Commission’s 2030 Climate Target Plan proposes radical changes in the rules governing agricultural and land GHG emissions

Commission’s 2030 Climate Target Plan proposes radical changes in the rules governing agricultural and land GHG emissions

In my post in March 2020 on EU climate policy and agriculture, I highlighted the limited expectation among Member States in reporting their projected greenhouse gas (GHG) emissions to the European Environment Agency (EEA) to make significant reductions in agricultural emissions by 2030.

Given the greater climate ambition set out in the European Green Deal and the Farm to Fork Strategy, I argued that, to properly incentivise, motivate and track progress in the farming sector, a focus on agricultural emissions alone is misleading and should be supplemented by also considering changes in land use emissions and removals that are under the control of farmers. I noted this would require changes in the way that the EEA presents its inventories as well as rethinking the relationship between emissions covered by the Effort Sharing Regulation (ESR) and emissions and removals in the land sector (land use, land use change and forestry or LULUCF) in EU climate policy.

I provided in another post a detailed description of the current rules that govern how LULUCF emissions/removals are reported to the UNFCCC and accounted for the purposes of the EU’s existing 2030 climate targets (this distinction between reported and accounted emissions/removals is a crucial element in the current 2030 regime). In a subsequent post, I called for consistency in the way the EU’s commitments are framed in its long-term strategy to reach zero net emissions by 2050 (which uses reported net emissions) and in its short-run climate targets (which are based on accounted net emissions). I also noted that the Commission’s long-term strategy assumes complete fungibility between LULUCF sinks and other emissions, while the short-term targets set a cap on the extent to which land sinks can be used to offset emissions in other sectors. This most recent post provides a summary of the various issues around the treatment of the land sector in the EU’s current climate regime.

The Commission’s Communication Stepping up Europe’s 2030 climate ambition: Investing in a climate-neutral future for the benefit of our people published in September 2020 and its accompanying impact assessment addresses both these issues and also introduces other elements that will have an important bearing on how agricultural emissions are regulated in future. Also of relevance is the Commission’s Communication on an EU strategy to reduce methane emissions published in October 2020, given that agriculture is currently responsible for 53% of total methane emissions in the EU, but I do not discuss that Communication further here.

Nearly all the reaction to the Commission’s Communication stepping up Europe’s 2030 climate ambition has focused on the 2030 Climate Target Plan to reduce GHG emissions to at least 55% below 1990 levels by 2030. The Commission has proposed to include this target through an amending Regulation in the European Climate Law which, inter alia, makes zero net emissions a legally binding target for 2050. The European Parliament in agreeing its amendments to the European Climate Law on first reading has proposed to raise this 2030 target to a reduction in emissions of 60% relative to 1990. In either case, subsequent legislation will be required to adapt the targets in the three pillars of the EU climate regime described earlier to the more ambitious overall target.

A higher 2030 reduction target would have implications for the agricultural sector but this is not the main focus of this post. Instead, I want to focus on the Commission’s proposals for the future climate architecture covering agricultural and land emissions. This will have implications for the governance framework within which Member States will draw up and implement their CAP Strategic Plans.

The current climate framework

Under the current 2030 climate framework, GHG emissions are regulated under three separate regimes with only limited interaction between them.

  • The Emissions Trading Scheme (ETS) Regulation, which establishes a cap-and-trade system for the power and heavy industry sectors as well as aviation and which limits emissions by setting an EU-wide quantitative limit reducing over time on the number of emissions allowances that firms in these sectors must acquire when emitting GHGs.
  • The Effort Sharing Regulation (ESR), that regulates emissions from the transport, buildings, agriculture, waste and small industry sectors through individual national emissions ceilings and reduction pathways. For Member States with national emission reduction targets significantly above both the EU average target and their cost effective reduction potential, as well as for Member States that did not have free allocation for industrial installations in 2013, there is a limited ability to transfer emissions allowances from the ETS regime to cover emissions generated in the ESR sectors.
  • The LULUCF Regulation, that sets a ‘no-debit’ target for net emissions/removals from the agricultural land use and forestry sectors to avoid any deterioration of the land net carbon sink compared to how it would have evolved continuing existing land management practices. A LULUCF credit position based on this accounting can be partially used to offset emissions under the ESR but a LULUCF debit position must be covered by using allowances available for the ESR sector of a Member State.

