REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the operation of the European Climate Law and of the Effort Sharing Regulation, and on the Emissions Trading System Directive in the context of the global stocktake
Date: 2024-05-15
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Member State, EU emission allowance, EU environmental policy, adaptation to climate change, environmental monitoring, greenhouse gas, pollution control, reduction of gas emissions, tradeable emission permit

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  EN 

   EUROPEAN COMMISSION  Brussels, 15.5.2024  COM(2024) 196 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the operation of the European Climate Law and of the Effort Sharing Regulation, and on the Emissions Trading System Directive in the context of the global stocktake    
 
 
1.  Introduction 

Regulation  (EU)  2021/1119  (the  European  Climate  Law)1  establishes  the  framework  for  achieving 
economy-wide climate neutrality. It sets a legally binding target of net zero greenhouse gas emissions 
at the latest by 2050, and the intermediate target of reducing net greenhouse gas emissions by at least 
55% by 2030, compared to 1990 levels. It also requires the Union institutions and Member States to 
ensure continuous progress on adaptation. The European Climate Law entered into force in July 2021. 

Regulation  (EU)  2018/842  (the  Effort  Sharing  Regulation)2  establishes  for  each  Member  State  a 
national target for the reduction of greenhouse gas emissions by 2030, compared to 2005 levels, in the 
following sectors: domestic transport (excluding aviation), buildings, agriculture, small industry and 
waste. Initially adopted in 2018, the Effort Sharing Regulation was revised in 2023, as part of a package 
aimed at reducing the Union’s net greenhouse gas emissions by 55% by 2030 (the “Fit for 55” package). 

Directive  2003/87/EC  (the  Emission  Trading  System  Directive)3  establishes  the  Union’s  emission 
trading system (ETS). The Union’s ETS is a cornerstone of the Union’s policy to combat climate change 
and  continues  to  cap  greenhouse  gas  emissions  in  the  energy,  manufacturing  and  aviation  sectors, 
providing a price signal which incentivises innovation and emission abatement. The ETS Directive was 
reviewed in 2023 to align it with the new climate ambition of reducing the Union’s net greenhouse gas 
emissions by 55% by 2030. The revised ETS Directive gradually extends carbon pricing to new sectors 
of the economy to support their emissions reductions, in particular road transport and heating fuels, and 
maritime transport.  

This report responds to the obligations set for the Commission in Article 11 of the European Climate 
Law, Article 15(2) of the Effort Sharing Regulation and Article 30(3) of the Emissions Trading System 
Directive. These provisions require the Commission to submit a report to the European Parliament and 
to  the  Council  on  the  operation  of  the  European  Climate  Law  and  the  Effort  Sharing  Regulation 
respectively,  and  as  regards  the  Emissions  Trading  System  Directive,  to  report  to  the  European 
Parliament and to the Council in the context of each global stocktake agreed under the Paris Agreement.  

In addition to this report, the Commission will also prepare a report on the operation of Regulation (EU) 
2018/841  (the  Land  use,  land  use  change  and  forestry  (LULUCF)  Regulation)  in  line  with  the 
obligations  set  out  in  that  Regulation4.  Furthermore,  the  Commission  will  prepare  a  report  to  the 
European  Parliament  and  to  the  Council  on  Regulation  (EU)  2018/1999  on  the  Governance  of  the 
Energy  Union  and  Climate  Action  (the  Governance  Regulation)5  to  inform  on  the  operation  of  the 
Regulation and its contribution to the Energy Union and the goals of the Paris Agreement. 

The  first  global  stocktake under the  Paris  Agreement  was  concluded  at  the  United  Nations  Climate 
Change Conference at the end of 2023 (COP28). The global stocktake found that parties are putting 
increasingly effective climate policies in place, but that urgent additional action is needed to put the 
world fully on track for achieving the goals of the Paris Agreement. Parties agreed that limiting global 
warming to 1.5 °C requires deep, rapid and sustained reductions in global greenhouse gas emissions by 

1 Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the 
framework for achieving climate neutrality (‘European Climate Law’), OJ L 243, 9.7.2021, p. 1. 
2 Regulation (EU) 2018/842 of the European Parliament and of the Council of 30 May 2018 on binding annual 
greenhouse gas emission reductions by Member States from 2021 to 2030 contributing to climate action to meet 
commitments under the Paris Agreement, OJ L 156, 19.6.2018, p. 26. 
3 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a system 
for greenhouse gas emission allowance trading within the Union, OJ L 275, 25.10.2003, p. 32. 
4 Regulation (EU) 2018/841 of the European Parliament and of the Council of 30 May 2018 on the inclusion of 
greenhouse  gas  emissions  and  removals  from  land use,  land  use  change  and forestry  in  the  2030  climate  and 
energy framework, OJ L 156, 19.6.2018, p. 1, Article 17(2).  
5  Regulation  (EU)  2018/1999  of  the  European  Parliament  and  of  the  Council  of  11  December  2018  on  the 
Governance of the Energy Union and Climate Action, OJ L 328, 21.12.2018, Article 45. 

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43%  by  2030,  and  by  60%  by  2035  compared  to  2019  levels  and  reaching  net  zero  CO2 emissions 
globally  by  2050.  The  global  stocktake  highlighted  that  the  fossil  fuel  era  should  draw  to  an  end, 
recognising the need for all to transition away from fossil fuels. The agreement also calls on the parties 
to triple global renewable energy capacity and to double the rate of energy efficiency improvements by 
2030, to accelerate efforts globally towards net zero emission energy systems, making use of zero- and 
low-carbon fuels well before or by around mid-century. Furthermore, it underlines the importance of a 
just  transition  and  welcomes  the  decision  on  a  Just  Transition  Work  Program.  It  also  calls  for  the 
acceleration of efforts to phase down unabated coal, emissions from road transport, tackling methane 
and other non-CO2 emissions this decade, and phasing out as soon as possible inefficient fossil fuel 
subsidies that do not address energy poverty or vulnerable groups. This requires a shift in investment 
patterns across the globe to ensure finance flows are consistent with low emission and climate resilient 
development pathways.  

