
0.2% and non-ETS emissions decreased by 2.9%. 

Figure 1: EU GHG emissions (excluding land use, land-use change and forestry) and by sector11  

Figure 1.a 

Figure 1.b 

Exceptional  events  over  the  last  3  to  4  years  have  made  the  assessment  of  GHG  emission 
trends more complex and continue to have an impact on 2022 emissions. For more clarity, this 
report  therefore  assesses  the  year-on-year  change  in  emissions  and  compares  to  the  pre-
pandemic  level.  The  COVID-19  lockdowns  and  restrictions  led  to  an  unprecedented  but 
temporary drop in GHG  emissions of  8% in 2020.  In 2021, the economic recovery affected 
regions and  sectors  differently. Some sectors, such as the transport sector and  travel-related 
emissions, recovered fully only  in  2022. The energy  crisis that started in 2021  continued  in 
2022, exacerbated by Russia’s unprovoked and unjustified invasion of Ukraine, which drove 
energy prices to record highs, particularly gas prices. In addition, decreased level of nuclear12 

9 Fuel production, processing and refining 
10 The Governance Regulation ((EU) 2018/1999) requires Member States to report approximated GHG inventories annually 
by 31 July. Based on this reported data, the EEA compiles a Union approximated GHG inventory or, if a Member State has 
not  communicated  its  approximated  GHG  emissions  by  that  date,  on  the  basis  of  EEA’s  own  estimates.  This  provides  an 
early estimate of GHG emissions ahead of the full GHG inventory. 
11  Based  on  2023  GHG  inventory and  approximated  EU  GHG  inventory  for  2022,  based on  Member  States’  submissions, 
excluding international bunkers. Notes: (1) Energy sector refers to electricity and heat production and petroleum refining. (2)  
Industry includes fuel combustion in manufacturing and construction and emissions in industrial processes and product use. 
(3)  Buildings  include  emissions  from  energy  use  in  residential  and  tertiary  buildings,  and  energy  use  in  agriculture  and 
fishery sectors (1.A.4 GHG inventory code). 
12  Mainly  due  to  temporary  shutdown  of  several  nuclear  rectors  in  France  for  technical  maintenance  and/or  additional 
inspections. 

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and low hydro power  production13  have  led to an increase in the use of coal and lignite for 
power  generation,  above  the  level  recorded  in  2021.  The  high  energy  prices  also  triggered 
action to reduce demand for both industrial and household energy.  

EU emissions by sector show these changes (Figure 1.b). Emissions in energy and transport 
are expected to increase in 2022, although remaining below 2019 pre-pandemic levels, while 
significant  cuts  in  emissions  are  expected  in  buildings  and  industry,  mainly  because  of  the 
continued  increase  of  energy  prices.  Despite  the  slight  decline  in  2022,  emissions  in 
agriculture remain broadly at the same level as ten years ago. 

Provisional  2022  data  for  GHG  net  removals  from  the  Land  Use,  Land-use  Change  and 
Forestry (LULUCF) sector appear to suggest a break in their recent declining trend, with an 
expected increase in carbon sinks of 6% compared to 2021, although approximated emissions 
remain subject to large revisions. Consequently, in 2022 total net GHG emissions (including 
LULUCF) decreased by 3.0% on a yearly basis, a reduction of 32.5% compared to 1990 level. 

In  the  EU,  verified  emissions  from  aircraft  operators  increased  significantly,  by  75% 
compared  to  2021  as  the  industry  recovers  from  the  very  low  levels  of  activity  during  the 
COVID-19 pandemic.  

TOWARDS THE CLIMATE-NEUTRALITY OBJECTIVE 

In  addition  to  assessing  the  progress  made  in  climate  policy  under  the  Governance 
Regulation,14  for  the  first  time  this  year  this  report  assesses  progress  under  the  European 
Climate  Law,15  including  the  collective  progress  made  by  Member  States  towards  the  EU’s 
goal to achieve climate-neutrality by 2050.16 It looks at progress on several aspects and from 
several  sources  and  takes  account  of  the  complexity  inherent  in  the  many  possible  paths  to 
achieve a net-zero and resilient economy.  

Overall,  provisional  2022  data  show  that  the  EU’s  domestic  GHG  net  emissions  (i.e. 
including LULUCF and excluding international transport) are falling steadily, in line with the 
linear  path  to  achieve  the  EU’s  2030  GHG  reduction  target  (i.e.  -55%)  and  the  EU’s  2050 
climate neutrality  objective.17  However, the pace  of emission reduction needs to pick up, to 
almost  triple  the  average  annual  reduction  achieved  over  the  last  decade  (see  Figure  2.a). 
Relative  to  past  mitigation  efforts,  the  most  significant  cuts  in  emissions  are  needed  in 
buildings and transport, where the pace of decarbonisation is sluggish or even moving in the 
opposite direction. At the same time, action in the LULUCF  sector is essential  to  achieve a 
significant  boost  in  carbon  removals.  Although  reaching  the  emissions  cuts  required  from 
agriculture looks achievable when looking at progress over the past three decades, the lack of 
substantial progress in recent years is a concern, calling for a gear change (Figure 3.b). 

13 Partly due to drought and high water temperatures in many parts of the EU. 
14 Articles 29 and 35 of the Regulation on the Governance of the Energy Union and Climate Action (Reg. (EU) 2018/1999). 
15 Articles 6 to 8 of the European Climate Law (EUR-Lex - 32021R1119 - EN - EUR-Lex (europa.eu)). 
16  The  EU  climate-neutrality  objective,  set  out  in  Article  2(1)  of  Regulation  (EU)  2021/1119,  is  achieved  when  EU-wide 
GHG emissions and removals regulated in EU law are balanced within the EU at the latest by 2050, reducing emissions to net 
zero. The EU shall aim to achieve negative emissions thereafter. 
17  The EU  2030 target  as  represented  in  the  chart  and  the  related progress  assessments  does  not  fully  align  with  the  exact 
legal scope of the 2030 target, which includes all emissions and removals regulated under EU law. While the EU ETS covers 
emissions  from  all  flights  within  the  European  Economic  Area  (EEA)  and  departures  to  Switzerland  and  to  the  UK,  these 
emissions (less than 2% of total GHG emissions) are not taken into account in this assessment. More information on ETS 
aviation emissions in chapter 2.  

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Although sizeable, such  emission  reductions  are  not unprecedented.  In  the two years before 
the  pandemic,  emissions  were  down  by  an  annual  average  of  120  million  tonnes  of  CO2 
equivalent,  due  to  progress  in  energy  efficiency  and  the  fast  deployment  of  renewables.  In 
2022,  all  actors  in  the  EU,  including  energy  intensive  industry,  decreased  their  demand  for 
energy compared to pre-pandemic levels, with savings of more than 18% of gas compared to 
the five years before.18 

Figure 2: EU GHG net emissions, targets and aggregated Member States’ projections19 

Figure 2.a 

Figure 2.b 

The  energy  crisis  also  sparked  unprecedented  momentum  for  renewable  energy.  In  2022,  a 
record  high  of  around  60  GW  of  wind  and  solar  were  installed  in  the  EU20  and  heat  pump 
market broke a  new  record, with around 3  million  units (+37%) sold.21 Despite  a continued 
contraction in  car  markets and higher  manufacturing costs,  the share of electric cars sold  in 
Europe reached 21.6% in 2022, while the availability of publicly accessible chargers surged 
by more than 50% compared to 2021.22 

To hold this course, however, action by EU Member States is essential. On 15 March 2023, 
Member States updated their GHG projections and for the first time took stock of the progress 
achieved  towards  the  objectives,  targets  and  contributions  set  out  in  their  initial  integrated 

18 5-year average compared to gas consumption between August 2022 and June 2023 (State of Energy Union Report 2023). 
19 Based on the 2023 GHG inventory and approximated EU GHG inventory for 2022, based on Member States’ submissions, 
excluding  international  bunkers.  Linear  trajectories  for  GHG  emissions  and  removals  are  based  on  legislated  EU  2030 
targets. The -55% 2030 target (European Climate Law) considers a contribution of removals limited to -225 MtCO2eq. The 
national GHG targets are from Member States’ submissions of NECP progress report (Annex I, Table 1).  Any missing data 
are replaced by other targets or milestones that Member States submitted to the Commission under other reporting exercise 
(i.e. national long-term strategies,  integrated national energy and climate plans, or the 2021 GHG  projections). The annual 
average emission reduction after 2030 is based on a linear trajectory to EU climate neutrality. This is without prejudice to the 
pace required by the new 2040 target the Commission will propose in accordance with the Climate Law. 
20 Annual EU solar power growth increased by 47% from 28.1 GW in 2021. The new added capacity of 41.4 GW of solar 
power in 2022 is equivalent to the power needs of 12.4 million European homes. New report reveals EU solar power soars by 
almost 50% in 2022 - SolarPower Europe. New wind energy capacity in 2022 amounted to around 16 GW, up 40% on 2021. 
The EU built only 16 GW new wind in 2022: must restore investor confidence and ramp up supply chain | WindEurope. 
21 European Heat Pump Association, based on 21 markets, the number of heat pumps sold in 2022 replaced roughly 4 bcm of 
natural gas, avoiding about 8 million tonnes of CO2 emissions. Market data – European Heat Pump Association (ehpa.org) 
22 Global EV Outlook 2023 (IEA). 

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National Energy and Climate Plans (NECP). The existing NECPs reflect past targets, before 
the EU raised its climate ambition under the European Green Deal. This assessment also feeds 
into the important process of updating the integrated NECPs by the Member States, which is 
now underway. 

Figure 3: EU GHG emissions and removals by sector, past trends and required reductions23 

Figure 3.a 

Figure 3.b 

In the 2023 NECP progress reports, over half the Member States set the objective to achieve 
climate neutrality by 2050 or earlier, in line with their national long-term strategies. Most of 
the Member States have also indicated quantitative national GHG targets up to 2050.24 Once 
aggregated for the EU-27,  the  national GHG targets reported by  Member States at  different 
reporting exercises25 indicate some gaps to the EU legislated objectives (i.e. a gap of around 
3% to the -55% net GHG reduction target by 2030 and of 8% to the net-zero GHG emissions 
by  2050),  although  they  reflect  the  will  to  meet  the  objectives  set  at  EU  level  (see  Figure 
2.b).26  

Member  States’  GHG  emission  projections  provide  additional  indications  of  the  expected 
evolution  of  EU  GHG  emissions.  The  latest  projections  submitted  in  March  2023  give  a 
clearer measure of the risk of the EU missing its climate targets. Taking account of existing 
policy measures, aggregated projections at EU level indicate a gap of 15 percentage points to 
the EU 2030 GHG reduction target of 55%, and a narrower gap of 5 percentage points when 
factoring  in  additional  policy  measures  (Figure  2.b).  EU  Member  States  still  need  to  take 

23 Based on the 2023 GHG inventory and model-based outcomes of core policy scenario supporting the initiatives delivering 
the European Green Deal. Negative values for the LULUCF sector indicate an increase of GHG removals. Notes: (1) Energy 
sector  refers  to  electricity  and  heat  production  and  petroleum  refining.  (2)  Industry  includes  fuel  combustion  in 
manufacturing and construction and emissions in industrial processes and product use. (3) Buildings include emissions from 
energy  use  in  residential  and  tertiary  buildings.  (4)  Agriculture  includes  both  non-CO2  emissions  and  emissions  from  the 
energy use in agriculture and fishery sectors. 
24 As reported under Annex I, Table 1 of Commission Implementing Regulation (EU) 2022/2299 of 15 November 2022. See 
SWD on the Assessment of progress towards the objectives of the Energy Union and Climate Action accompanying the State 
of the Energy Union 2023. 
25 Missing NECPR values were replaced by national GHG targets submitted by Member States to the Commission in the past 
(e.g. for the 2021 NECP or long-term strategies), when available. As targets might be expressed in different global warming 
potential (i.e. AR4 or AR5), these values are indicative only.  
26 International maritime and aviation emissions could widen these gaps once included in the scope of EU climate targets. 

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additional  mitigation  measures  to  achieve  climate  neutrality  by  2050  to  cut  around  1 600 
million tonnes of CO2 equivalent (or 34 percentage points). 

EU  Member  States  have  also  reported  progress  on  more  than  3000  individual  policies  and 
measures  (PaMs),  the  large  majority  specifically  aiming  to  reduce  GHG  emissions  and 
increase carbon removals. Of the measures specifically addressing decarbonisation, around a 
third  are  newly  implemented  (i.e.  from  2022  or  later).  The  number  of  measures  for  climate 
mitigation  reported  in  2023  is  19%  higher  than  in  the  previous  reporting  cycle.  This  is 
consistent with the EU’s higher climate ambition and reflects the work to prepare the updated 
national energy and climate plans, with the final plans due by June 2024.27 

Figure 4: Number of single policies and measures (decarbonisation dimension) by affected 
sector and aggregated reported expected emission savings and increase net removals28  

Figure 4.a 

Figure 4.b 

The  sectors  with  the  most  measures  are  transport  (23%),  energy  consumption  (22%),  and 
energy  supply  (21%),  partly  reflecting  the  sectoral  challenges  and  priorities  (Figure  4.a). 
Information on the expected (ex-ante) emissions savings from these measures is important to 
assess  expected  progress  from  the  planned  and  implemented  measures.  Unfortunately,  in 
2023, only 18 Member States reported quantitative ex ante savings for at least one year and 
one  measure.  This  is  lower  than  in  2021,  making  the  aggregate  assessment  particularly 
difficult  (Figure  4.b).  It  again  highlights  the  need  for  Member  States  to  step  up  action  to 
assess the effects of implemented policies more systematically, both ex ante and ex post. 

In  conclusion,  although  GHG  emissions  continue  to  fall,  as  shown  by  the  most  recent  data, 
and there are  encouraging signs of  action on the  ground, progress  towards the  EU's  climate 
objectives appears insufficient. Action is most needed in areas where: 

•  emission reductions still required are significant (buildings, transport),  

• 

recent progress made is too slow (agriculture),  

27 Updated NECPs should reflect necessary increased ambition from the Fit for 55 package, the REPowerEU initiative  and 
energy crisis measures adopted by the EU in the last year, given guidance issued by the European Commission in December 
2022 on the update of NECPs, and pending in-depth review of the Governance Regulation. 
28  Values  based on  Annex  IX  to  the  NECP progress  reports  submitted  by Member  States,  as of  31  August 2023.  Member 
States could indicate more than one sector. This explains why the sum of measures across all affected sectors is higher than 
the current total number of individual measures. 

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• 

figures  have  not  evolved  in  the  right  direction  (land  use,  land-use  change,  and 
forestry).  

The assessment shows that to get on a safer – more certain – path towards climate neutrality 
by 2050, the EU and its Member States need to significantly increase the pace of change. The 
Fit-for-55 legislative package must be adopted fully, and all parts rapidly implemented. More 
detailed  monitoring  is  needed  to  assess  progress  on  enabling  factors  that  drive  emissions  in 
the  different  sectors  to  better  highlight  areas  where  progress  is  lacking  or  more  action  is 
needed. 

