Starting point + banking: a fatal combination for the ESR?

In July, the European Commission presented a proposal to achieve the 2030 climate target for transport, buildings, agriculture and waste. The Effort Sharing Regulation (ESR) proposal formally requires a 30% cut compared to 2005 and distributes the efforts amongst member states. However, it has several shortcomings, including an allowance to use ETS and LULUCF credits. Moreover, the way the ESR’s starting point has been set, will create a surplus of emission allowances which can be carried over towards the second part of the period. This paper analyses the impact of the proposed starting point in combination with unlimited banking.

The main findings are:

1. The combination of the starting point with unlimited banking of credits reduces the stringency of the proposal from -30% to -26%.

2. Setting the ESR’s starting point based on a linear trajectory from 2016-2018 emissions (capped by 2020 target) would increase emission cuts throughout the period by over 500 megatons.

There are several options to limit the damage caused by the current starting point. The most obvious is to change the starting point. Alternatively putting a cap on banking – as currently exists for borrowing - would limit the negative impact on the 2030 target and would contribute to increase the real emission cuts.