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The ESD is the EU law that is meant to ensure that an emissions target for sectors outside of the EU Emissions Trading System (EU ETS) is actually met. In October 2014 EU heads of state agreed that by 2030 these non-ETS emissions should be 30% lower than in 2005.
The ESD covers 55% of the EU’s CO2 and emissions from transport, housing and agriculture. Transport is the biggest of these. Most projections say that if we do not do anything, transport emissions will be roughly stable until 2030.
That means the ESD has the potential to be a game-changer. Minus 30% in these sectors requires real change and long-term thinking, at European as well as national level. If implemented seriously each country will have to set up a carbon budget and take action to meet it. A legally binding and annual carbon budget forces governments to integrate climate into mainstream decision-making. It also helps create investment certainty for business, as they can confidently start developing the technologies, services and solutions needed to hit the targets. All of this, of course, assumes the ESD will be strong. How can we make it so?
Firstly, the EU needs to do its homework. Many of the key policy levers to reduce transport emissions, for example, are the EU’s responsibility. Ambitious efficiency standards for cars, vans and trucks, as well as a sound fuels policy, are explicitly the EU’s responsibility.
Secondly, a carbon budget needs to be more than just an accounting mechanism. It requires proper governance and enforcement. We’ll need to ensure countries take measures to respect their carbon budgets, which means making it (financially) more attractive to comply than not.
Thirdly, while flexibility – for example, trading of ESD permits between member states – is not a problem as such, there must be no loopholes. Unfortunately they are not in short supply:
If governments could use credits built up before 2020, the carbon budget becomes meaningless. Fortunately, this wasn’t part of the agreement between EU leaders so hopefully it is dead and buried;
Another truly bad idea would be to allow countries to include their transport emissions in the ETS. It would be the perfect get-out-of-jail-for-free card for non-compliers including fuel tax havens.
Another poor idea is to use excess ETS credits in the ESD. The ETS is still full of hot air. If proposed, we need to ensure that the removal of ETS credits has a real impact on emission reductions in the ETS.
Finally, land use, land-use change and forestry (LULUCF), the most intricate and complex issue due to the difficulty of measuring GHG emissions and absorptions from this sector. The EU agreed that it needs to be integrated in the 2030 framework. Getting it right is one of the most critical challenges for the Commission.
A Europe that delivers a strong ESD will be a continent with cleaner vehicles, less congestion, super energy-efficient houses, more sustainable farming, lower energy bills, and more jobs through future-oriented industries. It is also a major opportunity to save billions on oil and gas imports and safeguard the old continent’s security. This isn’t just about climate policy but also about smart economic policy, security, innovation and quality of life improvement.