PROGRESS ON CLIMATE ACTION IN THE EU  

The  “Fit  for  55”  package  sets  the  EU  on  a  path  to  reach  its  climate  targets  in  a  fair,  cost-
effective and competitive way. Most of the key proposals in the package have been adopted 
by  co-legislators29  and  EU  policies  are  now  aligned  with  the  updated  2030  target  set  in  the 
European Climate Law. Implementing the new legislation under the Fit for 55 package30 will 
enable the EU and its Member States to reduce net GHG emissions by at least 55% compared 
to 1990 levels by 203031(see Ch. 1 of the staff working document – ‘Technical information’). 

The  revised  EU  ETS  Directive  increases  the  level  of  ambition  in  the  existing  system  from 
43% to 62% emissions reductions by 2030, compared to 2005 levels and extend the system to 
also apply to international maritime transport. A separate carbon pricing system will apply to 
fuel  combustion  in  road  transport  and  buildings  and  small-emitting  sectors32  (ETS2)  with  a 
42%  emission  reduction  target  compared  to  2005  across  the  sectors  covered.  The  amended 
Effort Sharing Regulation (ESR) increased, for the sectors that it covers, the EU-level GHG 
emission reduction target from 29% to 40% by 2030, compared to 2005, which translates in 
updated  2030  targets  for  each  Member  State.  The  new  LULUCF  Regulation  sets  an  overall 
EU-level objective of 310 Mt CO2 equivalent of net removals in the LULUCF sector in 2030.  

To ensure a just transition towards climate-neutrality, the EU created a new fund, the Social 
Climate Fund, to accompany the new ETS2, which will address the impacts of carbon pricing 
in new sectors and provide support for vulnerable households, micro-enterprises and transport 
users.  Together  with  the  Just  Transition  Fund  supporting  the  territories  most  affected  by 
the transition  (see  chapter  6),  they  will  ensure  that  no-one  is  left  behind.  Empowerment  of 
energy consumers is also enhanced by the latest legislative initiatives related to the electricity 
market. Under the Net Zero Industry Act (NZIA), the Commission will support the setting up 
of specialised academies for up-skilling and re-skilling. 

In  2022  and  2023,  the  Commission  made  additional  proposals  to  speed  up  the  transition  to 
climate neutrality. For example, the legislators reached a provisional agreement on the revised 
Fluorinated  greenhouse  gases  (F-gases)  Regulation  which  will  further  reduce  the  emissions 
from  those  highly  potent  GHGs.  The  Commission  proposed  more  ambitious  emissions 
reductions  targets  for  heavy-duty  vehicles.  The  Commission  also  put  forward  the 

29  This  includes  the  revised  EU  ETS  Directive,  a  new  ETS  for  buildings,  road  transport  and  fuels,  the  Market  Stability 
Reserve,  the  Effort  Sharing  Regulation,  CO2  standards  for  cars  and  vans,  the  Land  Use,  Land  Use  Change  and  Forestry 
Regulation, the Carbon Border Adjustment Mechanism, the establishment of the Social Climate Fund, FuelEU Maritime, the 
Alternative Fuel Infrastructure Regulation (AFIR), ReFuel EU Aviation, the Energy Efficiency Directive and the Renewable 
Energy Directive. Only the proposed revised energy taxation directive is still pending agreement. 
30 Cf. Chapter 2 of the staff working document – ‘Technical information’. 
31 The legislation as adopted is estimated to result in a net domestic reduction of GHG emissions of 57% by 2030 compared 
to 1990. An overview of targets is presented in Chapter 1 of the staff working document – ‘Technical information’.  
32 CO2 emissions from fuel combustion in industry not covered by the existing EU ETS. 

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REPowerEU plan with specific measures to reduce the EU’s energy dependence on Russian 
fossil fuels, and  to  speed up  implementation of  the European  Green Deal with new  actions, 
while building on the Fit for 55 package. To enhance the competitiveness of Europe's net-zero 
industry  and  to  boost  innovation,  in  particular  in  green  technologies,  the  Commission  put 
forward a Green Deal Industrial Plan. Chapter 2 of the staff working document – ‘Technical 
information’ presents an overview of recently adopted policy contributing to the alignment of 
EU level policies with climate objectives. 

In November 2021, the Commission updated its Better Regulation instruments to ensure that 
new EU policies are consistent with climate goals. All proposed EU measures should now be 
assessed for their consistency with climate objectives- the climate neutrality objective and the 
objective to ensure progress on adaptation- as part of the impact assessment process, in line 
with  the  European  Climate  Law  (the  climate-consistency  check).  Good  progress  has  been 
made  in  implementing  this  check.  Since  the  beginning  of  2022,  out  of  the  27  impact 
assessments deemed relevant for this assessment (out of 57 impact assessments scrutinised by 
the Regulatory Scrutiny Board33), 20 were found to have sufficiently assessed consistency of 
the initiative  with climate objectives, while 7 impact  assessments  did  not  sufficiently assess 
climate aspects. This represents almost 75% of relevant cases and reflects the fact that it is a 
new  requirement.  With  more  experience  in  implementing  the  climate  consistency  check, 
compliance with this new impact assessment requirement could be further improved. 

While good progress has been made to ensure that EU policies put the EU on a path towards a 
net zero economy, the recent emissions trends in the transport sector and the very slow pace 
of emissions reductions in agriculture, along with a decline of the carbon sink, raise concerns 
(see  Chapters  3  and  4).  Despite  progress  on  green  finance  from  private  sources,  significant 
additional investment is needed to finance the green transition. This needs action, in particular 
to redirect finance to enable the transition of ‘brown’ sectors (see Chapter 6).  

As required by the European Climate Law, the Commission will publish a communication on 
the  EU’s  climate  target  for  2040  in  early  2024,  setting  a  path  from  the  already-agreed 
intermediate  2030  target  to  net-zero  emissions  by  2050.  This  will  provide  the  information 
needed to ensure that measures and investments to implement the EU’s 2030 targets are also 
well  aligned  with  the  pathways  to  climate  neutrality  by  2050.  The  2040  target  will  provide 
predictability and keep progress on track to climate neutrality. 

Climate change is already impacting nature and  people more intensely, more frequently and 
over  a  wider  geographical  area  than  previously  thought.34  Progress  is  being  made  in  the 
assessment  of  climate  risks.  In  spring  2024,  the  Commission  will  respond  to  the  evidence 
provided in a scientific European Climate Risk Assessment report on the evolution of climate 
risks  and  the  need  for  further  action  in  a  communication  on  managing  EU  climate  risks.  In 
parallel,  wide-ranging  action  is  underway  to  implement  the  other  aspects  of  the  EU’s  2021 
adaptation strategy (see Chapter 5).  

PROGRESS ON CLIMATE ACTION IN THE EU MEMBER STATES 

The next chapters of the report will assess the progress made by the Member States in specific 
policy areas. This section gives a bird’s eye view of GHG emissions trends towards climate 
mitigation objectives, including the EU’s objective to achieve climate neutrality by 2050, and 

33 Impact assessment submitted for the first time to the Regulatory Scrutiny Board between January 2022 and April 2023 and 
for which an interservice consultation was launched by 23/05/2023. 
34 IPCC Sixth Assessment Report, Impacts, Adaptation and Vulnerability, February 2022. 

8 

 
 
 
builds  on  the  detailed  analysis  provided  in  Chapter  5  of  the  staff  working  document  – 
‘Technical information’. 

Over  the  last  three  decades,  the  EU  has  substantially  reduced  its  GHG  emissions, 
overachieving  its  2020  commitment  under  the  UNFCCC35  and  its  target  under  the  Kyoto 
Protocol’s second commitment period in 2013-2020 (KP2).36 Total GHG emissions under the 
UNFCCC (excluding LULUCF and including international aviation) fell by 34% in the EU-
27 + UK compared to 1990. This is a reduction of 1.94 billion tonnes of CO2-eq by 2020. (For 
more details see Chapter 4 of the staff working document – ‘Technical information’).  

However, in the most recent years, progress across Member States has been mixed. Between 
2015 and 2022, net GHG emissions have been rising in Latvia, Finland, and Lithuania, and, to 
a lesser extent, in Cyprus, Poland, Malta, Estonia, and Ireland. GHG emissions were reduced 
but only slowly in Czechia, Italy, Hungary, Croatia, France, and Denmark. The reasons vary 
by country. In Finland, Latvia and Estonia the upward emissions trend is mainly related to the 
sharp decline of the capacity of the land use, land-use change and forestry sector to act as a 
carbon  sink,  while  for  Lithuania,  transport  and  building  also  contribute  to  the  increase  in 
emissions.  Transport  emissions  increased  in  Hungary,  Malta  and  Poland,  while  in  Ireland 
emissions in agriculture continued to grow.  

Since 2005, there has been a clear downward trend in GHG emissions per capita and in the 
GHG  intensity  of  GDP  in  all  EU  Member  States  except  Latvia  (Figure  5).  More  rapid 
progress by countries with higher emitting ratios has led to significant convergence towards 
the EU average. However, between 2015 and 2022, the downward converging trend seems to 
have halted for most EU Member States.  

Figure 5: GHG intensity of GDP and GHG emissions per capita by EU Member States 

35  Under  the  UNFCCC,  the  EU  and  its  Member  States  (including  the  UK)  committed  to  a  joint,  economy-wide  target  to 
reduce GHG emissions by 20% compared to 1990 levels by 2020 (‘the Cancun pledge’). 
36  Under  the  Kyoto  Protocol’s  second  commitment  period  in  2013-2020,  the  EU,  its  Member  States,  the  UK  and  Iceland 
committed jointly to reducing GHG emissions by 20% on average in comparison to 1990. 

9 

 
 
 
 
Information  on  the  expected  impact  of  current  and  additional  policies  on  GHG  emissions 
submitted by Member States can be used to gain insights into the progress they are making, or 
are  expecting  to  make,  towards  the  EU’s  climate  objectives.  By  2030,  based  on  the  GHG 
projections  submitted  by  EU  Member  States  in  March  2023,  six  countries  (Poland,  Ireland, 
Estonia,  Czechia,  Luxembourg,  and  Latvia)  expect  emissions  per  capita  to  be  significantly 
higher than 5 tonnes of CO2-eq, which is the average EU GHG per capita broadly consistent 
with  the  EU  -55%  target.37  On  the  climate-neutrality  objective,  all  Member  States  except 
Finland, Portugal, Slovenia and Sweden still project sizeable net GHG emissions in 2050 even 
taking  into  account  current  and  additional  policies  (see  Table  6,  in  Chapter  5  of  the  staff 
working document – ‘Technical information’), despite the fact that almost all have declared a 
climate-neutrality goal by 2050, or earlier. 
Trajectories  are  also  important.  Figure  6  compares  projected  emissions38  between  2022  and 
2050  for  each  Member  State  with  a  benchmark  trajectory,  built  as  the  median  of  the  seven 
climate neutrality paths that form the basis of the advice of the European Scientific Advisory 
Board on Climate Change on the 2040 ambition.39 The EU-level emissions of the median path 
were then distributed across Member States according to the country’s share of EU emissions 
in the core policy scenario used for the European Green Deal initiatives.40  

Figure 6: Overshoot of projected GHG emissions against an indicative path to climate neutrality 
by 2050 (in % of benchmark emissions, total emissions excluding LULUCF)  

Figure  6  shows  stark  differences  in  progress  towards  climate  neutrality  across  the  EU’s 
members. Factoring in existing measures41 (WEM, the yellow bars), between 2022 and 2050, 

37  Net  GHG  emissions  consistent  with  EU  2030  target  (around  2100  MtCO2eq),  divided  by  the  latest  Eurostat  population 
projections for EU-27 by 2030 (around 550 million EU residents), is equal to 4.7 tonnes of CO2eq per capita.  
38 Excluding LULUCF emissions and removals.  
39 Scientific advice for the determination of an EU-wide 2040 climate target and a GHG budget for 2030–2050 (europa.eu) 
40  Policy  scenarios  for  delivering  the  European  Green  Deal  (europa.eu).  After  2030,  the  distribution  key  has  been  kept 
constant.  
41  Projections  ‘with  existing  measures’  (i.e.  WEM)  encompass  the  effects,  in  GHG  emissions,  of  policies  and  measures 
adopted and implemented. 

10 

 
 
 
 
 
Slovakia, Poland and Malta expect to emit more than twice the emissions of the benchmark 
path to climate neutrality. A further 15 Member States project their cumulative emissions to 
overshoot the climate-neutrality benchmark by more than 50% without additional policies.42 
When  factoring  in  the  impact  of  additional  policy  measures43  (WAM,  the  blue  bars)  the 
overshoots decrease, although the gaps remain significant (above 50%) for Slovakia, Poland, 
Croatia, Romania and Bulgaria.44 

Similar  results  are  produced  when  taking  a  linear  trajectory  as  the  indicative  benchmark. 
Here,  the  largest  overshoots  are  for  Malta,  Italy,  Greece,  Austria  and  Hungary  under  the 
WEM scenario, and for Poland, Romania, Bulgaria, and Croatia under both WEM and WAM 
scenarios (see Table 6, Chapter 5 of the staff working document – ‘Technical information’).45 

These analyses based on Member States’ GHG emission projections reflect different levels of 
ambition and implementation, but also the completeness and quality of data submitted. By the 
end of April 2023, more than a month after the official deadline, only 20 Member States had 
submitted their projections via the e-platform. Late submissions undermine the quality control 
and  follow-up  process  of  resubmissions.  In  addition,  although  not  being  mandatory,  nine 
Member States46 did not submit projections with additional measures, which were then gap-
filled with projections using the ‘existing measures’ scenario, and for Belgium’s projections 
that  lacked  information  beyond  2030,  2021  GHG  projections  were  used.  The  Commission 
therefore urges Member States to improve their emissions projections and support analytical 
capacity and tools. Projections are an important guide for decarbonisation, to assess progress 
towards the climate-neutrality objective and to support sound policy design and decisions. 

In 2023, all Member States reported progress on policies and measures. Although the number 
of measures has increased, there are still significant differences among Member States in the 
number  of  reported  measures.  Belgium,  Spain,  Luxembourg,  and  France  reported  the  most 
measures and Bulgaria, Austria, Greece and Malta the least (Figure 7).47  

Compared  to  the  previous  reporting  exercise  (2021),  the  greatest  increase  in  reported 
measures  is  in  Cyprus  and  Luxembourg,  followed  by  Spain,  Portugal,  Finland,  Italy,  and 
Estonia. Bulgaria, Austria and Malta reported a significant decrease. At the same time, more 
than a third of measures reported by Lithuania, Estonia, Croatia, Ireland, and Bulgaria appear 
to  be  new  (in  place  as  of  2022  or  later).  In  terms  of  the  affected  sectors  (Figure  7.b),  the 
relative  high  share  of  policies  and  measures  affecting  agriculture  and  LULUCF  sectors  in 
Latvia and Finland should be noted, given recent trends in these sectors, although the reported 
expected emission savings are not significant.48 

42 ES, SL, HR, RO, IT, BG, LU, IE, EL, AT, HU, BE, FR, PT and CY. 
43  Projections  ‘with  additional  measures’  (i.e.  WAM)  encompass  the  effects,  in  GHG  emission  reductions,  of  policies  and 
measures adopted and implemented, as well as policies and measures that are planned (e.g. measures under discussion having 
a realistic chance of being adopted and implemented after the date of submission of the national plan). 
44 Only 18 Member States have submitted their GHG emission projections under the ‘with additional measure’ scenario. 
45  The  metric  compares  cumulative  projected  net  GHG  emissions  (including  LULUCF)  with  cumulative  emissions 
underlying a linear trajectory from the 2021 net GHG emissions levels of each Member States to climate-neutrality by 2050. 
46 CY, DK, FR, EL, IT, MT, AT, HU, and SE.  
47 The number of reported PaMs could reflect the granularity of reported policies and measures. For example, both Belgium 
and France report their PaMs at a highly disaggregated level (e.g. many regional policies and measures are reported), while 
other Member States report their PaMs in a more aggregated level. Values are those available on 31/08/ 2023. 
48 Annex IX of Commission Implementing Regulation (EU) 2022/2299 of 15 November 2022). For more, see the  SWD on 
the  assessment  of  progress  towards  the  objectives  of  the  energy  Union  and  climate  action  accompanying  the  State  of  the 
Energy Union 2023. 