2.  Operation of the European Climate Law 

Towards climate neutrality 

The Commission assessed the collective progress made by all Member States towards the achievement 
of the climate-neutrality objective and the consistency of national measures with the climate-neutrality 
objective, as required under the European Climate Law, in its Climate Action Progress Report 20236. 
The first European Climate Law assessment was undertaken together with the assessment of progress 
towards climate targets provided for under the Regulation on the Governance of the Energy Union and 
Climate Action. Although the EU greenhouse gas emissions continue to fall and there are encouraging 
signs of action on the ground, the Commission’s assessment is that there is need to significantly step up 
implementation efforts and accelerate emissions reduction to stay on track to reach the 2030 target and 
climate neutrality by 2050. Action is most needed in areas which still require significant reductions in 
emissions (e.g. buildings, transport), where progress is slow (e.g. agriculture), or where, in recent years, 
there has been a deteriorating trend, as is the case for the carbon sink (e.g. land use, land-use change, 
and forestry). Member States must also accelerate action to end fossil fuel subsidies7, also confirmed in 
the Commission’s analysis of the draft updated national energy and climate plans8. Based on the Climate 
Law assessment, the Commission issued recommendations to Member States in December 2023.9 The 
next step is for Member States to notify the Commission on how they intend to take due account of the 
recommendations. 

The  Commission  also  reviewed  the  consistency  of  Union  measures  with  the  climate-neutrality 
objective, in the Climate Action Progress Report 2023. The “Fit for 55” package sets the Union on a 
path to reach its climate targets in a fair,  cost-effective, and competitive way. With most of the key 
proposals of the “Fit for 55” package adopted by co-legislators10, Union policies are now aligned with 
the  updated  2030  target  to  reduce  net  greenhouse  gas  (GHG)  emissions  by  at  least  55%  set  in  the 
European Climate Law, but there is scope to further improve the consistency of Union policies with 
climate objectives. In 2022 and 2023, the Commission made additional proposals contributing towards 
the  achievement  of  the  Union's  climate  targets11.  As  stated  in  the  Climate  Action  Progress  Report, 

6 EU Climate Action Progress Report 2023, COM(2023) 653. 
7 2023 Report on Energy Subsidies in the EU, annexed to the 2023 State of the Energy Union Report, COM(2023) 
651. 
8 EU wide assessment of the draft updated National Energy and Climate Plans, An important step towards the 
more ambitious 2030 energy and climate objectives under the European Green Deal and RePowerEU, COM(2023) 
796. 
9 In accordance with Article 7(3) of the European Climate Law. 
10 The legislative procedure is still ongoing for the proposed revised energy taxation directive. 
11 See chapter 2 of the technical information accompanying the 2023 Climate Action Progress Report (COM(2023) 
653) for an overview of recently adopted policy contributing to the alignment of EU level policies with climate 
objectives. 

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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 significantly harmful activities and sectors towards more sustainable economic models. 

The  European  Scientific  Advisory  Board  on  Climate  Change  adopted  a  report  in  which  it  assesses 
progress and policy consistency12, as further explained below. 

The European Climate Law provides for an intermediate target to be proposed by the Commission at 
the latest six months after the global stocktake under the Paris Agreement.  On 6 February 2024, the 
Commission published a Communication on the Union’s climate target for 204013, setting a path from 
the already-agreed intermediate 2030 target to  climate neutrality by 2050. In line with the scientific 
advice by the European Scientific Advisory Board on Climate Change14 and based on a detailed Impact 
Assessment, the Communication presents a 90% net GHG emission reduction compared to 1990 levels 
as the recommended target for 2040. This target corresponds to an overall greenhouse gas emissions 
budget for the EU that is in line with the provisions of the European Climate Law to present a projected 
indicative Union greenhouse gas budget for the 2030-2050 period, defined as the indicative total volume 
of net greenhouse gas emissions that are expected to be emitted in that period without putting at risk 
the Union’s commitments under the Paris Agreement. Achieving the target will require a number of 
enabling conditions, as set out in the Communication. The Communication launches the political debate 
and  informs  the  preparation  of  the  post-2030  framework.  It  is  the  start  of  a  dialogue  and  extensive 
outreach  on  the  right  pathway  to  2040  and  climate  neutrality  by  2050.  This  will  inform  the  next 
Commission  in  view  of  making  the  legislative  proposal  to  include  the  2040  target  in  the  European 
Climate Law and designing the appropriate post-2030 framework. 

The Commission also adopted a report on the projected indicative Union greenhouse gas budget for the 
2030-2050 period15, as required by Article 4(4) of the European Climate Law. 

