EU

Overall rating
Insufficient
Policies & action
Almost Sufficient
< 2°C World
Domestic target
Almost Sufficient
< 2°C World
Fair share target
Insufficient
< 3°C World
Climate finance
Insufficient
Net zero target

year

2050

Comprehensiveness rated as

Acceptable
Land use & forestry
Not significant
Policies & action
Almost Sufficient

The EU’s emissions have decreased in recent years, with an accelerating trend since 2017 and a major dip in emissions in 2020 as a result of the impacts of COVID-19. Emissions may, however, increase in 2021 due to the economic rebound, and it remains to be seen whether the “Fit for 55” package will be sufficient to instigate a transformative change necessary for 1.5°C-compatibility.

While the proposals presented by the European Commission in July 2021 would result in emissions reductions of around 54% below 1990 levels, policies implemented to date would only result in emissions reductions between 36-47%. This difference is the result of national policies lagging behind policies adopted at the EU level. We consider the lower emissions bound to be more likely and have based the CAT range on this estimate. The CAT rates the EU’s policies and action as “Almost sufficient”.

The “Almost sufficient” rating indicates that the EU’s climate policies and action in 2030 are not yet consistent with the Paris Agreement’s 1.5°C temperature limit but could be, with moderate improvements. If all countries were to follow the EU’s approach, warming could be held below—but not well below—2°C.

Further information on how the CAT rates countries (against modelled pathways and fair share) can be found here.

After a slight increase in 2017, the EU’s emissions have been decreasing at an accelerated pace: by 2.3% in 2018, 4% in 2019 and 8.1% in 2020. With emissions at around 3.3 GtCO2e in 2020, this would translate to a total emissions reduction of almost 32% between 1990 and 2020. Due to the post-COVID-19 recovery and a switch back to coal due to high fossil gas prices, emissions are expected to have increased in 2021. This increase may only be temporary: should the renewable energy and energy efficiency goals proposed by the Commission in its REPowerEU Plan come to fruition, this would result in emissions decreasing to slightly between 2,044 and 2,090 MtCO2e (excl. LULUCF) in 2030.

However, many of the policies implemented at the EU level have not yet been implemented by the Member States. Even accounting for the overall lower GDP levels resulting from the pandemic, policies implemented by the Member States would result in emissions reductions of less than 36% below 1990 levels by 2030, resulting in emissions of around 3.1 GtCO2e – only slightly below 2020 levels. Both scenarios are far off the recently adopted emissions reduction goal of “at least 55%” (including LULUCF), or 53.9% excluding LULUCF and intra-EU aviation and maritime transport.

“Fit for 55” package and REPowerEU Plan

To close the gap, in July 2021 the European Commission presented its “Fit for 55” package of policy proposals to achieve this new goal (European Commission, 2021d). The package includes a strengthening of the EU Emissions Trading Scheme (EU ETS), which covers emissions from the electricity sector and industry. Instead of the current emissions reduction target of 43% between 2005 and 2030, it should result in emissions reductions of 61% in the same period (European Commission, 2021g).

The emissions reduction goal in the non-EU ETS sectors has also been increased from 30% to 40% below 2005, with binding national emissions reduction targets between 10% and 50% (European Commission, 2021i). Despite the backdrop of war in Ukraine, higher targets are being considered. However, the proposal to generate around EUR 20 bn to finance the implementation of the REPowerEU Plan by selling emissions allowances from Market Stability Reserve (MSR) could decrease their price and thus the impact of the instrument.

The “Fit for 55” package also includes proposals for a higher share of renewables and increased energy efficiency. According to the proposal, the target for the share of renewables in energy consumption is to increase from 32% to 40% (European Commission, 2021f). After Russia illegally invaded Ukraine, the European Parliament’s Rapporteur for the amendment of the Renewable Energy Directive suggested increasing this goal to 45%, with the Green faction calling for a 50% renewable energy goal (EPP Group, 2022; The Greens - European Free Alliance, 2022). In May 2022 the European Commission presented its REPowerEU Plan which proposed increasing the share of renewables in final energy consumption to 45% (European Commission, 2022c). In 2020 the share of renewables in EU’s gross final energy consumption reached 22.1% (Eurostat, 2022a).

The Commission’s July 2021 proposal also included higher energy efficiency goals. By 2030, EU Member States should reduce their total primary energy consumption to no more than 1,023 Mtoe, 39% below the reference scenario from 2007 – a benchmark the EU used for its energy efficiency goals. Their final energy consumption should not exceed 787 Mtoe. This is around 59 Mtoe less than in the preceding version of the Directive already amended to reflect Brexit – 36% below EU’s 2007 Reference Scenario (European Commission, 2021h; The European Council, 2019).

In April 2022, the Environmental Committee of the European Parliament voted in favour of a goal reducing the EU’s primary and final energy consumption to 911 Mtoe and 700 Mtoe, respectively (Committee on Industry Research and Energy, 2022). The Commission’s REPowerEU Plan included the goal of decreasing EU’s energy consumption to 750 Mtoe by 2030. In 2020 EU’s energy consumption amounted to 1,379 Mtoe of primary and 907 Mtoe of final energy consumption (Eurostat, 2022b).

Meanwhile, EU Member States have started implementing projects under the framework of the EUR 750 bn NextGenerationEU recovery fund. At least 37% of the overall budget of the recovery fund must be spent on climate action (European Parliament Think Tank, 2021). According to countries’ own assessments, their plans exceeded this benchmark with an average of 40% of the overall resources to be spent on climate action (European Commission, 2022f). By May 2022 the European Commission approved all national Recovery and Resilience Plans, except those from Poland and Hungary, and initiated the disbursement of funds.