11 

 
 
 
 
Figure 7: Number of single policies and measures reported by Member States: status of 
implementation and affected sectors49  

Figure 7.a 

Figure 7.b 

The EU 2030 climate target and the EU climate-neutrality objective by 2050 require ending 
subsidies for fossil fuels, creating favourable conditions for energy efficiency and renewable 
energy  and  focusing  on  the  needs  of  the  vulnerable  for  a  just  energy  transition.  Total  fossil 
fuel subsidies had remained stable or slightly decreased for a number of years, reaching EUR 
56  billion  in  2021,  but  have  surged  recently  due  to  measures  to  cushion  the  impact  of  the 
energy crisis. The Commission estimates that fossil fuel subsidies in 2022 more than doubled 
compared  to  2021,  reaching  EUR  122  billion.  Member  States  must  accelerate  action  to  end 
fossil fuel subsidies.50  

Overall, the level of progress by Member States in recent years falls significantly short of the 
effort  required  over  the  coming  decades  to  meet  both  the  medium  and  the  long-term  EU 
climate targets. Member States should rapidly accelerate action by making tangible progress 
on planned policies and by taking additional, urgent measures in line with the country-specific 
recommendations issued in the European Semester process of economic policy coordination. 
Several Member States also face sectoral challenges and weaknesses that need to be remedied 
without further delay. 

In particular based on the available information, the level of progress towards the EU climate-
neutrality objective appears insufficient for Poland, Ireland, Latvia, Malta, and Croatia, and, 
to a lesser extent, for Austria, Estonia, Czechia, Cyprus, Italy and Romania.  

However, this current assessment does not reflect the more ambitious climate intentions that 
Member States should include in their revised national energy and climate plans (NECPs). By 

49 Values based on Annex IX of NECP progress reports submitted by Member States, by 15/08/2023. Member States could 
indicate more than one affected sector, so the sum of PaMs across all affected sectors can be higher than the total number of 
single PaMs with a decarbonisation dimension. 
50 2023 Report on Energy Subsidies in the EU, annexed to the 2023 State of Energy Union Report. 

12 

 
 
 
 
 
 
30 June 2023, Member States had to submit their draft updated NECPs to the Commission.51 
The draft NECPs should contain the policies and measures that each Member State envisages 
to meet their climate and energy targets. The Commission is in the process of assessing the 
draft  NECPs  and  will  issue  recommendations  to  the  Member  States  by  the  end  of  the  year. 
Member  States  are  encouraged  to  take  these  recommendations  into  account  in  their  final 
updated  NECPs  due  by  30 June 2024.  The  Commission  urges  Member  States  to  seize  the 
opportunity  of  updating  their  NECPs  to  plan  additional  measures,  to  align  the  expected 
emissions with the EU’s higher level of ambition on climate policy.  

Large-scale, long-term projects need to be supported by reliable strategies. Member States are 
therefore encouraged to  consider updating and, where needed, to increase both the ambition 
and the quality of their national long-term strategies. Given the scale of the challenges ahead, 
the  Commission  will  consider  issuing  recommendations  under  Article  7(2)  of  the  Climate 
Law, together with recommendations on the draft NECP updates. 

51 By 6 October 2023, 16 Member States had submitted draft updated NECPs. 6 Member States foresee a higher ambition in 
their draft NECPs compared to their reported projections in March 2023. 

13 

 
 
 
 
 
 
2  THE EU EMISSIONS TRADING SYSTEM 

The  EU  Emissions  Trading  System  (EU  ETS)  is  a  cornerstone  of  EU’s  climate  action.  It 
covers  around  36%  of  EU’s  total  GHG  emissions,  from  the  electricity  and  heat  generation, 
manufacturing industry and aviation within Europe.52 By setting a cap on the total emissions, 
the  system  ensures  that  these  emissions  decrease  over  time.  Within  the  cap,  allowances  are 
distributed  primarily  via  auctioning,  which  raises  revenues  for  Member  States’  budgets  to 
support climate action and energy transformation. With the allowance price determined by the 
market, the ETS incentivises cost-effective emission reductions.  

By 2022, the EU ETS had helped drive down emissions from power and industry installations 
by  37.3%  compared  to  2005  levels.  These  emission  reductions  have  been  largely  driven  by 
the  energy  sector  -  a  switch  from  coal  to  gas  and  an  increased  deployment  of  renewable 
energy sources. Latest emission trends in the EU ETS, however, also reflect the impacts of the 
COVID-19 pandemic and the energy crisis (see Emission Trends).  

In  parallel,  the  EU  ETS  has  raised  over  EUR  152  billion  in  auction  revenues  that  Member 
States have largely used to support projects in renewable energy, energy efficiency and low-
emission transport. In the wake of the energy crisis, Member States have also used their ETS 
revenues to address negative impacts on consumers and industries. 

The  revision  of  the  EU  ETS  under  the  Fit  for  55  package  will  help  bring  down  emissions 
faster and across more sectors. The European Parliament and Member States in the Council 
agreed  to  tighten  the  cap  on  emissions  whilst  extending  the  system  to  emissions  from 
maritime  transport  (see  Action  in  aviation  and  maritime  transport).  A  reduction  in  free 
allocation will help step up emission reductions across manufacturing industry and aviation. 
At  the  same  time,  more  resources  are  leveraged  to  support  decarbonisation  in  ETS  sectors. 
The revision commits Member States to using all ETS revenues (or an equivalent thereof) for 
climate action, energy transformation and addressing social challenges of carbon pricing, and 
also  increases  the  sizes  of  the  Innovation  and  Modernisation  Funds  (see  Ch.  2  of  the  staff 
working document – ‘Technical information’ for more details).  

The revision of the EU ETS entered into force on 5 June 2023 with most changes taking effect 
from  1  January  2024.  Work  on  the  implementing  legislation  is  ongoing.  More  on  the 
functioning of the EU ETS in 2022 is available in the Carbon Market Report 2023. 

EMISSION TRENDS 

In 2022, overall EU ETS emissions decreased by 0.2% compared to the previous year.53 This 
reflects a slight decrease in emissions from power and industry installations and a continued 
rebound  in  emissions  from  aviation  after  the  COVID-19  pandemic.  Looking  to  before 
COVID-19,  however,  emissions  have  remained  on  the  decline.  In  2022,  emissions  were 
around 8% lower than in 2019. 

The EU’s economic recovery continued in 2022, with GDP growing 3.5%. Even so, emissions 
from the energy sector and manufacturing decreased slightly by 1.8% compared to 2021. This 
is in part due to the energy crisis and its impacts. On the one hand, natural gas supply became 
restricted, and higher natural gas prices caused an increase in coal use for power generation. 

52 Including departing flights to Switzerland and the United Kingdom.  
53 Based on data from the EU Registry as of 30 June 2023.  

14 

 
 
 
On the other hand, the energy crisis contributed to an increase in inflation and a reduction in 
industrial demand. 

Electricity and heat generation – a slight increase in emissions 

Emissions  from  electricity  and  heat  generation  in  2022  rose  by  2.4%  compared  to  2021. 
Although  electricity  and  heat  demand  decreased  due  to  higher  energy  prices  and  milder 
weather,  sectoral  emissions  increased  due  to  a  switch  back  from  gas  to  coal  for  energy 
generation.  The  switch  was  prompted  by  both  high  prices  of  natural  gas,  and  droughts  in 
many parts of the EU which reduced output of nuclear and hydro power. 

Industry – a net decline in emissions 

Manufacturing  industry  saw  a  reduction  of  emissions  of  6.5%  in  2022  compared  to  2021. 
With  higher  energy  prices  leading  to  reduced  output,  sectors  such  as  cement,  iron  and  steel 
and chemicals reported significant emissions reductions in 2022. At the same time, emissions 
in  the  oil  and  gas-producing  sectors  rose,  as  refineries  increased  output  to  profit  from 
increased fossil fuel prices. 

Aviation – emissions continue to rebound 

In  the  EU,  verified  emissions  from  aircraft  operators  increased  significantly,  by  75% 
compared  to  2021.  This  reflects  a  continued  rebound  of  air  traffic  from  the  COVID-19 
pandemic but is still almost 27% lower than in 2019.  

Figure 8: Verified ETS emissions 2005-2022, Member States projections with existing measures 
2021-2030, ETS cap phases 2, 3 and 4, and accumulated surplus of ETS allowances 2008-2021 
including UK (Northern Ireland), Norway and Iceland NB: adjust for cap phase 4.54 

54  Emissions  cap  in  the  EU  ETS  (considering  the  2023  revision  of  the  ETS  Directive,  i.e.  rebasing  in  2024  and  2026, 
inclusion  of  the  maritime  transport  sector  in  2024,  and  the  linear  reduction  factor  of  4.3%  in  2024-27  and  of  4.4%  from 
2028),  compared  with  verified  emissions.  Aviation  is  not  included.  Due  to  scope  changes,  2005-7  figures  are  not  directly 
comparable to the latest. Legend: bars (cap), light shade bars in 2014-16 (allowances backloaded in phase 3), light shade bars 
since 2019 (feeds of allowances to the Market Stability Reserve), dash line (verified emissions). 

15 

 
 
 
 
 
REVENUES RAISED BY THE EU ETS 

The EU ETS generates substantial revenues from the sale of allowances that can be used for 
climate action (see Chapter 6). 

As the carbon price increased during 2022, so did ETS auction revenue, amounting to some 
EUR  38.8  billion  in  total,  7.7  billion  more  than  in  2021  (Figure  9).55  Of  these  EUR  38.8 
billion, EUR 29.7 billion went directly to the 27 Member States. They reported that in 2022 
an average of 76% of revenues was spent for climate and energy purposes,56 the same as in 
2021 and in line with an average of 75% over the 2013-2020 period. About 25% of Member 
State  revenues  are  earmarked  for  specific  climate  and  energy  actions,  27%  went  into 
dedicated environmental funds and 48% went to national budgets. More information can  be 
found in the staff working document – ‘Technical information’. 

Figure 9: Auctioning revenues received by EU Member States and report usage (2013-2022) 

Since  2021  several  Member  States  use  part  of  their  auction  revenue  to  cushion  the  social 
impact of the energy price crisis.  

ACTION IN AVIATION AND MARITIME TRANSPORT 

Maritime 

Maritime  transport  is  a  substantial  CO2  emitter,  generating  around  3-4%  of  total  EU  CO2 
emissions. In 2022, emissions, as collected under the Monitoring, Reporting and Verification 
Regulation57,  increased  by  7%  compared  to  the  previous  year,  as  the  sector  recovered  from 
the COVID-19 pandemic downturn. In May 2023, as part of the revised EU ETS Directive, 
the  EU  Maritime  MRV  Regulation  was  amended  to  extend  its  scope  to  cover  non-CO2 
emissions (CH4 and  N2O)  as  well as  new  ship types and sizes. The  EU  ETS will therefore 
cover CO2 emissions from large ships calling at EU ports as of 2024 and non-CO2 emissions 
as of 2026. At international level, the EU successfully supported the increase in ambition of 

55 EU-27 + EEA countries + Northern Ireland + Innovation Fund + Modernisation Fund.  
56 The remaining 24% is not necessarily spent on other purposes. Part will be spent in later years or go to general budget used 
for multiple purposes, including climate change and energy.  
57 Regulation (EU) 2015/757. 

16 

 
 
 
  
 
 
the 2018 International Maritime Organization greenhouse gas reduction strategy. The revised 
strategy, agreed in July 2023, sets a goal of net zero emissions from ships “by or around, i.e. 
close to, 2050” and  indicative checkpoints  set at reducing GHG emissions from ships  by  at 
least 20% - striving for 30% - in 2030 and at least 70% - striving for 80% - in 2040, both in 
comparison to 2008 levels. 

Aviation  

The overall climate impact of aviation is currently two to four times higher than the effect of 
its  past  CO2  emissions  alone,  with  non-CO2  accounting  for  66%  of  the  aviation  climate 
impact. There is no monitoring yet by Member States of aviation non-CO2 emissions. From 
1st January 2025, the revised ETS Directive tasks aircraft operators to monitor and report the 
non-CO2 effects per flight on a yearly basis. By 31 December 2027, based on the results of the 
application of the MRV framework of non-CO2 aviation effects, the Commission will submit 
a  report  and,  where  appropriate,  a  legislative  proposal  to  mitigate  the  non-CO2  effects  by 
expanding the scope of the ETS to include them.  

A BALANCED EU CARBON MARKET 

Since  2019,  the  EU  ETS  functions  with  the  Market  Stability  Reserve,  which  addresses  the 
historical surplus of allowances built up in the system and improves resilience of EU carbon 
market to demand shocks. Based on the total number of allowances in circulation every year, 
the Reserve either withdraws or releases allowances, managing their supply to future auctions. 
This helps maintain a robust price signal in the ETS, to incentivise emission reductions and be 
factored into investment appraisal.  

In 2022, the surplus of allowances in the EU ETS was just over 1.1 billion allowances. With 
this, the Reserve continues to withdraw allowances from the EU carbon market in 2023. From 
2023  onward,  allowances  held  in  the  Reserve  above  a  certain  threshold  lose  their  validity. 
This means they can no longer be released to the market. On 1 January 2023, a little over 2.5 
billion  allowances  became  invalid.  This  is  more  than  all  the  international  credits  used  for 
compliance in the EU ETS to date. Thanks to the Market Stability Reserve and an ambitious 
long-term climate policy outlook of the European Green Deal, the price signal in the EU ETS 
remained robust in 2022 with only a short period of market volatility in March, triggered by 
Russia’s aggression against Ukraine. 

17 

 
 
 
 
3  EFFORT SHARING EMISSIONS 

The Effort Sharing legislation covers GHG emissions from domestic transport (excluding CO2 
emissions from  aviation), buildings, agriculture, small industry and waste. They account for 
around  60%  of  the  EU’s  domestic  emissions.  The  Effort  Sharing  legislation  sets  binding 
national targets to reduce emissions in these sectors compared to 2005 levels, under the Effort 
Sharing Decision58 (ESD) for the period 2013-2020 and under the Effort Sharing Regulation59 
(ESR) for the period 2021-2030. 