Adaptation to climate change 

The  Commission  assessed  the  collective  progress  made  by  all  Member  States  on  adaptation,  the 
consistency of national measures with ensuring progress on adaptation, and the consistency of Union 
measures with ensuring progress on adaptation, in the Climate Action Progress Report 2023 and in a 
separate Staff Working Document on national progress with implementing adaptation16. The Union has 
made broad progress on adaptation to climate change, in particular through the ongoing implementation 
of the EU Adaptation Strategy17. However, progress has been uneven across areas. The assessment of 
progress on adaptation at the national level shows that Member States need to take significantly more 
action to adapt to climate change – for instance, on governance, funding, risk assessments, nature-based 
solutions, as well as monitoring, reporting and evaluation in order to reduce their social and economic 
vulnerabilities to the intensifying climate-related risks. Based on the assessment, the Commission issued 
recommendations  to  Member  States  in  December  2023.  Member  States  are  to  follow  up  on  the 

12 European Scientific Advisory Board on Climate Change, Towards EU climate neutrality, Progress, policy gaps 
and opportunities, Assessment Report 2024, DOI: 10.2800/216446. 
13 Communication from the Commission to the European Parliament, the Council, the European Economic and 
Social Committee and the Committee of the Regions, Securing our future, Europe’s 2040 climate target and path 
to climate neutrality by 2050 building a sustainable, just and prosperous society, COM(2024) 63.  
14 European Scientific Advisory Board on Climate Change, Scientific advice for the determination of an EU-wide 
2040 climate target and a greenhouse gas budget for 2030-2050. DOI: 10.2800/609405. 
15 SWD (2024) 63, Impact Assessment Report, Annex 14: GHG budget. 
16 Commission Staff Working Document: Assessment of progress on climate adaptation in the individual 
Member States according to the European Climate Law, SWD (2023) 932. 
17 Communication from the Commission to the European Parliament, the Council, the European Economic and 
Social Committee, and the Committee of the Regions, Forging a climate-resilient Europe - the new EU Strategy 
on Adaptation to Climate Change, COM(2021) 82. 

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recommendations18 and as a first step, to notify the Commission on how they intend to take due account 
of the recommendations.  

Furthermore, the 12 March 2024 Commission Communication on managing climate risks – protecting 
people  and  prosperity19  as  supported  by  the  European  Climate  Risk  Assessment20  by  the  European 
Environment Agency, sets out the key steps to ensure that despite the worsening climate risks, citizens 
and businesses can rely on the EU and Member States to maintain societal functions and access to basic 
services. It seeks to clarify the responsibility for acting on the difficult choices ahead, informed by the 
best evidence. It shows how the EU can effectively get ahead of climate impacts in the coming years 
and how action on resilience makes achieving other policy objectives cheaper and easier. 

Additionally, and as put forward by the EU Adaptation Strategy, the Commission launched in March 
2021 the European Climate and Health Observatory. It is a unique interdisciplinary partnership which 
supports knowledge-sharing, provides access to relevant information and tools, and provides training 
and capacity-building in the fields of climate and health. Its actions address the European Parliament 
call to address climate related threats to public health21, the objectives and commitments formulated in 
the Declaration of the Seventh Ministerial Conference on Environment and Health22, and the COP28 
UAE Declaration on climate and health, which the Commission endorsed on behalf of the EU23.  

Good progress has been made in implementing the EU Mission on Adaptation to Climate Change24, 
designed to accelerate innovative adaptation action at local and regional levels. Over 300 regions and 
communities,  covering  some  40%  of  the  EU,  have  committed  to  work  together  to  accelerate 
transformation  to  climate  resilience  by  signing  the  Mission  Charter.  The  Mission  Implementation 
Platform25,  operational  since  Spring  2023,  is  disseminating  knowledge  on  climate  adaptation  and 
providing a technical support facility whereas the Adaptation Community of Practice offers multiple 
capacity  building  and  networking  opportunities.  The  first  Horizon  Europe  Mission  funded  projects 
began  in  January  2023,  helping  regions  and  local  authorities  develop  climate  risk  and  vulnerability 
assessments and demonstrating transformative adaptation solutions. 

In September 2021, the Commission adopted climate proofing guidance26. This guidance supports the 
mainstreaming  of  climate  considerations  in  future  investment  and  development  of  infrastructure 
projects. The guidance helps investors to make informed decisions on projects deemed compatible with 
the Paris Agreement and the Union’s climate objectives. 

In July 2023, the Commission adopted ‘Guidelines on Member States’ adaptation strategies and plans’27 
to assist Member States in updating and implementing comprehensive national adaptation strategies, 
plans  and  policies  in  line  with  the  European  Climate  Law  and  the  EU  Adaptation  Strategy.  The 
Commission  seeks  to  support  Member  States  to  adopt  a  whole-of-government  approach  to  climate 
adaptation policymaking by way of multilevel coordination and mainstreaming. The guidelines call for 

18 In accordance with Article 7(3) of the European Climate Law. 
19 COM(2024) 91  
20 EEA (2024), European Climate Risk Assessment, ISSN 1977-8449. 
https://www.eea.europa.eu/publications/european-climate-risk-assessment 
21 European Parliament resolution of 15 September 2022 on the consequences of drought, fire, and other 
extreme weather phenomena: increasing the EU’s efforts to fight climate change (2022/2829(RSP) 
22 https://www.who.int/europe/publications/i/item/EURO-Budapest2023-6 
23 https://www.cop28.com/en/cop28-uae-declaration-on-climate-and-health 
24 https://research-and-innovation.ec.europa.eu/funding/funding-opportunities/funding-programmes-and-open-
calls/horizon-europe/eu-missions-horizon-europe/adaptation-climate-change_en  
25 https://climate-adapt.eea.europa.eu/en/mission 
26 Commission Notice giving technical guidance on the climate proofing of infrastructure in the period 2021-
2027 (2021/C 373/01, OJ C 373, 16.9.2021, p. 1), implementing Article 5(5) of the European Climate Law. 
27 Commission Notice Guidelines on Member States’ adaptation strategies and plans, C/2023/4802, OJ C 264, 
27.7.2023, p. 1–31. 

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applying legal frameworks instead of soft policies, regularly updating adaptation strategies and plans, 
applying climate risk assessments, involving all relevant stakeholders, and monitoring and evaluation 
of  all adaptation  actions.  The  guidelines  also put forward  topics that  need  to  be  considered  such  as 
nature-based solutions and just resilience. 