Sectoral pledges

In Glasgow, four sectoral initiatives were launched to accelerate climate action on methane, the coal exit, 100% EVs and forests. At most, these initiatives may close the 2030 emissions gap by around 9% - or 2.2 GtCO2e, though assessing what is new and what is already covered by existing NDC targets is challenging.

For methane, signatories agreed to cut emissions in all sectors by 30% globally over the next decade (Climate and Clean Air Coalition Secretariat, 2021). The coal exit initiative seeks to transition away from unabated coal power by the 2030s or 2040s and to cease building new coal plants (UN Climate Change Conference (COP26), 2021). Signatories of the 100% EVs declaration agreed that 100% of new car and van sales in 2040 should be electric vehicles, 2035 for leading markets (UK Government/UNFCCC, 2021a), and on forests, leaders agreed “to halt and reverse forest loss and land degradation by 2030” (UK Government/UNFCCC, 2021b).

NDCs should be updated to include these sectoral initiatives, if they aren’t already covered by existing NDC targets. As with all targets, implementation of the necessary policies and measures is critical to ensuring that these sectoral objectives are actually achieved.

  • Methane pledge: The EU signed the methane pledge at COP26. In 2020, the European Commission published a strategy to reduce methane emissions, which listed a number of measures that should be implemented to achieve this goal. In December 2021, the Commission tabled a proposal of a directive that strengthened reporting and monitoring requirements and introduced mandatory leak detection and repair, and a ban on gas flaring and venting (European Commission, 2020k, 2021n).
  • Coal exit: The EU signed up to the coal pledge at COP26. While a large majority of the EU Member States either don’t use coal or have an exit date before 2030, Poland, the second largest coal consumer in the EU, failed to move its coal extraction phase-out date forward from 2049. At the same time, EU’s REPowerEU Plan includes EUR 2 bn to adapt coal power plants in the EU to operate longer and shift from gas to coal. This undermines EU’s climate ambition.
  • 100% EVs: The EU did not sign the 100% zero emission cars and vans Glasgow pledge. However, 14 EU Member States did so. In the framework of the European Green Deal the EU is discussing phasing out the sale of combustion vehicles by 2035.
  • Forestry: The EU signed the forestry pledge at COP26 in Glasgow. In July 2021European Commission proposed an amendment of the EU’s LULUCF Directive that would de facto create a separate target for the LULUCF sink of 85 MtCO2e, in addition to 225 MtCO2eq, which is the maximum that can be included in the EU emissions reduction goal.
  • Beyond oil & gas: The EU has not signed the Beyond Oil and Gas (BOGA) declaration but eight of its Member States have. Four Member States—Denmark, France, Ireland and Sweden—are core members of the alliance and have committed to ending oil and gas exploration and development.

Energy supply

After falling by 4% in 2020, electricity consumption in 2021 increased by 5% and returned to 2019 levels. This contributed to an increase in emissions from electricity generation: after falling by 14% in 2020, emissions increased by 9% in 2021. Contrary to electricity consumption, which returned to the same level as in the last pre-pandemic year, emissions from the sector were 6% below 2019 levels, indicating lower electricity intensity (European Commission, 2021r, 2022d). Emissions intensity of electricity fell from 253 gCO2eq/kWh in 2020 to 241 gCO2eq/kWh (a 4.7% decrease) (Ember, 2022b).

In the last quarter of 2021, electricity consumption and emissions were heavily influenced by the significant increase in electricity prices: the average wholesale electricity price in the EU reached EUR 194/MWh — a fourfold increase compared to the same period in 2020. This increase was driven mostly by record high fossil gas prices, which also resulted in some switching from gas to coal, only partly mitigated by an increase in renewable energy capacity (European Commission, 2022d).

In the context of the Russian invasion of Ukraine and the resulting volatility in commodity markets, prices have remained high. At the same time, there are some indications of a significant acceleration in renewable energy development and stabilisation of fossil gas prices.

Electricity emissions intensity

EU Emissions Trading Scheme
The switch from gas to coal resulted in an accelerated increase in the price of emissions allowances, which reached a record high of EUR 97 in February 2022. In reaction to the illegal Russian invasion of Ukraine on 24 February, the price of emissions allowances fell shortly to below EUR 60. Soon after it again exceeded EUR 80 and approached EUR 90 at the beginning of May 2022. However, the Commission’s proposal to fund some of the measures suggested in the REPowerEU Plan with EUR 20 bn from the sale of additional allowances results in a temporary decrease in the price of the allowances below EUR 80 (Ember, 2022a).

This indicates a robustness of the EU’s major mitigation instrument. To a large degree, this stability from moving a certain share of the oversupply of emissions allowances to the Market Stability Reserve (MSR). Between 2019 and 2023, every year a number of allowances corresponding to 24% of their oversupply currently in the market will be moved to the MSR. As a result, between January 2019 and August 2022, allowances corresponding to almost 1.4 GtCO2 — equivalent to 87% of the annual emissions from the EU ETS sector in 2021 — have been, or will soon be, taken off the market (European Commission, 2018a, 2019, 2020j, 2021q).

The proposed EU ETS reform tabled by the Commission in July 2021 as part of the “Fit for 55” package includes increasing the annual emissions reduction factor from 2.2% to 4.2% from 2024, complemented with a one-time reduction of the cap of 117 MtCO2e. This would result in emissions covered by the EU ETS decreasing by 61% below 2005 levels, instead of the 43% resulting from the current legislation (European Commission, 2021g).

In May 2022, ENVI Committee of the European Parliament approved an amendment that would result in emissions reduction goal for the EU ETS sector to 67% below 2005 levels (Committee on Environment Food Safety and Public Health., 2022). However, this increase still needs to be adopted by the plenary of the European Parliament and agreed by the European Council.