Based on approximated data, emissions from the effort sharing sectors in 2022 were 3% lower 
than in 2021. It followed the rebound of emissions in 2021, after the pandemic. The reduction 
in  emissions  resulted  in  particular  from  the  buildings  sector  which  showed  an  emission 
decrease  of  more  than  9%  compared  to  2021.  Small  industry  showed  the  second  largest 
emission reduction  with a decrease  of almost  6% compared to 2021.  The transport sector is 
the  largest  sector  under  the  ESR,  accounting  for  over  one  third  of  total  effort  sharing 
emissions, and the only one that saw its emissions increase, by over 2% from 2021 to 2022. 

Figure 10: Emissions in sectors covered by effort sharing legislation 2005-2030 and annual 
emission allocations, EU-27 60  

RESULTS OF THE EFFORT SHARING DECISION 2013-2020 

In the period 2013 to 2020 all Member States met their effort sharing obligations under 
the  ESD  in  every  year.  The  EU  overachieved  its  2020  emission  reductions  target  by  more 
than six percentage points. EU-27 emissions covered by the ESD were 16.3% lower in 2020 
than they were in 2005. Compared to 2013, the EU-27 emissions were 7.2% lower in 2020. 
2020 was the last year covered by the ESD. Member States could not carry-over (bank) AEAs 
for use in future years under the ESR.  

However,  in  2020,  emissions  from  four  Member  States  exceeded  their  annual  emissions 
allocations (AEAs).61 Cyprus used surplus AEAs from previous years (banking) to cover their 

58 Decision No 406/2009/EC of 23 April 2009. 
59 Regulation (EU) 2018/842 of 30 May 2018, as amended by Regulation (EU) 2023/857 of 19 April 2023.  
60 From inventory data for the years 2005-2022, and from projections for the years 2023-2030 as reported by Member States 
under Regulation (EU) 2018/1999, compiled and checked by the EEA. The ESD AEAs are expressed in GWP AR4, all other 
numbers are in GWP AR5. Figures include EU-27 only. 

18 

 
 
 
 
excess emissions. Malta and Germany covered their excess emissions by buying AEAs. Malta 
bought  them  from  Bulgaria  and  Germany  from  three  different  countries  (Bulgaria,  Czechia 
and  Hungary).  Ireland  used  international  credits  from  the  Clean  Development  Mechanism62 
and bought AEAs from Slovakia to meet its obligations under the ESD.  

Figure 11: Change in ESD emissions between 2013 and 2020, against 2020 annual emission 
allocations63 

PROGRESS UNDER THE EFFORT SHARING REGULATION 2021-2030 

In April 2023, the ESR was amended to deliver a higher ambition for 2030. This increased the 
ESR EU-wide target to reduce emissions from 29% (for EU-27) to 40% by 2030 compared to 
2005  levels.  The  overall  ESR  target  was  translated  into  increased  national  GHG  emission 
reduction  targets  by  2030  and  more  ambitious  GHG  emissions  limits  for  2023  -  2030.  The 
amendment  also  changed  some  of  the  flexibilities  that  are  available  for  Member  States  to 
comply with their annual GHG emission limits and targets and strengthened other provisions 
(for  more  details  see  Chapter  2  of  the  staff  working  document  –  ‘Technical  information’). 
Iceland  and  Norway  also  implement  the  Effort  Sharing  Regulation,  but  the  trend  in 
(projected) emissions is only made for the EU Member States below.64  

61 Annual emission allocations are annual emission limits for GHG emissions in the effort sharing sectors for each Member 
State. 
62  The  Clean  Development  Mechanism  (CDM),  defined  in  Article  12  of  the  Kyoto  Protocol,  allows  a  country  with  an 
emission-reduction  or  emission-limitation  commitment  (Annex  B  Party)  to  implement  an  emission-reduction  project  in 
developing countries. 
63 The graph shows Member States ESD emissions in 2013 (yellow bar) and 2020 (orange bar), compared to its AEAs for 
2020 (green line) before the use of any flexibilities under the ESD. 
64  The  developments  in  Iceland  and  Norway  are  reflected  in  the  annual  Climate  Progress  Report  prepared  by  the  EFTA 
Surveillance Authority. 

19 

 
 
 
 
 
In  2021,  EU-wide  emissions  in  the  ESR  sectors  remained  3.3%  below  the  aggregated 
emissions  limit,  with  emissions  exceeding  AEAs  in  five  Member  States.65  Based  on 
approximated  data,  EU-wide  ESR  emissions  in  2022  are  estimated  to  be  2%  below  he 
aggregated emissions limit. In 2022, nine Member States are expected to generate emissions 
that exceed their AEAs.66 The final ESR emissions for 2021 and 2022 will only be determined 
after a comprehensive review in 2027, when the compliance cycle for each of the years 2021 
to 2025 will take place. Member States can then use the flexibilities available under the ESR 
to comply with their annual emission limits. However, the emission projections that Member 
States submitted in March 2023 can be used at this stage to gain insights on progress towards 
ESR targets. Aggregated projections show that EU-wide ESR emissions are expected to fall 
by 32% in 2030 compared to 2005 levels including planned measures (see Figure 12). This is 
less  than  the  EU-wide  ESR  target  to  reduce  emissions  in  2030  by  40%  compared  to  2005 
levels.  

Based on Member States’ latest emission projections, the Commission also assessed Member 
States’ progress towards their annual emission limits over the period 2021-2030, taking into 
account  the  flexibilities  available  under  the  ESR.67  Based  on  the  assumption  that  Member 
States  would  use  saved  AEAs  from  previous  years  (banking)  and/or  the  existing  ETS 
flexibility  to  cover  excess  ESR  emissions,  19  Member  States  would  still  have  excess 
emissions in at least one year over the 2021-2030 period.68 Eight Member States already have 
excess  emissions  in  the  first  compliance  period  (2021  to  2025),  which  poses  a  bigger 
challenge  as  there  is  less  time  to  develop  additional  policies  to  drive  down  emissions.69  In 
particular  Cyprus,  Italy,  and  Romania  would  already  have  excess  emissions  in  the  period 
2021- 2023, as well as Croatia but to a lesser extent.70 

Under  Article  9(2)  of  the  ESR,  any  debit  (i.e.,  excess  emissions)  under  the  LULUCF 
Regulation in the period 2021 to 2025 is automatically deducted from Member States’ AEAs 
under the ESR first compliance period. Based on available estimated LULUCF emission data 
for  2021  -  2025,  trends  in  Czechia,  Estonia,  Finland,  France,  Portugal,  and  Slovenia  are 
concerning (see Chapter 4). If these LULUCF trends are confirmed, it may be challenging for 
those countries to achieve their LULUCF targets and also lead to challenges in achieving their 
ESR targets each year in the first compliance period.71 

65  Austria,  Cyprus,  Denmark,  Ireland  and  Italy.  Denmark  already  indicated  the  intention  to  use  the  flexibility  with  the 
LULUCF Regulation to cover the excess emissions in 2021, if confirmed in 2027 after the comprehensive review of the ESR 
emissions. 
66 The 2021 ESR emissions are based on final inventory data and 2022 ESR emissions are based on approximated inventory 
data, both reported in 2023. 
67 Article 8 of the ESR provides that in case the Commission finds that there is not sufficient progress, Member States must 
prepare a corrective action plan. 
68 AT, BG, CY, CZ, DE, DK, EE, FR, HR, HU, IE, IT, LT, LV, MT, NL, PL, RO, SK. 
69 CY, HR, HU, IE, IT, LT, MT, RO. 
70 Available historical and approximated data is used for Member States’ ESR emissions in 2021 and 2022 and projections 
for other years; Final ESR emissions will only be established following a comprehensive review in 2027 (for 2021-2025) and 
2032 (for 2026-2030). The AEAs for 2026-2030 are estimated as they will only be set after a comprehensive review in 2025. 
For more details, see Chapter 2 of the staff working document – ‘Technical information’. 
71 For the purposes of this assessment, the excess emissions under LULUCF in the period 2021 – 2025 are equally distributed 
over  the  years  2021  to  2025  for  calculating  the  reduction  in  AEAs  under  the  ESR.  Flexibilities  under  the  LULUCF 
Regulation are not taken into account. 

20 

 
 
 
To comply with their ESR emission limits, some Member States can increase their amounts of 
ETS  flexibility.72  Member  States  that  perform  well  under  the  LULUCF  Regulation  can  use 
such overachievement,  up  to  a limit, to  cover any excess emissions  in ESR. Member States 
can also transfer AEAs among each other to match emissions with AEAs.73 However, based 
on current projections, there may only be a limited amount of AEAs available for purchase. 

In  conclusion,  based  on  the  information  available  at  this  stage  and  taken  account  of  the 
substantial gap highlighted by the analysis above, Member States are encouraged to reflect on 
additional  measures  to  reduce  their  emissions  under  the  ESR,  in  particular  as  part  of  the 
ongoing  NECP  update  process.  Some  Member  States  have  planned  higher  ambition  for 
emissions  covered  by  the  ESR  in  their  draft  NECPs.  Therefore,  a  more  complete  overview 
will be available in the Commission’s assessment of draft updated NECPs due by the end of 
this  year.  After  the  submission  of  the  final  updated  NECPs  by  Member  States,  the 
Commission  will  come  back  to  the  assessment  of  whether  Member  States  are  making 
sufficient  progress.  Insufficient  progress  may  trigger  the  need  for  a  corrective  action  plan 
under Article 8 of the ESR. 

Figure 12: Gap between ESR 2030 targets and projected GHG emissions  

72 Belgium, the Netherlands, Sweden and Malta. ETS flexibility allows a Member State to notify to the 
Commission an amount of EU ETS allowances to be available for ESR compliance. The EU ETS allowances are 
deducted from the amounts that would normally be auctioned under the EU ETS. 
73 Iceland and Norway can also buy AEAs from and sell AEAs to Member States. 

21 

 
 
 
 
 
EMISSION TRENDS BY TYPE OF GAS UNDER THE EFFORT SHARING LEGISLATION 

Around two thirds of total  emissions  from  the effort sharing sectors  are  CO2 emissions,  the 
remaining third are non-CO2 emissions. Non-CO2 greenhouse gases include methane (CH4), 
nitrous oxide (N2O), and fluorinated gases (NF3, HFCs, PFCs, SF6, HFCs). While most of the 
emissions in the energy sector are covered by the EU ETS, methane emissions in this sector 
fall under the ESR. These non-CO2 gases are emitted from a range of sectors and processes, 
and all have much higher  global warming potentials than  CO2 by  degrees of tens to tens  of 
thousands depending on the gas. As a result, non-CO2 emissions have an important impact on 
climate  change  and  are  key  sources  of  potential  emission  reductions  in  several  sectors. 
Mitigating non-CO2 emissions can lessen global temperature increases rapidly. Reducing non-
CO2 emissions is also important to achieve our targets under the ESR. Around half of the non-
CO2 emissions come from the agriculture sector. All sectors have reduced non-CO2 emissions 
from  2005  to  2021  but  the  most  significant  reductions  were  made  in  the  non-ETS  energy 
(‘other  energy’)  and  the  waste  sector.  Over  the  same  period,  non-CO2  emissions  from 
agriculture  and  buildings  have  remained  relatively  stable.  Most  emission  reductions  were 
nitrous  oxide  emissions  from  non-ETS  industry  and  the  waste  sector,  and  methane  in  the 
waste  sector,  while  the  level  of  F-gas  emissions  has  remained  relatively  stable.  The  EU 
methane strategy aims to reduce methane emissions in the energy, as well as in the agriculture 
and waste sectors, and thus also supports the achievement of the ESR targets. 

Figure 13: Non-CO2 emissions under the ESR in 2005 and 2021, by sector and by gas type.  

F-gases 

Fluorinated  gases  (‘F-gases’)  have  a  global  warming  effect  up  to  25 000  times  greater  than 
CO2.  F-gas  emissions  in  the  EU  amount  to  2.5  %  of  the  EU’s  total  GHG  emissions. 
Hydrofluorocarbons  (HFCs)  are  the  most  important  F-gases.  Regulating  F-gases  at  the  EU 
level has been rather effective. After 2014, a decade-long trend of rising emissions of F-gases 
was  reversed  due  to  the  current  F-gas  Regulation  (Regulation  (EU)  No  517/2014).  EU-27 
emissions fell by slightly over 20% from 2014 to 2021 and the supply of hydrofluorocarbon 
(HFC)  gas  to  the  market  fell  by  47%  in  CO2-eq  between  2015  and  2019,  notably  due  to 
refrigeration  shifting  to  more  climate-friendly  alternatives.  The  EU  Regulation  was  also 
successful in terms of facilitating the global agreement reached in 2016 to phase down HFCs 
under the Montreal Protocol (“Kigali Amendment”) which is estimated to prevent around 0.3-
0.5 degrees Celsius  of  global  warming  by 2100.  A political agreement has  been reached  on 
the Commission’s proposal of April 2022 for a new F-gas Regulation for additional emission 
savings by 2050; formal adoption is expected by the end of 2023. The amount of HFCs must 

22 

 
 
 
 
be reduced by around 95% in 2030 and 100% in 2050 compared to 2015.74 These saved F-gas 
emissions will  support Member  States’ efforts to reach their target under the Effort Sharing 
Regulation. 

NATIONAL POLICIES AND MEASURES IN THE ESR SECTORS 

EU legislation supports Member States to meet their targets under the ESR. Some policies in 
key sectors of the ESR are described in the next section.   

In  the  2023  integrated  national  energy  and  climate  progress  reports  (NECPRs),  Member 
States  reported  policies  and  measures  (PaMs)  that  they  have  implemented  or  plan  to 
implement to reduce GHG emissions and to achieve their current 2030 targets under the ESR. 
Member States have reported 1900 single measures related to the ESR, 10% more compared 
to the previous reporting round.75 

Figure 14: Number of single policies and measures reported by Member States for the ESR 
sector76 

EMISSION TRENDS AND POLICIES IN KEY SECTORS 

Buildings 

Buildings account for 40% of energy consumed and 36% of energy-related direct and indirect 
GHG emissions in the EU. Heating, cooling and hot water account for 80% of the energy that 
households consume. To achieve the 55% emission reduction target, by 2030 the EU should 
reduce buildings’ GHG emissions by 60%, their final energy consumption by 14% and energy 
consumption for  heating and cooling  by 18%.77  The Recovery and Resilience Facility78 and 

74 For the quota system when measured in terms of the climate impact (CO2eq). 
75 Compared to EEA database on greenhouse gas policies and measures in Europe. This includes all PaMs, expired, adopted, 
implemented, and planned. 
76 The number of PaMs has been established based on PaMs as reported by Member States with an explicit reference to the 
ESR  as  an  objective.  This  is  likely  to  underestimate  the  number  of  ESR  PaMs,  as  not  all  PaMs  with  a  sectoral  policy 
objective that is closely linked to reducing emissions in the ESR (e.g., the Energy Performance of Buildings Directive) are 
qualified by Member States as ESR PaMs. 
77 Compared to 2015 levels, See SWD(2020) 176 final. 
78 Recovery and Resilience Scoreboard (europa.eu) 

23 

 
 
 
 
 
Cohesion  Policy  allocate  a  significant  portion  of  funds  to  improve  energy  efficiency  in 
buildings (see Chapter 6). 