Scientific advice on climate change 

The European Climate Law provided for the establishment of a European Scientific Advisory Board on 
Climate  Change,  through  amendment  of  Regulation  (EC)  No  401/200928.  The  Advisory  Board  was 
appointed in 2022, to provide independent scientific advice on Union measures and climate targets, 
with  its  Secretariat  hosted  by  the  European  Environment  Agency.  The  Advisory  Board  provided 
scientific advice for the determination of an EU-wide 2040 climate target and a greenhouse gas budget 
for 2030-205029, and adopted several other reports since its establishment. The Commission took due 
account of the advice of the Advisory Board when presenting the recommended Union 2040 climate 
target. 

In its report ‘Towards EU climate-neutrality: progress, policy gaps and opportunities’30, the European 
Scientific Advisory Board on Climate Change (Advisory Board) found that more efforts are needed 
across  all  sectors  to  achieve  the  Union’s  climate  objectives  from  2030  to  2050,  and  particularly  in 
buildings, transport, agriculture and forestry. It acknowledges the potential of the “Fit for 55 package” 
to speed up the EU’s decarbonisation and calls for its full and swift implementation, but warns that 
additional measures are imperative if the EU is to achieve its climate-neutrality objective. The Advisory 
Board recommends a series of actions to put the EU on track towards climate neutrality. These include 
putting forward clear plans and timelines to phase out harmful fossil fuel subsidies, making EU policies 
fully consistent with the need to phase out fossil fuels, reforms to existing EU policies for the post-2030 
period including additional adjustments to the EU ETS and EU ETS 2, and to the overall framework 
for  governing  climate  action  (for  example  as  regards  national  long  term  strategies)  and  enforcing 
compliance of Member States, introducing new policies to pursue more ambitious reductions in demand 
for  material,  energy  and  greenhouse  gas-intensive  products,  better  aligning  the  EU‘s  common 
agricultural  policy  with  EU  climate  ambitions,  introducing  some  form  of  emissions  pricing  in  the 
agricultural and land use sectors, and ensuring a just transition and public support. As regards aviation, 
the Advisory Board recommends that the EU should ensure that the same carbon price applies to all 
flights  (including  to  third-country  destinations).  The  Commission  will  consider  the  advice  of  the 
Advisory Board, inter alia in the context of the implementation of the “Fit for 55” package and when 
preparing the post-2030 climate policy framework.  

The European Climate Law invites each Member State to establish a national climate advisory body. 
Not all Member States have established such a body yet. The Advisory Board recommends that their 
establishment should be mandatory31. 

Climate-consistency check 

In November 2021, the Commission updated its Better Regulation instruments to ensure that new Union 
policies are consistent with climate goals. All proposed Union measures are now to be assessed for their 
consistency  with  climate  objectives  –  the  climate-neutrality  objective  and  the  objective  to  ensure 

28 Regulation (EC) No 401/2009 of the European Parliament and of the Council of 23 April 2009 on the 
European Environment Agency and the European Environment Information and Observation Network, OJ L 
126, 21.5.2009, p. 13. 
29 European Scientific Advisory Board on Climate Change, Scientific advice for the determination of an EU-wide 
2040 climate target and a greenhouse gas budget for 2030-2050. DOI: 10.2800/609405.  
30 European Scientific Advisory Board on Climate Change, Towards EU climate neutrality, Progress, policy gaps 
and opportunities, Assessment Report 2024, DOI: 10.2800/216446. 
31 Mentioned above, European Scientific Advisory Board on Climate Change, Towards EU climate neutrality, 
Progress, policy gaps and opportunities, Assessment Report 2024. 

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progress on adaptation – as part of the impact assessment process.  Good progress has been made in 
implementing this check. In 2022, out of the 26 impact assessments deemed relevant for this assessment, 
19 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 73% of relevant 
cases and reflects the fact that it is a new requirement. The situation has further improved in 2023. Out 
of the 16 impact assessments deemed relevant for this assessment, 13 sufficiently assessed consistency 
with the Climate Law, while 3 did not sufficiently assess that aspect. This represents 81% of the relevant 
cases  and  indicates  an  increase  for  this  indicator  as  compared  to  2022.  With  more  experience  in 
implementing the climate consistency check and in view of a need to embed future climate risks better 
across policies, the operationalisation of and compliance with this new impact assessment requirement 
could  be  further  improved.  The  Advisory  Board  recommends  the  Commission  to  assess  more 
systematically the consistency of any draft measure or legislative proposal.32  

Public Participation 

EU-wide public opinion polls show that an overwhelming majority of EU citizens are concerned about 
climate change, support EU action to address it, and are also taking action themselves33. 

The involvement and commitment of the public, regions, local communities and of all stakeholders is 
crucial to the success of the European Green Deal. To inform and engage citizens on climate change 
and action, as well as to tackle climate disinformation, the Commission continued and enhanced its 
general public outreach through channels such as websites, social media and targeted communication 
activities. In December 2020, the Commission launched the European Climate Pact34 to give citizens a 
greater role in designing both mitigation and adaptation actions, and an effective platform to do so. To 
celebrate  the  first  two  years  of  the  Pact,  in  2023,  the  Commission  organised  a  conference  bringing 
together  Climate  Pact  ambassadors,  experts,  and  activists.  During  the  event,  more  than  6  600 
participants discussed ways to build a more sustainable Europe for the future. By December 2023, more 
than  750  Pact  Ambassadors  were  informing,  inspiring  and  supporting  climate  action  in  their 
communities and networks, and a call was launched to invite organisations to become partners of the 
Pact. The Pact also entered into partnerships with global campaigns encouraging individual action on 
climate change35 and organised events and activities at national level in all Member States. 