No specific targets for agricultural emissions. In this climate framework, there are no specific EU or national targets set for reductions in agricultural emissions. The national targets refer to all ESR sectors, where the relative importance of agricultural emissions differ from Member State to Member State. Each Member State can decide on the emissions reductions it wants to achieve in its agricultural sector. Member States with a relatively small share of agricultural emissions in total ESR emissions have greater leeway to ‘overlook’ agricultural emissions if they can meet their ESR targets through reductions in the other ESR sectors.

Member States are expected to define how the agricultural and LULUCF sectors will contribute to their national targets in their 10-year rolling National Energy and Climate Plans (NECPs). These are mandated under the Governance of the Energy Union and Climate Action Regulation (EU) 2018/1999. They represent the framework within which Member States should plan, in an integrated manner, their climate and energy objectives, targets, policies and measures. NECPs for the first period 2021 to 2030 were submitted by the end of 2019 and should ensure that the Union’s 2030 targets for GHG emissions reductions, renewable energy, energy efficiency and electricity interconnection are met. Each NECP contains a list of planned measures and stated ambitions for national GHG emissions reductions. The next revision of the NECPs is currently scheduled for the period 2023 (drafts) and 2024 (final).

The Commission’s review of the final submitted NECPs did not attempt to summarise the trajectory of agricultural emissions or the extent to which countries had set specific targets to reduce agricultural emission. However, aggregating the projection information on LULUCF removals included in the NECPs reveals that around a third of the 2005 EU carbon sink could be lost by 2030. The LULUCF sector may even become a net emitter in the years after 2030. This spells serious trouble for the Commission’s roadmap to reach net zero emissions by 2050.

The proposed climate framework: agriculture and LULUCF implications

The 2030 Climate Target Plan, apart from raising the 2030 reduction target for GHG net emissions from at least 40% to at least 55% compared to 1990, also puts forward suggested changes to the EU’s climate framework. The Impact Assessment makes a clear distinction between the two types of policy options (p. 19):

  • Overall increase of ambition of GHG emissions reductions for 2030;
  • Need for adaptations of the policy architecture to achieve such increased GHG ambition.

The key ideas with respect to changes in the policy architecture with consequences for agriculture and land emissions are the following:

  • Integrating road transport and buildings into the ETS
  • Changing the way LULUCF emissions/removals are integrated into the 2030 and future targets
  • Creating an Agriculture, Forestry and Land Use (AFOLU) sector with its own specific policy framework covering all emissions and removals of these sectors.

We explore each of these proposals in turn.

Integrating road transport and buildings into the ETS

National targets are currently set for the ESR sectors including transport, agriculture, heating of buildings, agriculture, waste, and small industrial installations. The Impact Assessment explores two options. In one option, road transport and buildings are included in the ETS but also remain as ESR sectors covered by national reduction targets. The idea here is that the carbon price arising from inclusion in the ETS would provide an additional EU instrument to achieve the national emission reduction targets under the ESR. In the second option, including them in the ETS means they are removed from the ESR sector. In that option, agricultural emissions would become a much larger share of the remaining ESR sector. The Communication makes clear that the Commission has not decided between these two options. It will use the upcoming impact assessment for both the review of the Emissions Trading System and the Effort Sharing Regulation to further consult the public on the role of the Effort Sharing Regulation.

For the EU27, agricultural emissions are currently 18% of ESR emissions; this share would increase to 40% under the second option in the Commission Impact Assessment. As such, the national ESR reduction target would become almost a de facto reduction target for agriculture as it would no longer be possible to avoid reductions in agricultural emissions if the national reduction target were to be met. It would also have very different consequences for individual Member States.

For countries like Ireland and Denmark, which already have a high share of agricultural emissions in the ESR sector (44% and 33%, respectively), these shares would increase to 78% and 62%, respectively. A 60% or 65% reduction target for ESR emissions in these countries relative to 1990 by 2030 (which would follow from an overall EU reduction target of 55% if reductions are related to GDP per capita as previously) would be impossible to meet from technical mitigation options in agriculture and would require a dramatic cessation of much agricultural activity.

Source:  Own calculations based on EEA GHG data viewer and ETS data viewer. ESR emissions by country and for the EU27 are estimated by subtracting emissions from stationary installations under the ETS and from domestic aviation from total emissions excluding LULUCF.

Integrating LULUCF sinks fully into the climate regime

At the moment, credits and debits in the LULUCF sector are generated compared to a baseline assuming continuation of existing land management practices. Emissions and removals from managed cropland, grassland and wetlands are compared in each five-year commitment period to net emissions and removals in a base period defined as 2005 to 2009 (net-net accounting). Emissions and removals from managed forest land are compared to a forest reference level (FRL). FRLs are based on the continuation of sustainable forest management practices as documented in the period from 2000 to 2009 regarding dynamic age-related forest characteristics in national forests. Credits and debits using these policy-determined accounting rules are different to the emissions and removals reported to the UNFCCC.