The Report on renovation of the national stock of residential and non-residential buildings and 
on  nearly-zero  energy  buildings  provides  a  first  assessment  of  the  implementation  and 
progress of the 2020 national Long Term Renovation Strategies (LTRSs), based on the 2023 
integrated NECP progress reports. It shows the level of ambition of LTRSs is not always in 
line  with  climate  neutrality  in  2050,  with  some  progress  observed  in  the  NECPRs,  e.g., 
towards  GHG  emission  reduction  targets  in  many  countries,  but  without  revisions  of 
ambition. It also highlights the need to improve tracking of the evolution of the building stock 
in Member States and the streamlining and harmonisation of indicators and definitions. 

The proposed revision of the Energy performance of buildings directive aims to enhance long-
term  renovation  strategies  (renamed  national  Building  Renovation  Plans)  with  a  clear 
roadmap for a highly energy efficient and decarbonised building stock by 2050 (cf. Ch. 2 of 
staff working document – ‘Technical information’). 

Agriculture 

EU agricultural emissions represent around one-tenth of the overall GHG emissions, of which 
roughly  two-thirds  come  from  livestock.  Since  2005,  emissions  have  stagnated-  inventory 
data show a slow annual decrease of 0.7 MtCO2-eq between 2005 and 2021. The latest GHG 
projections  from  Member  States  indicate  that  under  existing  measures  the  pace  of  emission 
cuts will not change by 2030 (-1% compared to 2021, or an annual average reduction of 0.6 
MtCO2-eq).  However,  with  additional  measures,  aggregated  projected  emissions  from 
agriculture  point  to  a  visible  decline  by  2030  (5%,  or  2.2  MtCO2-eq  annual  average 
reduction).  It  is  clear  that  more  effort  is  needed  to  implement  mitigation  measures  in  the 
agricultural sector (Figure 15.a).  

Figure 15: GHG emissions in the agriculture sector (EU, 2005-2021) and 2023 reported policies 
and measures for the agriculture sector (by objectives) 

Figure 15.a 

Figure 15.b 

In 2023, Member States reported more than 300 measures aimed at reducing emissions in the 
agriculture  sector,  equal  to  13%  of  total  reported  measures  with  decarbonisation  dimension 
(see  Figure  15.b),  mainly  to  reduce  fertilisers  and  manure  use  on  cropland  (22%)  and  to 
improve  livestock  management  (16%).  Many  of  these  measures  are  supported  through 

24 

 
 
 
 
 
funding  under  the  new  Common  Agriculture  Policy  (CAP),  some  others  through  national 
financing (State aid).   

Transport 

Transport  emissions  represent  more  than  one-fifth  of  the  overall  EU  domestic  GHG 
emissions,  of  which  the  large  majority  from  road  transport  (i.e.  around  95%,  or  75%  when 
international  bunkers  are  included).  Since  2005,  emissions  have  only  slightly  decreased. 
Inventory  data  show  an  annual  decrease  of  4  MtCO2-eq  between  2005  and  2021,  a  pace 
clearly insufficient to meet the EU 2030 target as outlined in the Commission’s analysis.79 

Passenger cars and vans generate more than 70% of all road transport CO2 emissions in the 
EU.  CO2  emission  standards  for  new  cars  and  vans  and  for  heavy-duty  vehicles  are  key 
drivers for reducing road transport GHG emissions. According to provisional monitoring data 
for  vehicles  registered  in  the  EU,  Iceland,  and  Norway  in  2022,80  the  average  Worldwide 
harmonised Light vehicles Test Procedure (WLTP)81 CO2 emissions from new cars and new 
vans continued to decrease, to 108.2 CO2/km from 114.1 g CO2/km in 2021 for cars and to 
185.3 g CO2/km from 193.3 g CO2/km in 2021 for vans. This continues the steep downward 
trend  in  CO2  emissions  triggered  by  the  stricter  targets  that  apply  since  2020.  By  2022, 
emissions from new cars and vans had decreased by 27% and 9%, respectively, compared to 
2019 levels (Figure 16). The sharp decrease is due to the surge in the share of zero-emission 
vehicle  registrations.  In  2022,  13.4%  of  new  cars  and  5.9%  of  new  vans  had  no  tailpipe 
emissions (up from 2.2% and 1.4% in 2019, respectively). The recently adopted revised CO2 
standards  require  a  further  decrease  in  emissions.  As  of  2030,  and  compared  to  the  2021 
baseline, emissions need to be reduced by 55% for new cars and 50% for new vans. By 2035, 
all new cars and vans should be zero-emission. 

Figure 16: Average CO2 emissions (dots) and EU fleet-wide targets (lines) for new cars (left) and 
vans (right) 

Figure 16.a New cars 

Figure 16.b New vans 

Heavy-duty vehicles (HDV), such as lorries, buses, and coaches, generate almost 30% of all 
CO2  emissions  from  road  transport.  Existing  legislation  requires  manufacturers  to  reduce 

79 Based on modelling outcomes of the core policy scenario supporting the initiatives delivering the European Green Deal, 
between  2022  and  2030  the  annual  average  emission  reduction  in  the  transport  sector  should  be  around  22  MtCO2/eq. 
https://energy.ec.europa.eu/data-and-analysis/energy-modelling/policy-scenarios-delivering-european-green-deal_en. 
80 Monitoring of CO2 emissions from passenger cars and vans – Regulation (EU) 2019/631; published by the EEA. 
81 Determined during type-approval using the Worldwide harmonised Light vehicles Test Procedure. 

25 

 
 
 
 
 
 
emissions of certain lorries by 15% by 2025 and 30% by 2030 compared to 2019 levels.  In 
2023,  the  Commission  proposed  revised  CO2  standards  for  HDV  further  tightening  existing 
standards and extending the scope to smaller lorries, buses, coaches and trailers. The proposed 
Regulation requires CO2 emissions reductions of 45% from 2030, 65% from 2035, and 90% 
from 2040 onwards compared to 2019 baseline. It also sets a 100% zero-emission target for 
new urban buses from 2030.  

The Fuel Quality  Directive also contributes to reducing transport emissions; it requires the 
life-cycle GHG emission intensity of fuels to be reduced by 6% by 2020 compared to 2010 
levels.  The  average  GHG  intensity  of  fuels  supplied  in  2021  was  5.5% lower  than  in  2010. 
The progress by EU fuel suppliers varies greatly across Member States (Figure 17). 

Figure 17: Reductions in GHG intensity of fuels achieved by EU fuel suppliers in EU-27, 2010-
2020 and 2010-2021 (Source: EEA) 

26 

 
 
 
 
 
 
4  LAND USE, LAND USE CHANGE AND FORESTRY  

The land use, land-use change,  and forestry  (LULUCF)  sector  plays  a significant  role  in 
achieving  the  EU’s  climate  neutrality  goal.  In  the  EU,  the  LULUCF  sector absorbs  more 
GHGes  than  it  emits, removing  significant  volumes  of  carbon  from  the  atmosphere.  The 
sector also provides biomaterials that substitute fossil or carbon intensive materials, which is 
equally important in the transition to a climate-neutral economy. However, carbon removals 
have declined at a worrying speed in recent years. 

This trend is mostly due to a decrease in forest related removals, triggered mainly by an 
increase in harvesting. To a lesser extent, it is also caused by reduced carbon sequestration 
in ageing forests in certain Member States, due to lower growth rates. Climate change itself is 
having an increasing impact too. The growing frequency and severity of disturbances such as 
wind throw, insect, and fungus outbreaks, forest fires, and droughts is undermining the role of 
forests as a carbon sink and has in some cases turned them temporarily into carbon sources. 
There are many indications that, because of climate change, the future robustness of Europe’s 
forest sinks is far from guaranteed. The slowing of forest area expansion has also contributed 
to the fall in removals, but with a smaller impact. At EU level, cropland, grassland, wetlands, 
and  settlements  are  mainly  sources  of  LULUCF  emissions,  with  managed  organic  soils 
generating particularly high emissions.  

A GREATER ROLE FOR THE LULUCF SECTOR TO SUPPORT CLIMATE ACTION  

The revised LULUCF Regulation82 sets out how the sources of emissions and removals in the 
land use sector contribute to EU climate goals, with a target to achieve land-based net carbon 
removals  of -310  million  tonnes  of  CO2 equivalent  by  2030.83  To  reach  this,  targets  are 
allocated to Member States based on the total managed land area in their territory. The 2030 
target of each Member  State requires them to increase their climate ambition for their land-
use policies. 

The revised regulation sets two compliance periods: 

•  From  2021  to  2025:  the  assessment  of  Member  States’  progress  is  based  on 
benchmarks for land use activities, such as Forest Reference Levels84 for sustainable 
forest management. Across  all land  categories, a Member  State has to fulfil the ‘no-
debit’  rule,  i.e.  the  credits  or  debits  generated  in  individual  land  categories  must  to 
sum up to at least zero. If the ‘no-debit’ rule is not met and a Member State has a net 
debit, it will be able to use a number of flexibilities to compensate the net debit (e.g. 
by purchasing credits from other Member States). If a net debit remains from the first 

82  Regulation  (EU)  2018/841  of  the  European  Parliament  and  of  the  Council  of  30  May  2018  on  the  inclusion  of  GHG 
emissions and removals from land use, land use change and forestry in the 2030 climate and energy framework and amending 
Regulation (EU) No 525/2013 and Decision No 529/2013/EU (OJ L 156, 19.6.2018, p. 1). 
83  Regulation  (EU)  2023/839  of  the  European  Parliament  and of  the  Council  of  19  April  2023  amending  Regulation  (EU) 
2018/841  as  regards  the  scope,  simplifying  the  reporting  and  compliance  rules,  and  setting  out  the  targets  of  the  Member 
States for 2030, and Regulation (EU) 2018/1999 as regards improvement in monitoring, reporting, tracking of progress and 
review (OJ L 107, 21.4.2023, p. 1). 
84 Commission Delegated Regulation (EU) 2021/268 of 28 October 2020 amending Annex IV to Regulation (EU) 2018/841 
of the European Parliament and of the Council as regards the forest reference levels to be applied by the Member States for 
the period 2021-2025. 

27 

 
 
 
 
compliance period, even after using all flexibilities, this net-debit will be moved to the 
ESR account of the Member State. 

•  From 2026 to 2030: each Member State must meet a binding national target in 2030 
based  on  the  sum  of  reported  emissions  and  removals  in  all  land  categories. 
Benchmarks  no  longer  apply  for  individual  land  categories.  A  ‘net  removal  budget’ 
will  be  created  for  the  period  2026-2029  to  check  the  performance  of  each  Member 
State.  Any  debit  in  this  period  will  be  carried  forward  to  the  final  compliance 
assessment for the 2030 target. 

ASSESSMENT OF PROGRESS IN THE LULUCF SECTOR  

In 2021, the EU’s carbon sink achieved a net removal of -230 Mt CO2-eq.85 The trend seen in 
recent years persists, and the size of the carbon sink is continuing to decrease, even though, 
based  on  approximated  data,  the  sink  is  estimated  to  have  increased  to  -244  Mt  CO2-eq  in 
2022. 

With current LULUCF accounting rules – with a limited scope – applicable to the period 2021 
to  2025,  the  provisional  ‘accounted’  balance  for  2021  using  the  2023  GHG  inventory 
submission produced a slight accounted credit of -14 Mt CO2-eq. As such, the EU as a whole 
meets the ‘no-debit’ rule of compliance for the first year of the compliance period 2021-2025. 
Based upon estimates using approximated data, 2022 would also produce  a small accounted 
credit.  

Even  so,  based  upon  a  single  year  of  the  compliance  period,  and  excluding  the  other 
flexibilities  available  to  Member  States  at  the  end  of  the  compliance  period,  nine  Member 
States  showed  potential  accounting  debits,86  with  France,  Finland  and  Czechia  showing  the 
biggest debit. 18 Member States had potential accounting credits87 with Spain, Germany and 
Romania having the largest net credit in the EU. 
Based on approximated data for 2022,88 with accounting rules applied, 16 Member States had 
potential  credits89  and  ten  Member  States  showed  potential  debits.90  Czechia  and  Finland 
show  a  decrease  in  debit  while  Latvia  moves  from  having  a  credit  to  a  debit.  Italy  and 
Romania  show  increase  in  credits.  Five  Member  States  submitted  2021  inventory  data  as 
approximated data for 2022.91 (for more details see Chapter 9 of the staff working document – 
‘Technical information). 

85 2023 Submission GHGI reported data on LULUCF, as reported for the entire sector scope. 
86  In  decreasing  order  of  magnitude:  France,  Finland,  Czechia,  Portugal,  Estonia,  Poland,  Slovenia,  Belgium  and  Cyprus 
show net LULUCF debits. 
87 In increasing order of magnitude:  Malta, Luxembourg, Latvia, Netherlands, Croatia, Slovakia, Bulgaria, Greece, Ireland, 
Austria, Lithuania, Denmark, Hungary, Italy, Sweden, Spain, Germany, and Romania show net LULUCF credits. 
88 Reported approximated data by Member States for 2022, on LULUCF carries uncertainties and it is therefore important to 
exercise caution drawing conclusions from this data. Seven Member States report 2021 data as approximated data for 2022.  
89  Austria,  Bulgaria,  Croatia,  Denmark,  Germany,  Greece,  Hungary,  Ireland,  Italy,  Lithuania,  Luxembourg,  Netherlands, 
Romania, Slovakia, Spain, Sweden. 
90 Belgium, Cyprus, Czechia, Estonia, Finland, France, Latvia, Poland, Portugal, Slovenia. 
91  Austria,  Belgium,  Croatia,  Cyprus,  Denmark,  Estonia  submitted  same  data  as  reported  under 2023  GHGI  submission  as 
2022 approximated data for LULUCF. 

28 

 
 
 
In line with the reporting obligations, Member States reported their projected total LULUCF 
accounted credit or debit for the period 2021 to 2025.92 From this, 16 Member States reported 
projections with existing measures93 (WEM), and 10 Member States reported projections with 
additional  measures94  (WAM).  After  calculations95,  some  Member  States  show  debit 
accounted  emissions  per  year  for  each  year  2021-2025.96  This  raises  reason  for  concern  as 
there is limited time to develop policies and implement measures to reverse the trend.  

Projections on reported emissions and removals, delivered by Member States in March 2023, 
have been assessed for LULUCF progress towards the 2030 targets. Projections with existing 
measures show EU total net removals of -239 Mt CO2-eq for 2030 and -260 Mt CO2-eq with 
additional measures, leaving a gap of around 50-70 Mt CO2-eq to meet the 2030 target. This 
means  that,  according  to  projections,  the  EU  is  not  on  track  to  meet  the  2030  net  removal 
target of -310 Mt CO2-eq. 

Figure 18: Land sector emissions and removals in the EU, by main land use category97 

In conclusion, based on the limited data and information currently available, Member States 
are encouraged in the context of the ongoing NECP update process to reflect further on how 
to increase ambition and action on their territory. Following submission of the final updated 
NECPs in 2024, the Commission will return to the assessment of whether Member States are 
making sufficient progress. Insufficient progress may trigger the need for a corrective action 
plan under Article 13(d) of the LULUCF Regulation. 