In  line  with the  Better  Regulation  rules,  the  Commission  launched  several  public  consultations  and 
stakeholder  events, for  example to gather  views on the  Union’s  climate  target for  2040.  During the 
European Climate Stocktake in October 2023, policymakers and stakeholders discussed the progress 
and achievements towards the Paris Agreement goals, contributing to the discussion in the run-up to 
the  global stocktake.  Over 350 people joined the conference in person in Brussels, with over 7 400 
following online from 93 countries worldwide. 

Furthermore, dialogue with industry is also taking place through the Clean Transition Dialogues, and a 
Strategic Dialogue on the Future of Agriculture with farmers and other actors in the food chain on the 
future of agriculture has also been launched.  

In 2023, the European Parliament, Council and Commission signed a Joint Declaration establishing 15 
July  as  the  EU  day  for  the  Victims  of  the  Global  Climate  Crisis.  The  annual  day  will  serve  to 
commemorate victims in Europe as well as worldwide and to raise awareness of concrete steps that 

32 Mentioned above, European Scientific Advisory Board on Climate Change, Towards EU climate neutrality, 
Progress, policy gaps and opportunities, Assessment Report 2024. 
33 Special Eurobarometer on Climate Change, July 2023 
34 European Climate Pact website, https://climate-pact.europa.eu/index_en. 
35 ”Count Us In” campaign in 2020-23 and the UN Act Now campaign from 2023. 

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people can take at their level to help prevent climate disasters from happening, to be better prepared 
and respond to them. 

Last, the Communication on the Union’s climate target for 2040 foresees strengthening a structured and 
systematic  dialogue  with  social  partners  to  ensure  their  contribution  and  involvement,  focusing  on 
employment, skills and just transition. 

Sectoral roadmaps 

Starting  from  the  Updated  Industrial  Strategy  in  202136,  the  Commission  has  engaged  with  several 
European  industrial  ecosystems  to  prepare  sectorial  “transition  pathways”.  To  this  effect,  the 
Commission and the EU’s Industrial Forum have developed a blueprint for the transition pathways of 
industrial ecosystems37, which includes also an addendum38 to address the need for an accelerated green 
transition while ensuring higher diversification of supplies (including energy), more affordable energy, 
higher  energy  efficiency  as  well  as  more  control  over  strategic  value  chains,  following  the  Russian 
invasion of Ukraine. 

Currently,  the  transition  pathways39  have  been  prepared  for  the  following  ecosystems:  tourism, 
chemicals, construction, proximity and social economy, textiles, mobility, agri-food and retail. Similar 
pathways,  covered  under  other  industrial  strategies,  exist  also  for  energy  intensive  industries, 
renewables,  health,  creative  and  cultural  industries,  digital  and  electronics.  Transition  pathways  on 
aerospace and metals sectors ecosystems are under preparation. 

To support the decarbonisation of European industry in the implementation of the European Green Deal, 
the  Commission  has  engaged  in  organising  Clean  Transition  Dialogues  at  the  highest  level  with  a 
number  of  sectors  and  their  value  chains  to  identify  major  bottlenecks  to  acceleration  of  their 
investments in decarbonisation and how to strengthen the industrial dimension of the European Green 
Deal  in  general.  So  far,  the  following  Clean  Transition  Dialogues  took  place:  Hydrogen;  Energy-
intensive; Clean-tech; Critical raw materials; Green Deal infrastructure; Forest and Forestry owners; 
Cities; Steel industry; Clean mobility. A number of sectors within the energy intensive industries cluster 
have  issued  sectorial  Decarbonisation  Manifestos.  The  Commission  presented  the  stocktake  of  the 
Clean Transition Dialogues prior to the Special European Council meeting in April this year40.  

The main underlying issue remains the availability and affordability of clean energy today and in the 
future, creation of markets for climate-neutral, circular economy products, need for more skilled force 
for transition as well increased availability of private financing and capital for targeted support to scale 
up breakthrough technologies and nascent markets for decarbonisation. 

3.  Operation of the Effort Sharing Regulation 

The Effort Sharing Regulation sets for each Member State a national greenhouse gas emission reduction 
target for 2030, collectively contributing to an emission reduction at EU level of 40% compared to 2005 
levels. These targets are differentiated based on fairness as reflected in Member States’ gross domestic 
product  (GDP)  per  capita  and  cost-effectiveness.  To  achieve  the  2030  targets,  the  Effort  Sharing 
Regulation also defines annual emission limits, expressed in Annual Emission Allocations (AEAs) for 
the years 2021 to 2030.  

36 COM(2021)350, Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s 
recovery. 
37 https://ec.europa.eu/docsroom/documents/49407 
38 https://ec.europa.eu/docsroom/documents/53357 
39 https://single-market-economy.ec.europa.eu/industry/transition-pathways_en 
40 COM(2024) 163 

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The Effort Sharing Regulation was revised as part of the “Fit for 55” package, increasing the ambition 
level to align it with the updated 2030 target to reduce net GHG emissions by at least 55% set in the 
European  Climate  Law.  The  amended  Effort  Sharing  Regulation  aims  to  reduce  greenhouse  gas 
emissions by 40% in 2030, compared to 2005 levels, an increase in ambition level of 11 percentage 
points. The annual emission limits were also brought in line with the increased ambition level.41 There 
was no change in the Regulation’s scope, which continues to apply to greenhouse gas emissions from 
the sectors of domestic transport (excluding CO2 emissions from aviation), buildings, agriculture, waste 
and small industry. The Effort Sharing Regulation is complemented with measures at EU level to help 
Member States to reduce emissions in sectors covered by this Regulation such as the CO2 emissions 
standards for cars vans42 and heavy-duty vehicles43, the internalisation of CO2 external costs in tolls44, 
and energy legislation45. Member States take action with policies and measures at national level, taking 
into account their specific national circumstances.  