Renewables
In 2021, an additional 37 GW of solar and wind energy capacity were added to the grid, compared to 29 GW in 2020. Despite a decrease in onshore wind generation, generation from renewables in absolute terms was 90 TWh higher than in 2020 and amounted to 1,030 TWh. However, due to increased total electricity generation, the share of renewables decreased by 1 percentage point to reach 38% (European Commission, 2022d).

Wind
Newly installed wind capacity in the EU in 2021 remained at a low level, around 11 GW, almost 90% of which was onshore (WindEurope, 2022b). By the end of 2021, there EU’s combined installed wind energy capacity amounted to 189 GW. WindEurope expects an acceleration in wind energy development, with projected average annual installations of 18 GW between 2022–2026.

However, to meet the goal of 510 GW installed wind energy capacity proposed by the Commission in its REpowerEU Plan, at least 40 GW would have to be installed annually—three times the capacity installed in 2020 and 2021. On a positive note, investments in new onshore wind farms increased from around EUR 19 bn in 2020 to almost EUR 25 bn in 2021, the highest level since 2016. This indicates an increase in the pipeline of new projects (WindEurope, 2022a).

At the same time, contrary to some countries’ plans to increase the role of offshore wind in their future energy mix, investment in offshore wind fell from almost EUR 28 bn in 2020 to less than EUR 17 bn in 2021 (WindEurope, 2022a). Less than 1 GW of new offshore wind capacity went online, and only in Denmark and the Netherlands (WindEurope, 2022b). According to the European Commission, between 240 to 450 GW installed capacity in offshore wind will be needed to reach the 2050 emissions neutrality goal (European Commission, 2020l). Achieving this goal will be challenging, due to numerous exclusion zones, especially in the North Sea. As a result, only up to 112 GW can be built cost effectively (WindEurope, 2020).

To mitigate this issue, in November 2020, the European Commission published its Offshore Wind Strategy with the goal of increasing installed offshore wind capacity in the EU from 12 to at least 60 GW by 2030 and 300 GW by 2050. In addition, at least 1 GW of ocean energy should be installed by the end of the current decade, subsequently scaled up to 40 GW by 2050. For this purpose, the Commission would facilitate cooperation between Member States, especially in terms of spatial planning. To reduce the potential for conflicts between offshore wind energy projects and nature protection, the Commission has also published a guidance document on wind energy development and nature legislation (European Commission, 2020i, 2020e).

Solar
Almost 26 GW of solar PV was installed in 2021, 34% more than in 2020 and much above the initial prediction of 22 GW (Solar Power Europe, 2020, 2021). As a result of these additions, some of which came later in the year, solar PV generation increased by 17 TWh, or 14% of the additional electricity demand in comparison to 2020 (European Commission, 2022d).

The increase in capacity in 2021 was much higher than initial projections by Solar Power Europe, which expected an increase in installed capacity of 22.4 GW. According to their most recent projections, improved national policy conditions in some EU Member States will result in much higher growth in installed capacity: by around 30 GW in 2022, 39 GW in 2023, 45 GW in 2024, and 50 GW in 2025. As a result, 15 EU Member States will achieve their 2030 solar energy targets mentioned in their respective NECPs by 2025. All countries, except for Slovenia, would do so before 2030 (Solar Power Europe, 2020, 2021).

At the beginning of May 2022, Ministers of the Environment, Climate action and Energy from Austria, Belgium, Lithuania, Luxembourg, and Spain sent a letter to the European Commission calling for a significant improvement in the financial and legal framework, that would result in combined solar PV capacity of at least 1 TW of solar PV by 2030 (Solar Power Europe, 2022). This would be a sixfold increase in comparison to 2021, when an estimated 165 GW were connected to the grid (Solar Power Europe, 2021). In its REPowerEU Plan the Commission proposed the goal of increasing the installed capacity of solar PV to 592 GW by 2030 (European Commission, 2022b).

Renewable Energy Financing Mechanism
To facilitate the development of renewables, in September 2020, the EU adopted a regulation implementing the Renewable Energy Financing Mechanism (European Commission, 2020h). This Mechanism allows Member States to reach their renewable energy goals by funding the development of renewables in other EU Member States where it could be more cost competitive. To avoid double-counting, the countries in which these projects are hosted cannot account for the installed capacity in their renewable energy goals, but benefit from the emissions reduction, job creation, and reduced energy dependency. The potential of the Mechanism is significantly increased by also opening it to private investors, and the possibility of using resources from the recovery fund. In February 2021, the EU established the European Climate, Infrastructure and Environment Executive Agency (CINEA), which will facilitate implementation of this mechanism, along with other actions (European Commission, 2021b).

Permitting
In conjunction with its REPowerEU Plan, in May 2022, the Commission also published its recommendations on speeding up permitting for renewable energy projects. It suggests that Member States define such projects as “being in the overriding public interest”. Such a definition would grant these projects priority when they need to be outweighed against other priorities. In addition, the duration of permit-granting for solar energy should be limited to a maximum of three months. Finally, Member States should designate renewable go-to areas in which renewable energy projects could be rapidly deployed (European Commission, 2022b).

Coal phase-out
High fossil gas prices and an increase in electricity consumption resulted in a growth of coal-based electricity generation from 364 TWh in 2020 to 436 TWh in 2021. This was still slightly below 2019 levels at 451 TWh. Coal’s share in electricity generation increased from 13% to 15% (Ember, 2022b). Despite higher generation, 14 GW or 7.2% of installed coal capacity was retired, mostly in Germany (7.3 GW), Portugal (2 GW), and Spain (1.7 GW). Poland was the only country that added new coal capacity of 460 MW in 2021, but simultaneously retired 450 GW of capacity (Europe Beyond Coal, 2022).