92 Total cumulative emissions/removals (kt CO2-eq) for LULUCF by land category in the period 2021-2025, reported by 
Member States under Table 5b: Projections of accounted emissions and removals from the LULUCF sector in accordance 
with Regulation (EU) 2018/841 
93 Austria, Bulgaria, Czechia, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Malta, Netherlands, Poland, 
Portugal, Romania and Sweden. 
94 Belgium, Croatia, Estonia, Ireland, Latvia, Lithuania, Luxemburg, Slovakia, Slovenia and Spain. 
95 Total cumulative emissions and removals (kt CO2 -eq) calculated average per year over the five-year period by using 
WAM per land category, if WAM not available, WEM is used. LULUCF managed forest land, including Harvested Wood 
Products assuming instantaneous oxidation where available 
96 Belgium, Cyprus, Czechia, Estonia, Finland, France, Malta, Portugal and Slovenia. 
97 The figure shows net reported removals by land use category for each Member State in 2021. Net removals are expressed 
as negative figures and net emissions as positive figures.  

29 

 
 
 
 
 
 
 
ACTION TO STEP UP LAND MONITORING 

The proposal for a directive on soil monitoring and resilience98 and the revised LULUCF 
Regulation99  will  be  mutually  reinforcing:  healthy  soils  sequester  more  carbon  and  the 
LULUCF objectives promote the sustainable management of soils. The LULUCF regulation 
requires that all Member States set up systems to monitor, inter alia, soil carbon stocks100.  

Better  land  and  soil  monitoring  will  help  target  action  on  measures  that  unlock  the  highest 
climate  benefits.  Member  States  GHG  inventories  underpin  climate  action  and  are  also 
continuously  developing.  Recalculations  based  on  better  data  and  methods  are  expected  in 
response  to  new  requirements  on  quality  statistics  in  the  revised  LULUCF  Regulation. 
Improved  greenhouse  gas  inventories,  based  on  harmonised  and  refined  activity  data  and 
removal/emissions factors will be critical to facilitate action. Better, more timely and mapped 
data will help track national and collective EU progress towards climate objectives, and guide 
informed and accurate action and further measures. Over the past years, Member States made 
progress in their inventory reporting. For example, in their coverage of carbon pools and the 
quality  of  submitted  data  and  methodological  information.  Advanced  technologies,  such  as 
those  available  under  EU  programmes  provide  digital  maps  updated  with  high  relevant 
satellite and ground observations. New steps are being undertaken to integrate data from the 
Copernicus satellite services and data sets such as those utilised for the Common Agricultural 
Policy (CAP). 

RELATED INITIATIVES IN AGRICULTURE AND FORESTRY  

Member States need to reflect on the role of the land use sector when updating their national 
energy  and  climate  plans  (NECPs)  for  the  2021-2030  period.  This  update  is  key  to  enable 
Member States to track progress against the targets and the EU to ensure increased ambition. 
Member States must also assess by 16 November 2023 whether their CAP strategic plans are 
in line with the new targets under the revised LULUCF Regulation and ESR and amend their 
plans as necessary.  

Access to funding and incentives 

Many  funding  mechanisms  and  incentives  are  available  or  being  developed  to  encourage 
carbon removals, through public or private-sector sources. The EU provides funding under the 
CAP, other EU programmes such as LIFE, Horizon Europe (in particular the Soil Mission), 
and  the  Cohesion  Policy  funds.  In  2023,  the  Commission  adopted  guidance  on  EU  funding 
opportunities  for  healthy  soils101.  Member  States  can  also  support  the  uptake  of  sustainable 
management  practices  under  State  aid  rules,  which  have  been  revised  and  allow  for  the 
provision of forest ecosystem services such as climate regulation and biodiversity restoration. 
The  Commission  guidance  on  payment  schemes  for  forest  ecosystem  services102  provides 
further  information  for  actors.  The  CAP  and  State  aid  cover  funding  for  investments  and 
measures  such  as  training,  advice  or  cooperation,  that  help  maximise  effects.  Private 
initiatives linked  to  voluntary  carbon markets  or  a  combination of different funding  options 
can supplement and further promote large-scale deployment of carbon farming.  

98 Proposal for a Directive on Soil Monitoring and Resilience (europa.eu) 
99 Regulation (EU) 2023/839  
100 Through an amendment to Annex V Part 3 (e) of Regulation (EU) 2018/1999,  
101 SWD(2023) 423 final  
102 Guidance on the Development of Public and Private Payment Schemes for Forest Ecosystem Services (SWD(2023)285 
final). 

30 

 
 
 
To  ensure  high-quality  EU-certified  carbon  removals,  the  Commission  has  proposed  a 
regulatory  EU  framework  for  the  certification  of  carbon  removals103  providing  Member 
States  with  a  toolbox  to  increase  carbon  removals.  The  certification  framework  will  help 
ensure the transparent identification, through standardised methodologies, of carbon farming 
and industrial solutions that remove CO2 from the atmosphere and store it long-term. Carbon 
removal  certificates  can  also  help  organisations  back  credible  carbon  removal  claims  and 
meet stakeholders' expectations that carbon removals should not be used for greenwashing, in 
line  with  the Corporate  Sustainability  Reporting  directive104  and  the  proposed  directive  on 
green claims.105 To facilitate future work under this initiative, the Commission has set up an 
Expert Group on carbon removals.106 

103 Proposal_for_a_Regulation_establishing_a_Union_certification_framework_for_carbon_removals.pdf (europa.eu) 
104 Corporate Social Responsibility Directive and the related Sustainability Reporting Standards 
105 Proposal for a Directive on green claims (europa.eu) 
106 Expert group on carbon removals (europa.eu) 

31 

 
 
 
 
 
  
 
 
 
 
 
5  RESILIENCE TO CLIMATE CHANGE  

The  losses  from  weather  and  climate  related  disasters  are  significant.  The  heatwaves  of 
summer 2022 are estimated to have caused over 61000 excess deaths in Europe.107 Extreme 
flash  floods  in  summer  2021  caused  EUR  46  billion  of  economic  damage.108  Climate  risks 
will  continue  to  intensify,  with  the  IPCC  assessing  the  window  of  opportunity  to  avert  the 
worst consequences to be “brief and rapidly closing”.109  

The EU has an obligation under the European Climate Law to ensure continuous progress in 
building its capacity to adapt to the effects of climate change, boost its resilience and reduce 
vulnerability  to  climate  change.  The  next  section  provides  a  high-level  assessment  of  that 
progress at the level of EU policy. This is followed by an assessment of collective progress by 
all  Member  States.  Further  information  is  found  in  chapters  7  and  10  of  the  staff  working 
document  –  ‘Report  on  the  implementation  of  the  EU  strategy  on  adaptation  to  climate 
change’  accompanying  this  report.  There  is  also  a  separate  report  on  the  implementation  of 
the EU’s adaptation strategy. 

IMPLEMENTATION OF THE EU ADAPTATION STRATEGY 

The EU updated its adaptation strategy in 2021.The strategy contains 49 actions to which the 
Commission has committed, spread across four objectives: smarter, more systemic, faster, 
and  international  adaptation  to  climate  change.  The  actions  were  designed  to  cover  large 
ground in terms of policies and often require a careful sequencing of measures.  

To improve knowledge and manage uncertainty, the Commission, together with the EEA, has 
expanded the content and partners of the European Climate and Health Observatory110 to 
help build resilience  to  climate  change impacts  on human  health.  It published new  calls for 
projects under Horizon Europe to close knowledge gaps on climate impacts and resilience and 
is developing the Risk Data Hub.111 The Commission is working to expand the content and 
impact of the Climate-ADAPT knowledge exchange platform. 

The  first  ever  European  Climate  Risk  Assessment  is  due  to  be  published  in  Spring  2024. 
The  Climate  Resilience  Dialogues112  have  brought  together  policymakers,  insurers,  risk 
managers, consumers, city associations and other stakeholders to discuss and identify possible 
actions, on insurance and investment in adaptation to help narrow the climate protection gap.  

The  European  Drought  Observatory  promotes  the  sustainable  use  of  freshwater  by 
providing knowledge. To address water scarcity, six times more water could be reused than 
current levels, facilitated by the Water Re-use Regulation that entered into force in 2023.113 

The  Commission  has  stepped  up  the  systematic  integration  of  adaptation  action  in  sectoral 
strategies and plans, with updated guidelines on Member State adaptation strategies and plans 
and complementary support from the Commission’s Technical Support Instrument, including 
under its 2023 flagship project on adaptation.  In 2021, the Commission published technical 
guidance  on  the  climate  proofing  of  infrastructure  projects  and,  in  2023,  on  enhancing 

107 Heat-related mortality in Europe during the summer of 2022 | Nature Medicine  
108 Economic losses from climate-related extremes in Europe (8th EAP) (europa.eu) 
109 Sixth Assessment Report — IPCC 
110 European Climate and Health Observatory (europa.eu) 
111 DRMKC Risk Data Hub (europa.eu)  
112 Climate Resilience Dialogue (europa.eu) 
113 Water Reuse (europa.eu) 

32 

 
 
 
the climate resilience of buildings. Climate proofing applies to infrastructure and buildings 
funded by the EU budget. The European Climate Pact,114 a stakeholder platform launched 
by the Commission to empower citizen to act and advocate on climate matters, continues to 
run adaptation and mitigation activities. The Policy Support Facility under the EU Covenant 
of Mayors has involved over a thousand people over the past year and a half, including 350 
municipalities, in national workshops, with eight cities developing peer-to-peer exchanges on 
climate action and 37 adaptation measures being implemented.  

Good progress has been made in implementing the EU Mission on Adaptation to Climate 
Change,115  designed  to  speed  up  innovative  adaptation  action  at  local  and  regional  levels. 
Over  300  regions  and  communities,  covering  some  40%  of  the  EU,  have  signed  up  to  the 
Mission Charter and committed to work together to accelerate their transformation to climate 
resilience;  the  Adaptation  Community  of  Practice  is  live,  and  the  Mission  technical  support 
facility is operational.  

Climate resilience as an issue is now far more visible across EU policies than a few years ago. 
There  have  been  efforts  to  support  adaptation  objectives  in  legislative  proposals  where 
resilience to climate change (or risks interacting with climate impacts) were not the primary 
objectives.  For  example,  the  proposal  to  amend  the  Budgetary  Framework  Directive,  in  the 
context  of  the  economic  governance  review,  includes  reporting  requirements  for  Member 
States  on  macro-fiscal  risks  from  climate  change  and  on  disaster  and  climate  related 
contingent liabilities.  

Similarly,  the  proposed  revision  of  the  Urban  Wastewater  Treatment  Directive  included 
measures to tackle the overflow of sewage systems caused by flash floods, likely to become 
more  intense  and  frequent  across  Europe  due  to  the  changing  climate.  Implementation  will 
need  to  continue,  building  on  measures  initiated  under  the  adaptation  strategy.  The 
Commission  also  now  requires  a  consistency  check  with  adaptation  objectives  in  its  own 
impact assessments (see Chapter 1 for an assessment of the consistency check), which should 
be done in a systematic way, covering both emission reduction and adaptation objectives. 

ASSESSMENT OF COLLECTIVE PROGRESS OF MEMBER STATES ON ADAPTATION 

Article  6.1b  of  the  European  Climate  Law  requires  the  Commission  to assess  the  collective 
progress  made  by  all  Member  States  on  climate  adaptation.  For  the  first  time,  this  section 
assesses  the  progress  they  reported  and  have  made  in  enhancing  adaptive  capacity, 
strengthening resilience, and reducing vulnerability to climate change. 

Member States report that currently the most observed acute climate hazards in Europe are 
heatwaves,  droughts,  floods,  heavy  rainfall,  and  wildfires.  They  cite  the  changing 
temperature, changing rainfall patterns, sea level rise and hydrological variability as the most 
frequent chronic climate hazards. They anticipate that future hazards will be the same as those 
currently  observed,  except  for  water  scarcity,  which  seven  countries  anticipate  being  an 
additional future key hazard. 

Health,  agriculture,  forestry,  biodiversity,  energy,  and  water  management  are  the  areas 
reported as the most affected by climate threats in Europe.  

Almost all Member States have carried out climate risk assessments, 14 of these assessments 
have been updated recently, with the rest scheduled for updates soon. 

114 European Climate Pact (europa.eu) 
115 EU Mission: Adaptation to Climate Change (europa.eu) 

33 

 
 
 
All Member States have national adaptation strategies and/or national adaptation plans in 
place.  A  considerable  part  of  these  strategies  and  plans  have  recently  been  renewed  or  are 
under revision and will be renewed over the coming years. More national sectoral adaptation 
plans have been adopted. The policy landscape is varied. On the one hand there is continuity 
in long-term priorities, increasing alignment with European frameworks, evolving legislative 
instruments, and incremental shifts in policy focus. On the other hand, there are challenges, 
gaps, and barriers to the governance of adaptation action. 

National  and  subnational  governance  structures  and  mechanisms  for  horizontal  policy 
integration and multi-level (vertical) coordination have been developed and are mainly now in 
place. The mandates and operational features of these structures vary greatly. Eight Member 
States  report  having  embedded  elements  of  their  adaptation  policy  systems  in  binding  legal 
frameworks. However, most Member States use soft and collaboration-based forms of vertical 
and horizontal governance.  

Progress  on  international  and  transnational  cooperation  on  adaptation  has  been  made  in 
two-thirds  of  the  Member  States.  Factoring  in  social  justice  and  equity  into  adaptation 
measures is still at an early stage in many countries, highlighting a key area for future focus, 
to tackle the disproportionate impacts of climate change on vulnerable groups. Two-thirds of 
Member States made progress in adaptation policy-related stakeholder engagement. 

Member  States  are  also  making  progress  on  implementing  adaptation  measures,  including 
mainstreaming adaptation in sectoral policies and plans. They have made significant progress 
on integrating climate change impacts into national disaster risk management frameworks and 
sectoral  planning.  Assessing  the  costs  of  adaptation  remains  a  challenge  for  many  Member 
States  and  is  often  only  done  partially.  National  adaptation  plans  and  strategies  often  lack 
dedicated budgets or financing streams for their implementation, and most countries lack the 
budget needed to finance adaptation action. 

Half  the  Member  States  reported  an  increase  in  monitoring,  reporting  and  evaluation 
activities since 2021, at national, regional and local level.  

34 

 
 
 
 
 
6  ALIGNING INVESTMENTS WITH CLIMATE 

NEUTRALITY  

INVESTMENT NEEDS AND TRENDS IN THE EU 

Bridging  the  investment  gap  for  the  transition  to  climate  neutrality  by  2050  will  require 
substantial  amounts  of  finance.  Commission  analyses116  estimate  the  additional  private  and 
public  investment  needs  for  the  green  transition  at  EUR  477  billion  per  year  between  2021 
and  2030117,  and  delivering  the  REPowerEU  objectives  requires  an  estimated  additional 
investment  of  up  to  EUR  35  billion  per  annum  between  2022  and  2027.118  Meanwhile, 
boosting EU manufacturing capacity for strategic net-zero technologies, as set out in the Net-
Zero  Industry  Act  (NZIA),  will  require  investment  amounting  to  around  EUR  92  billion, 
cumulated  over  the  period  2023-2030,  compared  to  EUR  52  billion  under  a  status  quo 
scenario. Closing the investment gaps for other environmental objectives (circular economy, 
pollution,  water,  biodiversity)  for  the  green  transition  will  require  an  estimated  EUR  110 
billion per year between 2021-2030,106 with climate action co-benefits (e.g. carbon removal, 
storage).  While  these  figures  should  not  be  added  up  given  their  different  scope,  timeframe 
and estimation method, they convey the magnitude of the challenge. 