The Commission now proposes to remove this inconsistency. It writes that “The Land Use, Land Use Change and Forestry sector’s emissions and removals will be fully integrated into the proposed 2030 EU greenhouse gas target as reported under the UNFCCC inventory. This will be the starting point of the pathway between 2030 and 2050 for achieving climate neutrality and allow monitoring progress towards net zero greenhouse gas emissions by 2050 in a fully coherent manner.”

The decision is explained in the Impact Assessment as follows:

The accounted LULUCF sink does not represent the full size of the sink. The full size of the sink matters when establishing if the EU is on track or not to achieve net zero GHG emissions by 2050. This requires that any remaining greenhouse gas emissions will be fully absorbed by a corresponding sink, which to a large extent will have to come from the LULUCF sink. The analysis in support of the Long Term Strategy indicated the natural LULUCF sink will need to be maintained or expanded.

Thus to track progress towards climate neutrality the full net LULUCF sink needs to be included when looking at GHG ambition. Therefore in this Impact Assessment the full scope of the net LULUCF sink is included in all assessments to assess if 50% to 55% GHG reductions are achieved by 2030 and see its changes over time, from 1990 to 2030 and onwards to 2050 to achieve net zero GHG emissions.

The argument made in favour of this change in the Impact Assessment is not only one of consistency. The Commission emphasises that the current trend of a decreasing land carbon sink needs to be stopped and reversed, and that over time, the sector should do more. It notes that increased flexibility between the LULUCF Regulation and the Effort Sharing Regulation could be a way to strengthen incentives for removals in the land use sector itself.

The first consequence of this change would be that one could not directly compare the current 2030 reduction target of 40% with the proposed reduction target of 55%, both relative to 1990. Both are targets to reduce net emissions, but the 40% target refers mainly to emissions in the ETS and ESR sectors with only a very limited possibility to make use of LULUCF credits as offsets (a maximum of 262 million tonnes CO2e for the EU27 over the 10-year 2021-2030 period). In addition, whether there are LULUCF credits or not is determined by policy-determined accounting rules and not by the inventory numbers. The 55% target, however, will allow full offsetting of the LULUCF sink based on the LULUCF inventory numbers reported to the UNFCCC.

The table below shows the impact on the Commission’s 2030 climate ambition of allowing a larger LULUCF sink to offset emissions in the ETS and ESR sectors as currently defined (although currently flexibility is allowed only with the ESR sectors, the Impact Assessment opens the possibility for flexibility to the ETS as well). Two scenarios are shown. The first is the current 2030 target of a 40% reduction on 1990 levels with very limited integration of LULUCF credits. Although this target was set for the EU28 including the United Kingdom, the assumption is that the target remains despite the withdrawal of the United Kingdom and applies to the EU27. Given that the UK had a national reduction target in the ESR sector of 37% by 2030 relative to year 2005 compared to the EU average reduction of 30%, the withdrawal of the UK would make it necessary to slightly increase the level of ambition for all other Member States in any case to reach the overall EU target.

The possibility to use some very limited offsets from the LULUCF sector against emissions in the ETS/ESR sectors reduces the necessary reduction in emissions in the ETS/ESR sectors very slightly, by 0.5%. According to the Impact Assessment for the 2018 ESR, the limited flexibility between the LULUCF and ESR sectors was a deliberate decision to avoid reducing the level of ambition in the ETS/ESR sectors.

Source:  Own calculations. For the 40% emissions reduction target, the assumption is that the total allowed LULUCF offset of 262 million tonnes CO2e for the 2021-2030 period will be utilised evenly over the period, so that 26.2 million tonnes will be available in 2030. For the 55% emissions reduction target, the figure of 225 million tonnes is the Commission’s estimate of the LULUCF sink in a ‘no-debit’ scenario without additional efforts to enhance the sink.