To support Member States in meeting their targets cost-effectively, the Effort Sharing Regulation allows 
Member States a certain level of flexibility to match their Effort Sharing emissions with their AEAs 
over  time  and  for  some  Member  States  to  cancel  a  limited  amount  of  EU  ETS  allowances  for  an 
equivalent amount of AEAs. Member States can also use a limited number of credits under the LULUCF 
Regulation  to  comply  with  their  national  emission  limits  under  the  Effort  Sharing  Regulation,  to 
stimulate additional action in the land use sector. The flexibility is higher for Member States with a 
larger share of emissions from agriculture.  

As the Commission assessed in its Climate Action Progress Report 2023, based on the Member States’ 
greenhouse gas inventory data and emission projections, at EU level a surplus in AEAs is expected in 
the first years the Effort Sharing Regulation operates. Estimated emissions under the Effort Sharing 
Regulation are 3,3% below Member States’ aggregated emission limit in 2021 and 2% in 2022. 46 While 
for 2023 still a small surplus of AEAs is expected, a deficit is expected in later years. There may thus 
only be a limited amount of AEAs available for trading between Member States. Over the 2021-2030 
period, a cumulative deficit of AEAs is projected as of 2027.  

The  flexibilities  can  help  some  Member  States  to  close  or  reduce  the  gap  between  their  projected 
greenhouse gas emissions and emission limits under the Effort Sharing Regulation. As the flexibility 
between the Effort Sharing Regulation and the LULUCF Regulation works both ways, Member States’ 
actions in the land sector can both negatively and positively  contribute to their ability to reach their 
targets. While flexibilities are available, further action is needed to meet the 2030 objective of the Effort 
Sharing Regulation. 

The Climate Action Progress Report showed projected greenhouse gas emissions reductions under the 
Effort Sharing Regulation to reach 32% by 2030, compared to 2005 levels, leaving a substantial gap to 
the 40% target. In parallel, Member States have been updating their National Energy and Climate Plans 

41  In  2023  the  Commission  amended  Commission  Implementing  Decision  (EU)  2020/2126  by  Commission 
Implementing Decision (EU) 2023/1319 updating Member States’ AEAs for the years 2023-2025. Member States’ 
AEAs for the years 2026-2030 were also revised but still have to be established after a comprehensive review of 
Member States’ emissions under the Effort Sharing Regulation in the years 2021, 2022 and 2023, which is the 
starting point of Member States’ emission limits for 2026 - 2030. 
42 Regulation (EU) 2019/631, OJ L 111, 25.4.2019, p. 13. 
43 Regulation (EU) 2019/1242, OJ L 198, 25.7.2019, p. 202. 
44 Directive 1999/62/EC, OJ L 187, 20.7.1999, p. 42. 
45 For instance, the Renewable Energy Directive (Directive 2018/2001/EU), Energy Efficiency Directive 
(Directive 2023/1791/EU) and the Energy Performance of Buildings Directive (Directive 2010/31/EU). 
46 The 2021 emissions are based on the final inventory reports and the 2022 emissions are based on approximated 
inventory reports and EEA’s calculation of ESR emissions. The final ESR emissions for 2021 and 2022 will only 
be determined after a comprehensive review in 2027. 

8 

 
 
 
 
 
 
 
(NECPs) to bring them in line with the updated energy and climate objectives. This includes aligning 
their updated NECPs with the updated Effort Sharing targets. Member States’ draft updated NECPs 
were due by 30 June 2023 and final updated NECPs are due by 30 June 2024.  

The draft updated NECPs show some improvement compared to the Climate Action Progress Report 
with  projected  greenhouse  gas  emission  reductions  reaching  33,8%  by  2030,  but  still  leaving  a 
significant  gap  to  the  EU-level  target  of  40%.47  As  the  updated  targets  under  the  Effort  Sharing 
Regulation were only agreed at the end of 2022, Member States may still update their projections and 
put in place additional policies and measures to reflect the increased ambition level and for the EU to 
meet its 2030 target under the Effort Sharing Regulation.  

Based  on  the  draft  updated  NECPs,  the  Commission  gave  recommendations  to  Member  States  for 
improvements in their final updated NECPs. The Commission recommended to most Member States to 
put in place sufficient additional policies and measures to fill the gap in reaching the Effort Sharing 
targets.  The  Commission  highlighted  the  lack  of  emission  reductions  in  the  field  of  buildings  and 
transport and called for further action by Member States in this area. The Commission noted that only 
few Member States considered the new ETS covering buildings and road transport, which will become 
operational in 2027, (ETS 2 as explained in section 4 below) in their projected emission reductions for 
2030. As explained below, the ETS 2 will help Member States achieve their greenhouse gas emission 
reduction targets under the Effort Sharing Regulation.  

At EU level, overall agriculture emissions have been stable since 2010. Member States’ projections in 
the national energy and climate plans show a more diversified picture. Projected agricultural emissions 
seem to decrease very slowly, and more efforts will be needed. 

The EU-wide Effort Sharing targets are set in line with the EU intermediate target set in the European 
Climate Law to reduce net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels 
which in turn is in line with the objective of climate neutrality by 2050.48 The Communication on the 
Union’s climate target for 2040 started the dialogue on the right pathway to 2040 and climate neutrality 
by  2050.  The  need  for  the  concrete  additional  Union  policies  and  measures  in  view  of  necessary 
greenhouse gas reductions by the Union and its Member States towards that target, including in relation 
to national targets, will be examined after the 2040 climate target has been set.  