As of January 2022, 20 EU Member States have either had no coal generation in their electricity mix, or adopted a coal phase out by 2030. However, in many cases, especially in Poland and Germany which, combined, represented 60% of total installed capacity at the beginning of 2021, the formal coal phase-out date is significantly behind what is needed to be compatible with the Paris Agreement. While for Germany this date is to be moved to 2030, there was little indication that Poland would move its 2049 coal phase-out date forward (Euractiv, 2021).

In a major setback to the EU plans to phase out coal, Commission’s REPowerEU Plan from May 2022 includes EUR 2 bn to revamp existing coal power plants and allow for later phase-out and more operating hours. It should allow coal power plants to generate 105 TWh more than in the “Fit for 55" proposal to compensate for some of the 240 TWh reduction in fossil gas generation (European Commission, 2022b).

Natural gas
In 2021, fossil gas consumption in the EU increased by 4% in comparison to 2020 and reached 412 bcm, the highest level since 2011 (European Commission, 2022e). However, most of this increase was driven by gas consumption in the household sector in early 2021 due to cooler temperatures in April and May. The significant increase fossil gas prices in the second half of 2021 resulted in a decline in electricity generation from this source of energy by 5%. With 524 TWh generated, fossil gas covered 18% of EU’s electricity generation in 2021(Ember, 2022b).

The illegal Russian invasion of Ukraine in February 2022, and the resulting calls for an embargo on energy imports from Russia, drastically increased the urgency to reduce EU’s dependency on Russian gas. In 2021 the EU imported 137 bcm of fossil gas from Russia, or 33% of its overall fossil gas consumption (European Commission, 2022e), a slight decrease compared to the previous year.

In the first four months of 2022, gas imports from Russia decreased significantly to less than 24% (Bruegel, 2022a). Despite this, on 15 May 2022 EU gas storage was, on average, 40% full, six percentage points above the same time last year (Gas Infrastructure Europe, 2022). Early estimates indicate that in Q1 of 2022 fossil gas consumption fell by 7% (Bruegel, 2022b). In April the decrease may have reached up to 23% (Bruegel, 2022a; Gas Infrastructure Europe, 2022).

On 8 March 2022, European Commission presented its draft of the REpowerEU Communication which aimed to reduce the EU’s dependency on Russian gas imports. According to the Commission’s proposal, by the end of 2022 the EU would replace around 101 bcm of Russian gas. However, only 41 bcm would be replaced with low carbon alternatives or a reduction in demand, resulting in an emissions reduction of around 78 MtCO2 (European Commission, 2022g). However, this reduction in emissions would be to some degree counterbalanced by the higher emissions intensity of LNG imports when compared to gas transported by pipeline. Also, some of the measures are front loaded, resulting in only a modest impact by 2030.

Soon after the publication of the REpowerEU Communication, the heads of EU Member States voiced their strong support for making the EU less dependent on energy imports: in the Versailles Declaration they agreed to “phase out [the EU’s] dependency on Russian gas, oil and coal as soon as possible” (European Council, 2022).

In May 2022, the European Commission published its much more extensive REPowerPlan. With regards to fossil gas consumption, it suggested measures that would reduce fossil gas demand by a combined 250 bcm. This includes impacts of measures already planned in the framework of the “Fit for 55” package. Around 24 bcm would result from increased coal consumption and 7 bcm from postponing nuclear phase-out plans in Belgium and France. In addition to the EUR 10 bn of additional investment needed for new LNG infrastructure and pipeline corridors, it also included EUR 2 bn for switching from gas to coal (European Commission, 2022b).

A number of studies and reports have made suggestions on how to decrease the EU’s dependency on Russian gas imports much faster without increasing reliance on fossil gas infrastructure or on coal. A joint assessment by Bellona, Ember, E3G, and the Regulatory Assistance Project indicated that by strengthening the EU’s climate action with a faster development of renewables, accelerating energy efficiency measures, and electrification, the EU could reduce fossil gas consumption by 101 bcm by 2025—equivalent to 2/3 of Russian gas imports. The remaining amount could be replaced by imports from other countries using already existing gas infrastructure. As a result, no new gas infrastructure would be required (E3G, 2022).

A paper by Agora Energiewende illustrated how the EU could become independent from Russian fossil gas imports by 2027, with the help of the EUR 100 bn EU Energy Sovereignty Fund. The difference in comparison to the Commission’s REPowerEU Plan is that 80% of Russian gas would be replaced with a reduction in fossil gas consumption by investments in district heating, heat pumps, and electrification. The deployment of wind energy would have to increase from an average of 11 GW between 2017–2021 to 54 GW in 2027. For solar PV the installed capacity would need to increase from 12 GW over the last five years to 49 GW in 2027 (Agora Energiewende, 2022).

These studies, combined with the reality of increasing storage levels despite decreasing fossil gas imports from Russia, indicate the EU could do without Russian gas, even if an embargo was introduced by the EU or Russia itself. An immediate massive ramping of solar and wind energy deployment, combined with energy efficiency measures and heat pump deployment could reduce fossil gas consumption for electricity generation and in households. In addition, numerous other measures exist that could further reduce fossil gas consumption, such as displacing gas consumption for cooking with induction stoves, installation of solar thermal for hot water generation to replace gas boilers, or banning outside gas heaters.

But instead of focusing on reducing fossil gas demand with energy efficiency measures and the development of renewables, some EU Member States are planning to replace dependency on Russian fossil gas imports with imports from other countries. Such investments could be made easier due to the classification of energy generation from fossil gas as a transition activity in the EU Taxonomy (see section on Climate Finance). While the Russian invasion of Ukraine resulted in high energy prices, the EU should reduce its energy dependency instead of shifting it. Apart from increasing stranded assets and undermining EU’s climate leadership, investment in fossil gas infrastructure would not have any significant impact on prices in the short term. In fact, renewable energy – especially solar PV and onshore wind – could be deployed much faster if permitting barriers are solved.