The second scenario is where the overall level of ambition is increased to a 55% reduction in net emissions by 2030, but the full LULUCF sink can be used to offset emissions in the ETS/ESR sectors. The projected LULUCF sink in 2030 is based on the Commission’s estimate of the size of the sink under the ‘no-debit’ rule in the Impact Assessment. This sink number would be higher in scenarios where additional sequestration in the LULUCF sector is incentivised. However, in assessing the stringency of the net 55% target the impact of additional effort in the LULUCF sector induced by the target should not be included. The Impact Assessment also proposes a policy option where accounting rules would apply in order to make the contribution from the LULUCF sector more stringent, thus limiting the credits that could be transferred to other sectors but still permitting more flexibility than at present. However, the policy scenarios examined in the Impact Assessment all assume the full inclusion in the emission profile of net emissions from the LULUCF sector. If an offset of the full LULUCF sink were allowed, it would reduce the reduction ambition in the ETS/ESR sectors significantly to a reduction target of 50% rather than 55%. This implies that the level of ambition in the Commission’s Green Deal is somewhat less than what it first appears.

An AFOLU sector?

Creating an Agriculture, Forestry and Land Use (AFOLU) sector with its own specific policy framework covering all emissions and removals of these sectors is the third change in the policy architecture of specific relevance to agricultural and land emissions. The Impact Assessment notes that “A policy architecture that combines more explicitly both sectors into one legal instrument may ease designing efficient and effective policies in these sectors and better align them with EU agricultural policy instruments”. It also muses aloud whether this AFOLU sector “could benefit from flexibility to and from the other remaining ESR and ETS sectors”. This seems a strange comment to make as the point of integrating LULUCF into the climate framework is surely to encourage this flexibility. In its Communication, the Commission clearly sees merit in this proposal. It would become the first sector to deliver net zero greenhouse gas emissions. Subsequently, this sector would generate carbon removals to balance remaining emissions in other sectors induced by a robust carbon removal certification system.

The Commission recognises that this would require a novel policy approach that would (i) set national and sub-sectoral targets and benchmarks, (ii) create flexibility across the EU ensuring cost-effective incentives and mobilise the necessary financial resources, as well as (iii) develop the certification of carbon removals.

Future of the ESR sector

Finally, although it is not directly relevant to our focus on the implications of this proposed climate framework for agriculture and LULUCF targets, the Communication raises the question of the future of the ESR sector if (a) road transport and buildings are moved out of the ESR sector to the ETS sector, and (b) agriculture is combined in a separate AFOLU sector with LULUCF. This would leave the ESR sector covering a very small share of overall EU emissions. In that case, the Commission notes that if all other objectives of the Regulation were sufficiently targeted by other legislative instruments, the Regulation could even be repealed as a whole in the future. However, there are many steps to be taken first before that point is reached.

Next steps

Of the options analysed in the Commission’s Impact Assessment, only the proposal to increase the 2030 reduction target to 55% is a legislative proposal. For the remaining options concerning the future climate architecture, specific impact assessments and public consultations will be carried out in the coming months to precisely determine the legislative changes the Commission intends to propose in June 2021 to support the enhanced 2030 climate and energy framework. These will have to further assess sector specific distributional and competitiveness impacts by exploring feasible targeted solutions.

In my previous posts linked above, I highlighted some of the issues that will warrant further discussion. Integrating net emissions from the LULUCF sector fully into the climate architecture on an inventory basis has the great advantage of ensuring consistency between the EU’s climate target and the annual reports used to assess progress submitted to the UNFCCC. However, it assumes complete fungibility between carbon emitted to the atmosphere from burning fossil fuels and carbon sequestered in soils and biomass. In the light of the much greater measurement uncertainties around carbon sequestration and the possibility of easily reversing this storage of carbon, whether this is a reasonable assumption to make needs further debate.

The argument put forward to integrate agriculture and LJULUCF into an AFOLU sector is that this would ease designing effective policies in these sectors. As I previously argued, for a farmer making decisions on how best to manage his or her land, a sharp distinction between agricultural emissions and land-based removals does not make sense. These activities are so closely linked together that the appropriate signal to farmers should be a combined target. However, if we are trying to target incentives on farmers to take mitigation actions including sequestration, whether it makes sense to include non-farmer owned forestry in this AFOLU sector is a question worth debating.

This post has discussed some of the potential impacts the proposals for a new climate architecture in the 2030 Climate Target Plan could have on targets for agricultural and LULUCF emissions and their distribution among Member States. There is only a limited window of opportunity to influence the Commission’s thinking before next June. Therefore it is urgent to start a wider discussion now to tease out the potential consequences of the different options and to identify the best way forward to incentivise the necessary emission reductions from the agriculture and land sectors in the coming decades.

This post was written by Alan Matthews.

Photo credit: Flooded towpath © Copyright Albert Bridge and licensed for reuse under this Creative Commons Licence.

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