Data show that in recent years, financial markets have begun to enable the transition too, an 
important  development  given  the  limits  to  public  finance.  This  is  driven  by  growing 
awareness of the financial impacts of climate change’s physical and transition risks119 and a 
fast-evolving  sustainable  finance  policy  framework  with  increasing  investor  demand  for 
genuinely sustainable investments. 

MONITORING FINANCE’S ALIGNMENT WITH THE TRANSITION TO CLIMATE 

NEUTRALITY 

Monitoring  investment  trends  in  climate  and  other  green  finance  is  still  challenging, 
especially  due  to  data  gaps  and  limited  standardisation  of  data  categories.  Disclosures 
mandated under the EU’s sustainable finance regulatory framework are expected to facilitate 
monitoring once  implemented.  A  series of  indicators can already be used to measure stocks 
and flows of finance conducive to reaching the EU’s climate objectives. 

Sufficiently  robust  data  is  available  on  green  bond  markets,  which  have  soared  in  recent 
years.  Cumulative  issuances  of  bonds  aligned  with  the  International  Capital  Market 
Association’s (ICMA) Green Bond Principles120 will very likely pass the EUR 1 trillion mark 
in 2023 (see Figure 19).  

116 SWD(2023) 68 final. Values in EUR 2022. 
117 Investments in the transport sector are included in this figure, albeit not road or railway infrastructure investments. 
118 COM(2022) 230 final, p. 12. 
119 Transition risks are defined as financially-material risks related to changes in regulatory environment, technological 
development or consumer behaviour. Physical risks are financially-material risks related to impacts of climate change on an 
undertaking.  
120 https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/green-bond-principles-gbp/ 

35 

 
 
 
 
 
 
Figure 19: Issuance of Green Bonds in the EU aligned with ICMA’s green principles (volumes)121 

This  increase  in  absolute  green  bond  issuances  is  reflected  in  green  bonds’  share  of  the 
corresponding bond market (see  Figure 20). For EU and non-EU issuers, the share in  the 
EU27  remained  lower  than  1%  until  2013,  but  has  significantly  increased  since,  even  more 
markedly from 2016, on the back of strong growth of the green segment. In 2022, green bonds 
accounted for 16% of all newly issued bonds in the EU27, but only 2% of overall issuance in 
non-EU markets, confirming Europe’s leading role in the sustainable debt capital market. 

Figure 20: Green Bond Share in Total New Issuance for EU and Non-EU (until 30 June 2023)122 

121 Source: Dealogic DCM and JRC calculations. Data as of 30 June 2023. 
122 Sources: Dealogic DCM, JRC calculation. 

36 

 
 
 
 
 
 
 
 
 
 
Sustainability-linked bonds emerged in 2019 as a new financial instrument, incentivising the 
transition  with  contractual  sustainability  targets.  Their  uptake  is  still  limited  compared  to 
green bonds, having peaked in 2021 at EUR 51.8 billion, given the more recent development 
of this new type of assets.   

However, the “green-ness” of green bonds and sustainability-linked bonds remains a cause for 
concern  due  to  the  risk  of  greenwashing  despite  the  emergence  of  standards  and  principles 
that require third-party certification and adequate reporting. Political agreement was reached 
in  early  2023  on  the  voluntary  EU  Green  Bond  Standard,  which  will  rely  on  the  EU 
Taxonomy and independent reviewers to provide guarantees with a high degree of confidence 
that financing raised compliant with this standard is genuinely ‘green’.123  

While bonds  are  traded  publicly,  in  the loan market, lending normally takes place based  on 
private  information.  The  loan  market  has  only  recently  seen  the  introduction  of  codified 
principles  to  facilitate  and  support  environmentally  sustainable  economic  activity.  All  loans 
that follow ICMA’s Green loans principles are labelled as green.124 Green loan volumes have 
been steadily increasing in the EU since 2016, reaching almost EUR 60 billion in 2022 (see 
Figure 21, below).  

Figure 21: Yearly Issuance of Green Loans in the EU (until 30 June 2023)125 

For investment funds, the entry into force of the Sustainable Finance Disclosures Regulation 
(SFDR)  shed  light  on  financiers’  sustainability  claims.  Since  2022,  financial  market 
participants  are  required  to  disclose  information  on  their  financial  products  with  purported 
Environmental,  Social,  Governance  (ESG)  benefits. Figure 22 below shows  that total assets 
under management for products with ESG characteristics and products with a sustainability 
objective has for a time represented over half the market before stabilising at around 50% of 
all assets under management.  

123 European green bond standard (europa.eu)  
124https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/LMA_Green_Loan_Principles_Booklet-
220318.pdf  
125 The chart includes three types of loans: club deals, syndication transactions, bilateral transactions. Source: Refinitiv, JRC 
calculations. 

37 

 
 
 
 
 
 
 
Figure 22: Assets Under Management by SFDR Classification126 

However,  SFDR-based  classifications  have  not  always  been  a  reliable  measure  of  the 
sustainability  of  funds,  as  the  Regulation  gives  market  participants  considerable  leeway  to 
define  sustainability.  For  example,  while  funds  tracking  the  EU  Paris-Aligned  or  Climate 
Transition  Benchmarks,127  can  be  considered  sustainable,  other  products  still  have 
considerable exposures to the fossil fuel sector.128 

Figure 23: EU market capitalization by greenness, 2021129 

126 Article 6 = funds without a sustainability scope; Article 8 = funds that promote environmental or social characteristics; 
Article 9 = funds that have sustainable investment as their objective. Source: MorningStar, JRC Calculation 
127 EUR-Lex - 32019R2089 - EN - EUR-Lex (europa.eu) 
128 Commission Staff Working Document on Enhancing the Usability of the EU Taxonomy and the overall EU Sustainable 
Finance Framework https://impact-investor.com/article-9-funds-underreporting-exposure-to-fossil-fuels-research/  
129 Green = top 10% of companies, i.e. below the 10th percentile threshold in both absolute emissions & emissions intensity 
rankings;  Brown  =  companies  ranking  above  the  specified  threshold  for  both  absolute  emissions  &  emissions  intensity 
rankings;  Grey  intensity  =  companies  like  green  ones  regarding  absolute  emissions,  but  like  brown  ones  for  emissions 
intensity;  Grey  absolute  =  companies  like  green  ones  regarding  emissions  intensity,  but  like  brown  ones  for  absolute 
emissions. Source: JRC calculation based on MSCI emissions data (ranking based on global MSCI dataset; totalled figures by 
category referring to EU-domiciled companies sub-set) 

38 

 
 
 
 
 
 
 
Green  finance  can  also  be  measured  through  green  market  capitalisation  (equity 
investments)  of  EU-domiciled  companies,  defining  green  firms  as  those  in  the  lowest  10th 
percentile for  both  total GHG emissions (scope 1  and scope 2) levels and  intensities. Green 
companies  represent  a  very  small  share  of  overall  market  capitalisations  (see  Figure  23,  for 
2021). 

The gold standard for defining green economic activities is the EU Taxonomy, a cornerstone 
of the EU’s Sustainable Finance framework. The mandatory Taxonomy-alignment disclosures 
on Capex, OpEx and revenue for companies under the scope of the  Corporate Sustainability 
Reporting  Directive  (CSRD)  will  allow  reliable  quantification  of  finance  aligned  with  a  net 
zero  trajectory  by  2050  (and  other  environmental  objectives).  With  first  reporting  on 
taxonomy-alignment  mandated  for  2023,  it  will  be  possible  to  start  aggregating  these  data 
from 2024 onwards. 

INTEGRATING CLIMATE IN FINANCIAL MARKET POLICY  

Green finance is increasing and the sustainable finance regulatory framework that the EU has 
put  in  place  since  2018  has  been  instrumental  in  driving  the  reorientation  of  private  capital 
flows,  but  green  finance  remains  far  from  the  levels  needed  to  finance  the  transition  to  a 
climate  neutral  and  climate  resilient  economy.  Policy  needs  to  re-focus  financing  for  the 
transition of “brown” sectors towards “green”, while avoiding lock-ins that undermine long-
term goals. The 2023 Commission Recommendation on Transition Finance outlines how the 
EU’s existing toolbox can already be used130 and provides a starting point for the upcoming 
revisions  of  existing  financial  market  policies,  including  identification  of  new  policies  to 
ensure  a  comprehensive  framework  to  enable  the  EU  to  achieve  its  climate  targets.  The 
Commission’s commitment in the Renewed Sustainable Finance Strategy of 2021 to report on 
its implementation by the end of 2023 will be an opportunity to assess needs to be addressed 
going forward. 

FUNDING FROM THE EU EMISSION TRADING SYSTEM 

The  Innovation  Fund  is  one  of  the  key  instruments  at  EU  level  to  bring  solutions  to  the 
market  to  decarbonise  the  European  economy,  supporting  its  transition  to  climate  neutrality 
while  fostering  its  competitiveness.  It  is  Europe’s  key  instrument  to  gear  up  the  EU  green 
industrial strategy while preserving cohesion objectives. Following the ETS Directive revision 
the Innovation Fund131 will:  

1)  grow from 450 million to approximately 530 million ETS allowances; 

2)  Have  a  bigger  scope  in  terms  of  sectors  (maritime,  aviation,  buildings,  road  transport), 
size of grant (introducing a category of medium-scale projects, with total investment costs 
of  EUR  20  million  to  EUR  100  million)  and  in  terms  of  level  of  innovation,  allowing 
support for upscaling innovative technologies;  

3)  be able to introduce new  financing mechanisms, with projects  selected through auctions 
(competitive  bidding)  and  supported  through  fixed  premium  contracts,  contracts  for 
difference or carbon contracts for difference. 

130 EUR-Lex - 32023H1425 - EN - EUR-Lex (europa.eu)  
131 See delegated regulation on the Innovation Fund (Regulation (EU) 2019/856)  

39 

 
 
 
The  Innovation  Fund  portfolio  has  continued  to  increase.  A  total  of  23  large-scale  projects 
(total investment costs above EUR 7.5 million) and 46 small-scale projects (total investments 
costs  below  EUR  7.5  million)  are  under  implementation,  with  a  total  EU  contribution 
amounting  to  EUR  3.1  billion.  The  investment  mobilised  by  these  grant  contributions 
amounts to more than EUR 13 billion (estimated aggregate capital costs for the 69 projects). 
Following  the  publication  of  results  from  the  third  call  for  large-scale  projects,  another  41 
projects  with  total  grants  amounting  to  EUR  3.6  bn  are  currently  preparing  their  grant 
agreements with CINEA. In parallel, a total of 43 projects were awarded project development 
assistance by mid-2023. The third call for small scale projects closed in September 2023; 72 
applications were received, asking for EUR 289 million, 2.9 times more than the call budget 
of EUR 100 million. The launch of a new call for proposals is planned by end 2023, with a 
total budget of EUR 4 billion, covering small, medium and large-scale projects.  

In addition, following  the introduction of the competitive  bidding  mechanism  in  the revised 
ETS  Directive,  the  first  auction  organised  at  EU  level  under  the  Innovation  Fund,  on 
renewable hydrogen, is planned to be launched by the end of the year, with a budget of EUR 
800 million, to respond to the priorities put forward in the Hydrogen Bank Communication,132 
the Green Deal Industrial Plan133 and the Net-Zero Industry Act.134  

The  Modernisation  Fund  supports  lower-income  Member  States  with  financial  assistance, 
generated through the ETS, to modernise their energy systems and improve energy efficiency. 
Up to 2030, over 750 million allowances will be auctioned to support these Member States, an 
increase  by  110  million  allowances  (representing  around  EUR  60  billion),  thanks  to  the 
revision  of  the  ETS  Directive.  In  the  latest  disbursement  cycle,  the  EU  allocated  EUR  2.4 
billion to 31 projects across seven beneficiary countries. Additional investments were made in 
Romania  (EUR  1.1  billion),  Czechia  (EUR  1 billion),  Bulgaria  (EUR  197  million),  Poland 
(EUR 47 million), Croatia (EUR 88 million), Latvia (EUR 5 million), and Lithuania (EUR 1 
million). The Modernisation Fund has now distributed a total of around EUR 7.5 billion since 
January  2021,  benefiting  ten  eligible  Member  States.  Under  the  revised  EU  ETS,  Greece, 
Portugal and Slovenia will also become beneficiaries of the Modernisation Fund. 

MAINSTREAMING CLIMATE POLICIES IN THE EU BUDGET 

The  EU  budget  2021-2027  –  both  the  ‘multiannual  financial  framework’  and  the 
NextGenerationEU instrument – is an important enabler of the green transition. It is currently 
projected that  in  the period up to 2027 it  will contribute  EUR 578 billion to climate  action. 
This  represents  32.6%  of  the  EU’s  total  budget135  and  exceeds  its  30%  climate  spending 
target. This target is underpinned by programme-specific spending targets, for instance in the 
European  Regional  Development  Fund  (30%),  the  Neighbourhood,  Development  and 
International  Cooperation  Instrument  (30%),  Horizon  Europe  (35%),  the  Cohesion  Fund 
(37%),  the  Common  Agricultural  Policy  (40%),  the  Connecting  Europe  Facility  (60%),  and 
the LIFE programme (61%). 

The  EU’s  Recovery  and  Resilience  Facility  –  the  centrepiece  of  NextGenerationEU,  the 
EU’s  recovery  instrument  –  has  a  value  of  up  to  EUR  723.8  billion  and  enables  Member 
States to significantly increase climate investments. To qualify for the Facility’s grants (EUR 

132 COM/2023/156 
133 COM/2023/62 
134 COM/2023/161 
135 European Commission’s ‘statement of estimates’ published in preparation of the draft budget 2024. The projected amount 
reflects loans currently requested in the RRF and excludes the Innovation and Modernisation Funds. 

40 

 
 
 
338  billion)  and  loans  (EUR  385.8  billion),  Member  States  have  prepared  recovery  and 
resilience plans setting out investments and policy reforms that contribute to the Facility’s six 
policy objectives including the green transition. Each national plan must spend a minimum of 
37% of its total allocation on measures contributing to climate objectives (such as initiatives 
promote energy efficiency, sustainable mobility and renewable energy). Every measure must 
also comply with the  ‘do-no-significant-harm’ principle. All 27 Member State plans  exceed 
the 37% benchmark, with some Member States spending well over half of their allocation to 
fund climate policy. Collectively Member States dedicate 40% of their allocations to climate 
objectives (EUR 203 billion)136. 