Transition activities are activities that cannot yet be replaced by low carbon alternatives but do contribute to reducing emissions. For this purpose, electricity generation from these sources need to fulfil several criteria. For fossil gas power plants, the life-cycle emissions should be below 100 gCO2e/kWh. Fossil gas power plants permitted before 2030 could be classified as transition activities if their emissions intensity does not exceed 270 gCO2e/kWh and if renewables are not available at sufficient scale.

Finally, fossil gas power plants which don’t emit more than 550 kgCO2e per kilowatt of installed capacity classify as transition activity, but only if they replace a facility using solid or liquid fuel, and switch fully to renewable or low carbon gases by 2035 (European Commission, 2022a).

Industry

After a decrease of 2.7% in 2019, emissions from the industry sector constituted 9.4% of all EU’s emissions (excl. LULUCF). This is roughly the same share as in 1990, indicating a similar speed of emissions reduction as overall emissions (European Environment Agency, 2021). A much more significant decrease is expected in 2020 as a result of the COVID-19-induced recession. However, this decrease is likely to be temporary, and emissions are likely to rebound as the economy recovers.

To decouple emissions from economic growth, in March 2020, the European Commission published its New Industrial Strategy for Europe with a number of measures that would allow industry to contribute to achieving the “climate neutrality” goal (European Commission, 2020b). Some of these measures have been further elaborated in the Chemicals Strategy published in October 2020 (European Commission, 2020f). In May 2021 the Commission updated the Industrial Strategy, reflecting the changes brought about by the pandemic (European Commission, 2021v).

The update of the EU’s Industrial Strategy was accompanied by Staff Working Document “Towards Competitive and Clean European Steel”, which pointed out that the steel sector, responsible for 5.8% of the EU’s total emissions (including indirect emissions), could be “one of the first hard-to-abate sectors to produce green products”. The document listed a number of measures planned or already taken to accelerate innovation in the steel sector and deployment of low carbon steel. Apart from different streams of funding (e.g. Innovation Fund, InvestEU Fund, Recovery Fund), it also listed measures that could increase demand for low carbon steel (e.g. Construction Products Regulation, Sustainable Products Initiative, Public Procurement policies) (European Commission, 2021u).

While emissions from the industry sector are covered by the EU emissions trading scheme and thus are affected by the increasing price of emissions allowances, the impact of this instrument is lessened by the fact that companies producing products on a so-called “leakage list” receive free allowances up to the average emissions of the 10% most efficient installations in the sector, or subsector, potentially affected by the risk of carbon leakage. Increasing stringency of the criteria that need to be fulfilled by a product to be listed as affected by carbon leakage resulted in a decrease in the share of allowances received for free by the manufacturing industry from 80% in 2013 to 30% in 2020 (European Commission, 2020d).

One of the measures suggested in the Commission’s New Industrial Strategy, and also referred to in the European Green Deal, is the introduction of a Carbon Border Adjustment Mechanism (CBAM) – an additional charge on energy-intensive products from countries with no or very lax climate mitigation measures. In July 2021, the Commission tabled a proposal on the CBAM that would require EU importers of certain energy-intensive products to purchase CBAM Certificates, mirroring the price of emissions allowances traded in the framework of the EU ETS. The introduction of the mechanism should result in a steady phase-out of free allowances (European Commission, 2021l).

In July 2020, the Commission presented its hydrogen strategy with the goal of realising 40 GW of installed electrolyser capacity in the EU by 2030 to generate green hydrogen from renewable sources of energy. This is to be complemented by a further 40 GW of electrolyser capacity installed in neighbouring countries.

The combined investment needed to develop this capacity, scale up solar and wind generation, and develop the necessary electricity and dedicated pipeline connections has been estimated to be between EUR 309 – 447 bn. An additional EUR 11 bn would need to be invested in retrofitting the existing hydrogen production plants with carbon capture and storage infrastructure (European Commission, 2020a). While hydrogen can be used in many different sectors, e.g. as storage in the electricity sector, mobility or even heating, its first destination will be the industry sector, especially chemical and petrochemical, where it is currently used as feedstock. In the future, its role will also increase in the steel sector where hydrogen can be used instead of carbon monoxide in a reduction process (Hydrogen Europe, 2020).

Industry emissions intensity (per GVA) MER

Transport

Contrary to the general trend of decreasing emissions, after an increase of 0.1% in 2018 emissions in the transport sector continued their upward trend, increasing by 0.8% in 2019. As a result, the share of emissions from this sector also increased significantly: from 14% of all emissions in 1990 to 23% in 2019.

Due to the pandemic, according to preliminary data, 2020 emissions from the transport sector decreased by 14%. While an increase in emissions is expected in 2021, high fuel prices and an increasing uptake of electric vehicle may reduce in their decline in 2022.

In reaction to increasing prices, many governments slashed fuel taxes dampening the impact on energy demand reductions. The temporary measures introduced by Member States by the beginning of May 2022 will result in almost EUR 16 bn of fossil fuel subsidies. If prolonged, this would increase to EUR 52 bn for the whole year. The lower prices will result in 3.3 Mtoe of oil being consumed in comparison to scenario without such measures—or almost 13 Mtoe if the measures are extended for the whole year (Transport&Environment, 2022).

As the transport sector—with the exception of intra-European aviation—is not covered by the EU ETS, the European Union and its Member States are trying to reduce emissions from the sector in four ways: (i) adopting sectorial renewable energy targets, (ii) introducing CO2 emissions standards for new vehicles, and (iii) increasing the share of zero and low emissions vehicles, and (iv) encouraging a modal shift, which also has an important role to play, particularly from road and air to rail transport.