4.  Emissions Trading System Directive 

The EU ETS was also revised as part of the “Fit for 55” package, aligning it with the updated 2030 
target to reduce net GHG emissions by at least 55% set in the European Climate Law, broadening its 
application and increasing its level of emission reductions. 

To achieve emission reductions cost-effectively, the EU ETS was strengthened and its scope expanded 
to maritime transport and additional emissions from aviation. Altogether, the emissions cap is tightened 

47 Communication from the Commission on the EU wide assessment of the draft updated National Energy and 
Climate  Plans.  An  important  step  towards  the  more  ambitious  2030  energy  and  climate  objectives  under  the 
European Green Deal and RePowerEU. COM(2023) 796 final, 18.12.2023. 
48 On 18 July 2023 Poland brough an action before the Court of Justice of the European Union challenging the 
legality of Regulation (EU) 2023/857 of the European Parliament and of the Council of 19 April 2023 amending 
the  Effort  Sharing  Regulation  (Case  C-451/23).  On  23  August  2023  Global  Legal  Action  Network  clg,  and 
Climate Action Network Europe asbl filed a request before the Commission for internal review, in accordance 
with the Aarhus Regulation, of Commission Implementing Decision (EU) 2023/1319. On 29 November 2023 the 
Commission, after making a detailed assessment of the review, communicated to the applicants that it considered 
the request unfounded. 

9 

 
 
 
 
 
 
 
 
 
 
to bring emissions down by 62% by 2030 compared to 2005 levels. In parallel, operational parameters 
of  the  Market  Stability  Reserve  (MSR)  established  by  Decision  (EU)  2015/1814  of  the  European 
Parliament and of the Council have been calibrated to continue fostering a balanced EU carbon market. 
Chiefly, the MSR intake rate of 24% is maintained and the invalidation threshold is fixed at 400 million 
allowances. The intake rate mechanism is also adapted  to mitigate threshold effects.  When the total 
number of allowances in circulation (TNAC) is between 833 and 1 096 million allowances, the intake 
rate  mechanism  will not  be  activated;  instead, a  smaller  share of  allowances  will  be  deducted  from 
auction volumes and placed in the Reserve. Furthermore, for emissions from 2024, the net demand from 
aviation is included in the TNAC calculation. The measures in the event of excessive price fluctuations 
in Article 29a have also been reinforced. 

To  help  advance  sectoral  decarbonisation,  free  allocation  rules  have  been  adapted.  This  includes 
conditionality requirements for industry installations to access free  allocation (in the form of energy 
audits and for certain installations, climate neutrality plans) and a phase-out of free allocation in the 
aviation  sector.  Twenty  million  allowances  will  be  used  to  support  the  deployment  of  sustainable 
alternative fuels for aviation from flights covered by the EU ETS. 

Also, in  energy intensive industrial sectors for the production of certain goods (cement, aluminium, 
fertilisers, electricity,  hydrogen, iron and steel,  as  well  as  some  precursors and a  limited  number  of 
downstream products), free allocation will be gradually phased out. This is due to the introduction of 
the Carbon Border Adjustment Mechanism (CBAM) by Regulation (EU) 2023/956 of the European 
Parliament and of the Council covering these goods to mitigate the risk of carbon leakage as the EU 
strengthens its climate ambition. 

Maritime transport is a large and growing source of greenhouse gas emissions, generating around 3-4% 
of  the  EU’s  total  CO2  emissions  (over  124  million  tonnes  of  CO2  in  2021)  when  considering  all 
emissions  from  voyages  to  and  from  the  EU49.  Its  inclusion  in  the  EU  ETS  ensures  that  the  sector 
contributes  to  the  EU’s  climate  objectives.  Under  the  revised  ETS  Directive,  the  EU  ETS  covers 
greenhouse gas emissions from maritime transport as of January 2024. Initially, it only concerns CO2 
emissions and then CH4 (methane) and N2O emissions from 2026. Emissions from all large ships (of 5 
000 gross tonnage and above) entering EU ports are included, on a flag-neutral basis, in respect of:  

•  50% of emissions from voyages starting or ending outside the EU (foreseeing third countries 

deciding on appropriate action for the remaining share of emissions);  

•  100% of emissions that occur between two EU ports and when ships are in EU ports. 

To  stimulate  cost-effective  emission  reductions  in  buildings,  road  transport  and  additional  sectors 
(mainly small industry not covered by the existing EU ETS), a new emissions trading system has been 
introduced for fuels combusted in these sectors (ETS 2). The ETS 2 will complement other policies of 
the  European  Green  Deal  in  the  covered  sectors,  helping  Member  States  achieve  their  emission 
reduction targets under the Effort Sharing Regulation. So far, emission reductions in those sectors have 
been  insufficient  to  put  the  EU  on  a  firm  path  towards  its  2050  climate  neutrality  goal.  The 
complementary approach of ETS 2 and the Effort Sharing Regulation maintains incentives for Member 
States  to  address  market  failures  and  split  incentives,  while  incentivising  cost-effective  emissions 
reductions. The carbon price set by the ETS 2 will provide a further market incentive for investments 
in building renovations and low-emissions mobility. Although it is a ‘cap and trade’ system like the 
existing  EU  ETS,  the  ETS  2  will  cover  emissions  upstream,  regulating  fuel  suppliers  rather  than 
consumers. The ETS 2 will start operating from 2027 and its design contains several features to ensure 

49 Report from the Commission – Fourth Annual Report from the European Commission on CO2 Emissions 
from Maritime Transport (period 2018-2021), 13.3.2023 (SWD(2023) 54 final). 