In addition, during 2023, Member States were (or still are) complementing their recovery and 
resilience  plans  with  new  chapters  on  REPowerEU  ,  a  joint  response  to  the  energy  crisis 
caused  by  Russia’s  invasion  of  Ukraine.  New  or  scaled-up  reforms  and  investments  in 
Members States to help phase out the EU’s dependence on Russian fossil fuels and accelerate 
the  clean  energy  transition  will  be  supported  by  additional  financial  firepower  (EUR  20 
billion of new grants, transfers from other funds and use of remaining NGEU loans).  

At the same time, the EU budget is enhancing its focus on the results of the measures that it 
finances. By way of example, by 2022:  

•  459 362  households  had  improved  their  energy  classification  through  the  regional 

funds;   

•  Annual  energy  consumption  had  been  reduced  by  nearly  14.2  terawatt  thanks  to  the 

Recovery and Resilience Facility;   

•  3 640  gigawatts  of  additional  renewable  energy  had  been  financed  by  the  regional 

funds.  

InvestEU 

At  least  30%  of  the  InvestEU  programme’s  target  of  EUR  372  billion  for  mobilising 
additional  investment  over  the  period  2021-27  should  contribute  to  meet  the  EU  climate 
objectives. Under the Sustainable Infrastructure Window, 60% of the funding must be spent 
on climate and environment. Investments above EUR 10 million are subject to sustainability 
proofing  (identify,  assess  and  mitigate  climate,  environment  or  social  risks).  All  InvestEU 
supported  investment  will  be  climate  and  environmentally  tracked  against  the  methodology 
issued  by  the  Commission.  Besides  the  EIB,  18  institutions  have  been  selected  to  start 
negotiating  Guarantee  Agreements  for  them  to  become  Implementing  Partners,  with 
Guarantee Agreements signed with the European Bank for Reconstruction and Development 
(EBRD), Council of Europe Development Bank (CEB), Nordic Investment Bank (NIB), CDP 
Equity  (CDPE),  Caisse  des  Dépôts  (CDC)  in  2022.  Financial  products  foreseen  will  help 
address  market  failures  in  providing  access  to  finance  projects  in  a  broad  area  of  policy 
priorities from transport, smart mobility, clean energy, digital connectivity, as well as energy 
efficiency, decarbonisation of industry, renewable energy, circular economy and other fields.  

European Regional Development Fund and Cohesion Fund  

Member States’ planned allocations under Cohesion policy programmes for the period 2021-
2027  exceed  the  climate  expenditure  targets  of  both  the  European  Regional  Development 
Fund  (ERDF) (30.0%) and the Cohesion Fund (CF) (37.0%). EUR 92 billion (36.3%) of the 
EUR 253.3 billion of ERDF and CF funds financed by the EU under the current multiannual 
financial framework are expected to fund climate change mitigation and adaptation measures. 

136 Recovery and Resilience Scoreboard (europa.eu)  

41 

 
 
 
In  addition,  about  24.9%  of  the  EUR  10.2  billion  of  Interreg  funds  financed  by  the  EU  are 
expected to fund climate relevant measures. Figure 24 shows the funding allocated to climate 
relevant policy areas as a share of total ERDF, CF, and Interreg climate expenditure.  

Figure 24: ERDF, CF and Interreg EU climate amounts by policy area137 

Research and Innovation Framework Programmes (Horizon Europe and Horizon 2020) 
Investments in research and innovation are essential for generating knowledge and solutions 
for  the  transition  towards  climate  neutrality  and  resilience.  Overall,  Horizon  Europe  will 
contribute at least 35% of its EUR 95.5 billion budget to climate objectives. By end of 2022, 
over  EUR  8.5  billion  have  already  been  earmarked  to  R&I  supporting  climate  action.138  A 
broad portfolio of ambitious European private-public partnerships is mobilising resources and 
developing  solutions  necessary  to  deliver  on  the  EU’s  climate  agenda  across  key  economic 
sectors such as steel, process industries, hydrogen, batteries, bioeconomy, aviation, road and 
waterborne transport, buildings, water and more.  

137  Totals  may  not  add  up  due  to  rounding.  The data  shown  were  taken  on  25/09/2023  from  the  Open  Data  Portal  for the 
European  Structural  Investment  Funds  -  European  Commission  |  Data  |  European  Structural  and  Investment  Funds 
(europa.eu), which contains more detailed information including climate spending by programme. Data shown are from the 
latest adopted versions of programmes. These figures are subject to change as Member States may amend their programmes 
during the programming period. The methodology for climate tracking under the Recovery and Resilience Facility (RRF) has 
been used as a basis for categorizing climate expenditure by policy category. 
138 Preliminary figures 

42 

 
 
 
 
 
Just Transition Fund  

The Just Transition Fund (JTF) -related cohesion policy programmes adopted make EUR 18.5 
billion of EU investments available to help the people and places that suffer the most from the 
transition  to  climate  neutrality.  In  addition  to  JTF,  the  other  2  pillars  of  the  Just  Transition 
Mechanism will mobilise EUR 28 billion from public and private investments to address the 
social  and  economic  effects  of  the  transition.  The  Commission  has  approved  67  Territorial 
Just  Transition  Plans,  covering  a  total  of  93  territories,  including  coal  regions  and  carbon 
intensive  regions.  Almost  half  of  JTF  investments  will  support  diversification  of  the  local 
economy, so that they don’t depend on a single polluting sector, and help people acquire new 
skills. The first JTF projects are being selected in Estonia and Netherlands. 

European Social Fund (ESF+)  

For the period 2021-2027, Member States programmed almost 6 billion or 6% of total ESF+ 
allocations139  for  green  skills  and  green  jobs,  considerably  more  than  in  the  previous 
programming  period.  Finland,  Italy,  Belgium,  Luxembourg,  and  Denmark  allocated  the 
highest  shares  to  green  jobs  and  skills  (between  12%  and  31%)  while  in  several  individual 
programmes  from  Belgium,  Denmark,  Italy,  France,  Germany,  Portugal  and  Spanish 
programmes  this  share  is  20%  and  above.  In  terms  of  actual  investments,  three  individual 
programmes  from  Italy,  Portugal  and  Greece  alone  contribute  to  some  30%  of  total  EU 
climate expenditure for green jobs and skills. Overall, a third of climate expenditure has been 
allocated to access to employment and activation measures.  

Technical Support Instrument  

This year the Technical Support Instrument is financing several projects on adaptation, do-no-
significant-harm, faster permitting, industrial eco-systems and skills, building renovation but 
also  capacity  building.  A  Flagship  on  preparation  of  the  Social  Climate  Fund  and  the  new 
ETS has been developed to help Member States implement the “Fit For 55” package.  

LIFE programme  

LIFE is the EU’s funding instrument for the environment and climate action. In 2022, more 
than  EUR  600  million  were  awarded  to  200  projects  supporting  the  Green  Deal,  including 
projects developing innovative solutions and sharing best practice to reduce GHG emissions, 
increase resilience to climate change and contribute to clean energy transition. In 2023, over 
EUR 600 million will be awarded to projects supporting environment, climate action and the 
clean energy transition, including contributing to the objectives of REPowerEU and the Green 
Industrial Plan. In the last year Moldova and North Macedonia joined Iceland and Ukraine in 
the list of third countries participating in LIFE.  

139 EU’s main tool for investing in skills and for supporting labour market transitions with a total budget of almost EUR 99.3 
billion for the period 2021-2027. 

43 

 
 
 
 
 
 
 
 
7  INTERNATIONAL CLIMATE ACTION  

OVERVIEW AND DEVELOPMENTS  

The  past  year  has  seen  productive  international  exchanges  including  the  Ministerial  on 
Climate  Action,  the  Major  Economies  Forum,  the  Petersberg  Climate  Dialogue,  the  Africa 
Climate Summit, the Cartagena Dialogue and the 27th Conference of the Parties in Sharm el 
Sheik, Egypt. 

The EU is pushing for an ambitious Mitigation Work Programme, and focusing on delivering 
concrete solutions to close the ambition and implementation gap and to  create  incentives  to 
set a high level of ambition. 

The EU is seeking an ambitious outcome on the first Global Stocktake to set the course to 
achieve the Paris Agreement goals and to get on track to limit warming to 1.5 degrees Celsius, 
and concrete recommendations for enhanced, immediate and ambitious mitigation action pre- 
and  post-2030.  The  EU  is  also  wants  action  on  climate  adaptation  and  means  of 
implementation and support, including aligning global finance flows with these goals. 

On Loss and  Damage discussed at COP27 in Sharm el-Sheikh, a  fund to  assist developing 
countries that are particularly vulnerable to the adverse effects of climate change will be set 
up,  and  the  EU  is  engaging  in  the  work  of  the  Transitional  Committee  to  develop 
recommendations for the operationalisation of the new funding arrangements. 

The  EU  has  been  active  in  scaling  up  international  finance  for  adaptation.  The  EU  and  its 
Member  States  are  the  largest  donors  of  funding  for  adaptation,  contributing  more  than 
EUR 12 billion  per  year  to  climate  adaptation  or  actions  that  combine  adaptation  and 
mitigation. At COP27, and in the follow-up intersessional Conference 58 in Bonn, the Parties 
agreed  on  the  possible  structural  aspects  of  a  Global  Goal  on  Adaptation  Framework  for 
consideration and adoption at COP28.  

The  EU  has  also  joined  and/or  further  developed  initiatives  such  as  Adaptation  Without 
Borders,  the  Africa  Adaptation  and  Innovation  Initiative,  the  International  Coral  Reef 
Initiative, and the All-Atlantic Ocean Research Alliance.  

The EU is helping to advance plurilateral initiatives, including the announcement of a global 
pledge  for  doubling  energy  efficiency  and  tripling  renewable  energy  by  2030.  The  2021 
Global  Methane  Pledge,  co-led  with  the  United  States  of  America,  now  has  over  150 
participants and a dedicated secretariat. The EU has provided EUR 10 million to support the 
work  and  is  preparing  development  finance  for  implementation  projects.  The  EU  is  also 
launching  the  MARS  initiative  (Methane  Alert  and  Response  System)  to  support  ongoing 
work in this area. 

MULTILATERAL AND BILATERAL ENGAGEMENT 

Significant progress was made with multilateral and bilateral partners to convince and support 
other  countries,  in  particular  major  emitters,  to  increase  their  climate  ambition.  The  EU 
strengthened its green deal diplomacy efforts by increasing  engagement  with third countries 
and regions.  

Following the adoption of the Green Alliance with Japan in 2021, the EU launched further 
green alliances and partnerships with Morocco (October 2022), Norway (April 2023) and the 
Republic of Korea (May 2023), bilateral frameworks for closer dialogue and cooperation on 
climate action, environmental protection and the clean energy transition.  

44 

 
 
Regular  exchanges  took  place  with  the  United  States,  including  under  the  High-Level 
Climate Action Group set-up by the 2021 EU-US Summit. The EU also engaged in high level 
dialogues with China and Canada underlining that cooperation on climate for large emitters 
is central to building global consensus for increasing climate ambition aligned with the 1.5 °C 
degree temperature limit, and to ensuring that existing commitments are implemented. 

The  EU  together  with  other  members  of  the  International  Partners  Group  set  up  a  Just 
Energy Transition Investment Partnership worth over USD 8.5 billion with South Africa 
in  2021  and  signed  three  more  since  with  Indonesia  (2022),  Vietnam  (2022)  and  Senegal 
(2023) providing USD 20 billion, USD 15.5 billion and EUR 2.5 billion respectively in new 
public  and  private  financing.  The  partnerships  are  a  model  of  how  the  international 
community can work with partner countries to commit to sustainable development and jointly 
implement a clean and just energy transition.  

The  Political  Declaration  signed  with  Indonesia  includes  an  accelerated  path  to  reducing 
power  sector  emissions  to  net  zero  by  2050  and  a  strategy  based  on  the  expansion  of 
renewables so that renewable energy comprises at least 34% of all power generation by 2030, 
the phase down of on- and off-grid coal-fired electricity generation, and further commitments 
to regulatory reforms and energy efficiency. 

The  Partnership  with  Vietnam,  led  by  the  EU  and  UK  as  co-leads  of  the  International 
Partners Group, also sets ambitious new targets such as advancing the projected date for all 
GHG  emissions  to  peak  from  2035  to  2030,  limiting  Vietnam’s  peak  coal  capacity  to  30.2 
GWT (down from the current 37 GWT) and accelerating the adoption of renewables to reach 
at least 47% of electricity generation by 2030. 

The Partnership with Senegal seeks to strengthen the development of renewable energy and 
infrastructure  and  technologies  to  accelerate  deployment  and  use.  Senegal  aims  to  reach  a 
share of 40% renewable energy in its installed generation capacity by 2030. 

Through  the  Global  Gateway  strategy,  the  European  Commission  and  the  EU  High 
Representative  have  set  out  to  boost  smart,  clean  and  secure  links  in  digital,  energy  and 
transport sectors  and to  strengthen health, education  and research systems  across the  world. 
Between 2021 and 2027, the EU institutions and EU Member States jointly will mobilise up 
to EUR 300 billion of investment for sustainable, high-quality projects, considering the needs 
of partner countries and ensuring lasting benefits for local communities.  
The EU also worked with the Contracting Parties of the Energy Community123 to adopt the 
2030 energy and climate targets to reduce primary and final energy consumption, accelerate 
the uptake of renewables and  reduce  GHG  emissions to achieve climate neutrality by 2050. 
They also agreed to adopt monitoring and reporting of GHG emissions and associated legal 
acts. 

CLIMATE FINANCE AND INTERNATIONAL COOPERATION 

International public climate finance plays an important role in helping developing countries to 
implement the Paris Agreement, together with climate finance from private sources. 

The  Commission  continues  to  support  partner  countries  through  its  financing  instruments. 
Under the Neighbourhood, Development and International Cooperation Instrument (NDICI) – 
Global Europe, with at least 30% to be dedicated to climate action.  

45 

 
 
 
The  Instrument  for  Pre-Accession  Assistance  (IPA  III)  also  sets  a  climate  change  spending 
target  of  18%,  rising  to  20%  by  2027.  The  principle  of  ‘do  not  harm’  is  enshrined  in  both 
regulations. The Commission has committed an additional EUR 4 billion for climate finance 
by  2027  on  top  of  these  climate  change  spending  targets,  which  equates  to  a  35%  climate 
finance target. This is an unprecedented investment by the EU in reducing emissions and in 
helping developing countries build resilience to the effects of climate change. 

The EU, its Member States and financial institutions, collectively known as Team Europe, are 
the  leading  contributor  of  development  assistance  and  the  world’s  biggest  climate  finance 
contributor,  accounting  for  about  a  third  of  the  global  public  climate  finance.  In  2021,  the 
European Union and its 27 Member States committed over EUR 23 billion in climate finance 
from  public  funds  to  support  developing  countries  in  reducing  their  GHG  emissions  and  in 
adapting to the impacts of climate change. 

Over  54%  of  overall  Team  Europe  finance  was  allocated  to  either  climate  adaptation  or  to 
actions  involving  both  mitigation  and  adaptation.  Almost  half  of  the  total  funding  was 
committed in the form of grants. 

Efforts  are  underway  to  promote  the  involvement  of  the  private  sector  in  climate  action 
through  the  European  Fund  for  Sustainable  Development  Plus  (EFSD+)  guarantees  and 
blending.  

46