Sectoral renewable energy targets
The 2009 Renewable Energy Directive introduced a 10% target for energy from renewable sources in transport by 2020 (European Parliament and the Council of the European Union, 2009). In 2019, the EU Member States were far from achieving this goal, with only 8.4% of energy consumed in the sector coming from renewable sources, an increase by 0.1% on 2018 (European Environment Agency, 2020).

The 2018 Renewable Energy Directive (REDII) introduced a new goal of a 14% share of renewables in the transport sector by 2030. However, the proposal for the revision of the directive presented by the Commission in July 2021 replaces this goal by a greenhouse gas emissions intensity target. In addition, the share of biogas and advanced biofuels should increase to 2.2% and the share of renewable fuels of non-biological origin should increase to 2.6% by 2030 (European Commission, 2021f).

In July 2021, the Commission also proposed a new regulation aimed at increasing the role of sustainable fuels in aviation. According to the proposal, their share should increase from 2% in 2025 to 5% in 20230, 32% in 2040, and 63% in 2050. An increasing role in achieving these goals should be played by synthetic aviation fuels, mainly hydrogen generated from renewables (European Commission, 2021m).

For maritime transport, the proposal of the FuelEUMaritime Regulation does not propose any specific share of renewables. However, their uptake is promoted by a requirement to decrease emissions intensity by 2% in 2025, 6% in 2030, 26% in 2040, and 75% by 2050. In addition, when at berth, ships will be required to connect to onshore power supply, if such is available. To reduce emissions-intensity, ships may also use onboard solar for electricity generation or wind for assisted propulsion (European Commission, 2021p).

CO2 emissions standards for vehicles

Emissions intensity of land-based passenger transport

The binding regulation obliges car manufacturers to decrease average emissions of new passenger cars and vans by 15% from 2025. From 2030, an average new passenger car is to emit 37.5% less CO2 than in 2021, whereas the emissions standards for new vans are to improve by 31%. The amendment of the regulation tabled by the Commission in July 2021 strengthened the 2030 target and added emissions reduction for new vehicles of 100% in 2035 (European Commission, 2021j; European Parliament and the Council of the European Union, 2019).

These emissions reductions cannot be directly applied to the existing 95 gCO2/km limit for passenger cars for 2021 and 147 gCO2/km limit for vans in 2020: due to numerous exceptions and different methodology, the real average emissions of new vehicles will very likely be higher.

Average emissions from new cars registered in the EU in 2020 fell from 123 gCO2/km to 108 gCO2/km. In Bulgaria, Estonia, Poland, Slovakia, and Czech Republic emissions intensity of new cars exceeded 120 gCO2/km. After being the only country in 2019 with an emissions intensity of new cars below 100 gCO2/km, the Netherlands was joined by Portugal, France, Sweden, and Denmark in 2020 (ACEA, 2021b).

In February 2019, the European Parliament and Council agreed on emissions standards for heavy duty vehicles. Emissions from new vehicles should decrease by 15% in the period 2025–2029 and by 30% from 2030 onwards, in comparison to emissions of the new vehicles sold between July 1, 2019, and June 30, 2020. The regulation also includes a 2% benchmark for the share of zero and low-emission vehicles (ZLEV). Whereas failing to meet this benchmark does not result in any negative consequences, exceeding it leads to more lenient emissions standards for the remaining vehicles (The ICCT, 2019).

Promoting low-carbon vehicles

Zero emission fuels for domestic transport

In 2021, the share of new electrically chargeable vehicles in the EU increased to 18%, from 10% in 2020 driven mostly by additional subsidies, decreasing costs, and increasing opportunities for EV charging (ACEA, 2021a). In total 1.7 million new EVs were sold in the EU in 2021, an increase of 70% year-on-year (European Commission, 2022d). The share of battery-only vehicles in electrically chargeable cars increased from 52% in 2020 to 58% (ACEA, 2021a, 2022b).

The differences between the Member States increased even further: with a 45% EV share in Sweden, 35% in Denmark, and 31% in Finland, the Nordic countries recorded the highest levels of EVs, followed closely by the Netherlands with almost 30% and Germany with 26%. At only 1.7%, Bulgaria and Cyprus recorded the lowest share of EVs, but Estonia (2.9%), Slovakia (3.0%), Czech Republic (3.2%), Slovenia (3.5%), Poland and Lithuania (3.7%), Latvia (3.9%), and Croatia (4.1%) were not far ahead.

In the first quarter of 2022, almost 19% of new vehicles sold in the EU were electrically chargeable – much below the 24% the last quarter of 2021, but 5 percentage points above the same period in 2021 (ACEA, 2022a).

The EU is trying to stimulate deployment of clean vehicles market by introducing binding quotas for clean vehicles procured by public authorities. In February 2019, the EU Parliament and Council agreed on an amendment to the Directive on promoting clean and energy efficient vehicles. The Directive requires public authorities procuring vehicles (e.g. for public transport) to take their CO2 emissions and the emissions of other pollutants into account in their investment decisions. It also sets a minimum share of clean heavy-duty vehicles (trucks and buses) in the total number of heavy-duty vehicles contracted by Member States.

These shares differ depending on the Member States and types of vehicles. For example, in the period 2021-2025, between 24% (Romania) and 45% (majority of the EU Member States) of buses procured by public communities should be clean or zero emissions. For the period 2026-2030, these shares increase to between 33% and 65% (European Parliament, 2019).