10 

 
 
 
 
 
 
it can function in an orderly, smooth and efficient manner from the start. Monitoring and reporting of 
emissions starts already in 2025. 

Part of the revenues from the auctioning of emission allowances in ETS 2 will supply the new Social 
Climate Fund established by Regulation (EU) 2023/955 of the European Parliament and of the Council 
to address the social impacts arising from the new system on vulnerable groups in the EU. Together 
with the Member States' contributions, the Social Climate Fund will mobilise EUR 86.7 billion from 
2026 to 2032. 

To aid sectors in tackling the decarbonisation challenge, more resources from the ETS framework have 
been leveraged for the green transition. The sizes of both the Innovation and the Modernisation Funds 
have been increased. Both are funded by the EU ETS. To recognise the significant contribution of EU 
ETS  revenues  to  the  climate  transition,  and  enhance  public  acceptability,  Member  States  and  the 
Commission must ensure that it is clearly indicated where support comes from EU ETS revenues, such 
as under the Innovation and Modernisation Funds. Additional resources under the Innovation Fund will 
support breakthrough technologies for the green transition, including in the maritime and the sectors 
subject to CBAM, and may now also be awarded through competitive bidding procedures notably to 
scale  up  innovative  processes  and  technologies,  with  a  view  to  their  broad  roll-out  across  the  EU. 
Additional resources under the Modernisation Fund will help finance the energy sector transformation 
in the original ten beneficiary Member States, plus Greece, Portugal and Slovenia. 

Finally, since 5 June 2023 Member States are required to spend all revenues from the existing ETS and 
the ETS2 (or their equivalent financial value) to further climate action, energy transformation and a just 
transition,  in  accordance  with  the  purposes  listed  in  Articles  3ga(3),  10(3)  and  30d(6)  of  the  ETS 
Directive. 

Most changes outlined take effect from 1 January 2024 or from the start of the second free allocation 
period  (2026-2030),  yet  some  apply  since  the  entry  into  force  on  5  June  2023  of  Directive  (EU) 
2023/959  of  the  European  Parliament  and  of  the  Council,  amending  the  ETS  Directive.  Multiple 
delegated  and  implementing  acts  that  are  essential  for  the  functioning  of  the  EU  ETS,  have  been 
amended  or are in the process of being  amended to implement the changes introduced by Directive 
(EU) 2023/959.  

As concluded in the Communication on the Union’s climate target for 2040, the increased ambition that 
has  been set in  the  EU  ETS  in  line  with the  updated  2030  target  will  only  be achieved if  the  legal 
framework is accurately implemented, avoiding further changes that could generate instability for the 
investments  taking  place  in  the  sectors  subject  to  the  EU  ETS.  This  Communication  sets  out  eight 
building blocks for achieving the 2040 target. The EU ETS is a key policy tool of five of these building 
blocks: (i) A resilient and decarbonised energy system for our buildings, transport and industry; (ii) An 
industrial  revolution  with  competitiveness  based  on  research  and  innovation,  circularity,  resource 
efficiency, industrial decarbonisation and clean tech manufacturing at its core; ; (iii) Infrastructure to 
deliver and to transport and store hydrogen and CO2; (iv) Climate policy as an investment policy; and 
(v) Fairness, solidarity and social policies at the core of the transition. Part of these building blocks are 
closely connected to the elements of the EU ETS Directive that will be subject to review by July 2026. 

The need for the concrete additional Union policies and measures in view of necessary greenhouse gas 
reductions by the Union and its Member States towards the 2040 climate target, including in relation to 
the EU ETS and its linear reduction factor fixed in Article 9 of the ETS Directive, will be examined 
after the 2040 climate target has been set. 

11 

 
 
 
 
 
 
 
 
 
5.  Conclusions 

Although the European Climate Law is still in the early stages of implementation, enshrining the 2050 
climate-neutrality objective into legislation and providing for continuous progress on adaptation, has 
set the long-term direction of travel and given increased investment predictability. Many actions have 
been undertaken since the Climate Law’s entry into force, as described in this report. The Effort Sharing 
Regulation and ETS Directive were revised as part of the “Fit for 55” package, aligning them with the 
updated 2030 target to reduce net greenhouse gas emissions by at least 55% set in the European Climate 
Law, and additional initiatives were adopted to speed up the transition to climate neutrality. 

As  set  out  in  the  Communication  on  the  Union’s  climate  target  for  2040,  stability  and  full 
implementation of the legislative framework in place for meeting the 2030 climate and energy targets 
is a precondition for the EU to stay on course to the 2040 target on the way to climate neutrality in 2050 
and reap the full potential of the transition. The Communication launches the process of setting the 2040 
climate  target  for  the  EU.  It  opens  a  political  debate  on  the  choices  for  European  citizens  and 
governments on the way forward, informing the next Commission in making the legislative proposal to 
include the 2040 target in the European Climate Law and designing the appropriate post-2030 policy 
framework. 

In  parallel,  action  is  underway  to  enhance  adaptive  capacity,  strengthen  resilience  and  reduce 
vulnerability  to  climate  change,  as required  by  the  European  Climate  Law.  The  Communication  on 
Managing  climate  risks  stresses  key  actions  for  the  EU  and  Member  States  to  better  anticipate, 
understand and manage increasing climate risks, notably to clarify risk ownership. It provides a robust 
and timely response to the clear and present danger of more climate disasters, and stresses the need to 
implement  existing  policies.  The  Commission  will  share  EU  experience,  knowledge  and  tools 
internationally  and  continue  to  work  with  Member  States,  the  public,  businesses  and  other  EU 
institutions to increase the preparedness and resilience of EU society and economy. 

12