Underdeveloped charging infrastructure remains a major hindrance to the uptake of electric vehicles. In July 2021, the Commissions tabled a proposal that would replace the Directive on the Deployment of Alternative Fuels Infrastructure from 2014 with a regulation that includes a number of mandatory national targets, e.g. for each battery electric light-duty vehicle registered in their territory, a total power output of at least 1 kW must be provided through publicly accessible recharging stations. For plug-in hybrids this factor amounts to 0.66 kW for each vehicle. There should also be a recharging pool every 60 km of TEN-T corridors consisting of fast charging points—at least 300 kW from 2025 and at least 600 kW from 2030.

Additional targets are specified for hydrogen charging stations, charging stations for heavy-duty vehicles. The proposal also requires the development of charging stations for LNG for heavy duty vehicles and ships “unless the costs are disproportionate to the benefits, including environmental benefits“. This requirement could significantly increase dependency of the transport sector on fossil gas (European Commission, 2021o).

Modal Shift
The EU aims to strengthen the position of railways in comparison to the other modes of transport, by increasing competition between the operators and investing in rail transport infrastructure, as well as other measures. However, these efforts still did not have an impact on shifting freight transport from road to rail: between 2013 and 2018, the share of freight transported by rail remained constant at 18.7% (Eurostat, 2020).

To improve the situation, the European Commission proposed an amendment of the 1992 European Combined Transport Directive in 2017. However, the negotiations between the Parliament and the Council did not make any progress since the proposal was tabled (European Parliament Think Tank, 2019).

Whereas in passenger transport the number of passenger-kilometres increased slightly over the last decade, this increase was much faster than in the case of rail. This is especially the case in Eastern European countries, where a shift from train to plane could be clearly observed with more passenger-kilometres travelled by plane than by train in most of the countries. Due to the massive investment in new motorways, co-financed to a large degree from European sources, the popularity of passenger cars increased significantly. This has been accompanied by only a modest improvement in railway infrastructure (Climate Analytics et al., 2020).

The increase in the role of aviation has been strongly undermined by the COVID-19 related limits on international travel and it remains to be seen how soon and whether it will fully recover. In the meantime, the funding to be made available on climate action in the framework of the Multiannual Financial Framework and NextGenerationEU Recovery Fund presents the opportunity to replace domestic and, in some cases, intra-EU flights with rapid train connections.

Buildings

After a decrease by 3.6% in 2018, direct emissions from fuel consumption in households decreased by only 1.8% in 2019. The share of these emissions in the EU total EU remained relatively stable, at around 9% (Eurostat, 2021b). However, this excludes indirect emissions, e.g. from electricity generation. With indirect emissions and including commercially used buildings, this sector is responsible for 36% of emissions of the EU’s emissions and 40% of energy consumed (European Parliament, 2021).

In 2019, the majority of these emissions were coming from fossil gas consumption, which accounted for 32% of the EU final energy consumption in households, as much as electricity and derived heat combined. Petroleum satisfied almost 12% of energy needs, whereas coal was still responsible for almost 3% of final energy combusted with low efficiency in households, almost all of it in Poland. The share of energy from renewables in energy consumed in the households increased to 28% in 2019 (Eurostat, 2021a).

The Energy Performance Buildings Directive (EPBD Directive), first adopted in 2010 and amended in 2018, regulates emissions from the buildings sector and obliges Member States to introduce minimum energy performance requirements and ensure that, from 2021, all new buildings are “nearly zero energy buildings” (NZEB). While defining an NZEB as a building with a very high energy performance, whose energy needs are covered largely from renewable sources of energy, the EU left the definition of the exact energy consumption level of such buildings to its Member States (European Parliament and the Council of the European Union, 2010).

However, the directive failed to significantly accelerate the renovation rate, which remained at around 1% of the buildings stock (European Parliament, 2021).To increase the renovation rate, in October 2020 the Commission launched its ‘Renovation Wave’ with a number of goals and measures to reduce emissions and energy consumption in the buildings sector e.g. providing more adequate and targeted funding, increasing the availability of energy-efficiency and recycled buildings materials, introduction of stricter and mandatory minimum energy performance standards, and increasing the role of digitalisation and renewables.

As a result, by 2030, at least 35 million buildings are to be renovated and renovation rate doubled. These measures are to be implemented by the revision of the EPBD Directive, for which the Commission will table a proposal by the end of 2021, and further development of eco-design and energy efficiency measures (European Commission, 2020c).

Meanwhile, a proposal amending the Energy Efficiency Directive, tabled by the Commission in July 2021, included some of the measures mentioned in the Renovation Wave Strategy, e.g. creation of a one-stop shops for the provision of technical, administrative, and financial knowledge about increasing energy efficiency and house renovation.

Member States should also ensure that a mechanism is introduced that would ensure that both, tenants and home owners benefit from the implementation of energy efficiency measures. It also encourages national governments to set up Energy Efficiency National Funds to implement energy efficiency measures (European Commission, 2021h). The proposed amendment of the Renewable Energy Directive, tabled simultaneously, proposes that Member States adopt indicative targets for the share of renewables in the buildings sector consistent with the share of renewables at 49% for the EU as a whole (European Commission, 2021f).

The European Commission’s REPowerEU Plan 2022 includes further amendments to the EPBD Directive: starting from 2027 for all new public and commercial buildings, from 2028 all existing buildings, and from 2030 all new residential buildings should be equipped with solar energy installations (European Commission, 2022c). The higher overall renewable energy target proposed would also result in higher share of renewables in the energy consumed in buildings: instead of 49% the plan proposes that at least 60% of energy consumed in this sector should be coming from renewables (European Commission, 2022b).

An additional tool that should facilitate emissions reduction in the buildings sector is the proposal to adopt an adjacent EU ETS for the buildings and transport sector. The Commission’s proposal, also presented in July 2021, suggests creating such an EU ETS (“ETS2”) to start operating in 2025. It should result in emissions reductions from these two sectors by 43% below 2030: 18 percentage points below the emissions reduction in the already-existing EU ETS covering electricity and industry sectors (European Commission, 2021g).

At the same time, emissions from the buildings are also to be covered by the amended Effort Sharing Regulation which includes binding emissions reduction targets for sectors not covered by the initial EU ETS. These targets result in average emissions reduction at 40% - instead of 30% in the initial regulation (European Commission, 2021i).

Buildings emissions intensity (per floor area, residential)

Agriculture

In 2019, emissions from agriculture constituted slightly less than 11% of the EU’s total emissions—a share that increased modestly from 10% in 1990 due to a slower rate of emissions decrease than overall emissions. After a significant decrease in the early 1990s especially in the Eastern European countries, emissions from this sector decreased much slower in the 2000s and remained relatively stable in the 2010s (Eurostat, 2021b).

Currently, emissions from the agricultural sector are covered by the Effort Sharing Regulation (ESR), which covers all sectors, except for those covered by the EU ETS and LULUCF. According to the Regulation, the combined EU emissions from the ESR sectors are set to decrease by 30% by 2030 in comparison to 2005, with different goals for different EU Member States (European Parliament and the Council of the European Union, 2018). In July 2021 the Commission presented a proposal that increases this goal to 40% to reflect the higher overall emissions reduction goal. According to the proposal of the ESR regulation, the emissions from agriculture should be climate-neutral by 2035 (European Commission, 2021k).

Furthermore, in its proposal the Commission suggested to increasingly deploy carbon farming schemes and certification for carbon removals through 2030. These schemes will especially promote the creation of new business models that are focused on increasing carbon sequestration in agriculture and other land types. Land users (i.e. farmers and foresters) are expected to avoid further depletion in their carbon stock, especially in soils. In December 2021 the Commission published its Carbon Farming Communication which lists a number of measures that farmers in the EU can introduce to increase carbon storage in the soil and be rewarded from Common Agriculture Policy resources (European Commission, 2021t).

Forestry

The land use, land-use change and forestry sector (LULUCF) has since 1990 constituted a sink of emissions averaging around 300 MtCO2e. The only countries for which LULUCF does not constitute a sink are Denmark (average 4.4 MtCO2e), Ireland (4.8 MtCO2e), and the Netherlands (5.8 MtCO2e). At the same time, Spain, France, Poland, and Sweden reported sinks between 30 and 40 MtCO2e (Eurostat, 2021b).

The EU Regulation for the Land Use, Land Use Change and Forestry regulates the accounting of the GHGs emissions and removals from the LULUCF sector. It allows the use of net removals from this sector to comply with the targets in the non-EU ETS sectors by up to 280 MtCO2 from 2021–2030 (European Commission, 2016). The Regulation includes a no-debit rule meaning that emissions from deforestation could be offset by either afforestation or improved management of existing forests (European Commission, 2016). However, this target is weakened by the possibility of using 2021-2025 LULUCF emissions reductions to offset emissions in the second half of the decade.

In July 2021, the Commission tabled a proposal amending the LULUCF Regulation, under which the flexibility on the accounting of emission reductions from managed forests will still be in place in the period 2021 - 2025 and will be adjusted in 2026 in line with the European Climate Law.  The proposal also included a goal of increasing the sinks to 310 MtCO2e equivalent in the LULUCF sector in 2030. In May 2022 the ENVI Committee of the European Parliament voted to increase this to at least 360 MtCO2e (European Parliament, 2022). However, this goal still needs to be adopted by the plenary of the European Council and agreed to during trialogues with the European Council.

This target will be distributed among the Member States as annual targets trajectory based on the reported greenhouse gases inventory for the years 2021, 2022, and 2023 (European Commission, 2021k). The ENVI Committee also voted to create sub-targets for the Member States for emissions reduction in cropland, wetland, and grasslands. According to the European Climate Law, only 225 MtCO2e can be used to account for meeting the new EU Emissions reduction goal. Should the 360 MtCO2e goal be adopted, this would mean that the EU has an additional, separate target for LULUCF sink of around 135 MtCO2e. This constitutes a step in the right direction in terms of separating emissions reduction and emissions sinks.

Waste

Emissions from waste management decreased by a third between 1990 and 2019 – much faster than total emissions. As a result, their share in total emissions also decreased: from 3.6% to 3.2% (Eurostat, 2021b). Waste is covered by the Effort Sharing Regulation (ESR), next to transport, buildings, and agriculture. According to the currently binding legislation, combined emissions from these sectors need to decrease by 30% between 2005 and 2030. The Commission’s proposal amending this regulation increases this emissions reduction goal to 40% (European Commission, 2021i).

The main legislation influencing EU’s waste management policy is Waste Framework Directive which aims at reducing the amount of waste that lands on the landfills and contributes to climate change by promoting recycling and reuse of products (European Parliament and Council, 2008). In addition, the EU is facilitating a transition towards circular economy. In 2015 it adopted respective action plan with a list of 54 actions that would i.e. make products more durable and make it easier to repair, upgrade, or remanufacture after their use. Products’ labelling should also make it easier for the European customers to make more informed decisions when taking into consideration products’ environmental impact (European Commission, 2015).

In March 2020, the EU adopted new Circular Economy Action Plan. The plan adapts EU’s waste policy to the climate neutrality goal by 2050 goal by building on and concretising many of the suggestions made in the initial action plan from 2015. It also suggests integrating life cycle assessment in public procurement. The impact of circularity on climate change mitigation should also be reflected in modelling tools applied at the national and European levels, and taken account for in the revisions of the National Energy and Climate Plan (European Commission, 2020g).

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