kom (2020) 0562 (forslag) - COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Stepping up Europe’s 2030 climate ambition Investing in a climate-neutral future for the benefit of our people

Europaudvalget 2020
KOM (2020) 0562
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EUROPEAN

COMMISSION

Brussels, 17.9.2020

SWD(2020) 176 final

PART 2/2

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL

COMMITTEE AND THE COMMITTEE OF THE REGIONS

Stepping up Europe’s 2030 climate ambition

Investing in a climate-neutral future for the benefit of our people

{COM(2020) 562 final} - {SEC(2020) 301 final} - {SWD(2020) 177 final} -

{SWD(2020) 178 final}

kom (2020) 0562 (forslag) - COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Stepping up Europe’s 2030 climate ambition Investing in a climate-neutral future for the benefit of our people

Table of contents

ANNEXES ............................................................................................................................................ 3

9.1

9.1.1

9.1.2

9.1.3

9.2

9.3

9.3.1

9.3.2

Procedural information .................................................................................................. 3

Lead DG, Decide Planning/CWP references........................................................... 3

Organisation and timing .......................................................................................... 3

Consultation of the RSB .......................................................................................... 3

Stakeholder consultation: views disaggregated by stakeholder category for

ambition, challenges and opportunities ......................................................................... 7

Analytical methods ...................................................................................................... 13

Description modelling tools used .......................................................................... 13

Assumptions on technology, economics and energy prices .................................. 24

9.3.3 The existing 2030 framework scenario (BSL) and the EU National Energy and

Climate Plans scenario (EU-NECP) variant ....................................................................... 28

9.3.4

9.4

9.4.1

9.4.2

9.4.3

9.4.4

9.5

Policy scenarios ..................................................................................................... 39

Sectoral transformation to achieve 50% to 55% GHG reduction by 2030 and

transition to climate neutrality..................................................................................... 47

Greenhouse gas emissions per sector .................................................................... 47

Energy sector ......................................................................................................... 49

Non-CO

sectoral mitigation potential .................................................................. 84

The LULUCF sector.............................................................................................. 92

Environmental, economic, social impacts

–

details .................................................. 102

9.5.1 Synergies and trade-offs of bio-energy use and land management in the context of

increase climate ambition with biodiversity ..................................................................... 102

9.5.2

9.5.3

9.6

9.6.1

Energy system

–

economic impacts .................................................................... 105

Macro-economic impacts (GDP, employment, competitiveness) ....................... 110

Future energy policy framework (including transport aspects) ................................. 117

Energy efficiency policy framework ................................................................... 117

9.6.2 CO

emission standards for vehicles and other transport system efficiency related

policies 122

9.6.3

9.6.4

9.7

9.7.1

9.7.2

9.7.3

Renewable energy policy framework .................................................................. 123

Consistency between energy efficiency and renewables legislation ................... 125

Extended analysis of impacts of ETS extension and interaction with the ESR ........ 126

Environmental impacts of policy aspects: impact on ETS and ESR ................... 126

Economic impacts ............................................................................................... 133

Social and distributional impacts of policy aspects ............................................. 136

9.7.4

9.8

9.9

Administrative impacts........................................................................................ 137

Sector specific analysis of climate and energy policy interactions ........................... 142

Extended analysis on the role of the LULUCF policy architecture in

achieving increased ambition in GHG removals ....................................................... 148

9.10 Context of the 2030 Climate Target Plan .................................................................. 156

9.10.1 Current policies and progress achieved ............................................................... 156

9.10.2 Key elements to improve the further coherence when developing energy, climate

and transport policies ........................................................................................................ 168

9.10.3 Climate change and its impact, how to increase resilience and adaptation ......... 172

9.10.4 Progress globally on the fight against climate change ........................................ 187

9.10.5 Central role of the global energy transition ......................................................... 188

9.10.6 EU action in a global context to limit temperature increase to well below 2C and

pursue efforts to limit it to 1.5C ...................................................................................... 192

9.11 EU policies as an enabler .......................................................................................... 199

9.11.1 Green recovery from the COVID-19 crisis ......................................................... 199

9.11.2 Energy financing and climate mainstreaming of the next MFF .......................... 202

9.11.3 Sustainable finance .............................................................................................. 203

9.11.4 Just transition, skills development and protecting vulnerable citizens ................ 203

9.11.5 Behavioural changes and their impact on energy and emission profiles ............. 206

9.11.6 Circular economy and its impacts on climate change mitigation ........................ 207

9.11.7 R&D .................................................................................................................... 211

9.11.8 Maritime Policy ................................................................................................... 217

GLOSSARY ................................................................................................................................................218

LIST OF FIGURES .....................................................................................................................................225

LIST OF TABLES.......................................................................................................................................228

NNEXES

9.1 Procedural information

9.1.1

Lead DG, Decide Planning/CWP references

The Directorate-General (DG) for Climate Action was leading the preparation of this initiative

and the work on the Impact Assessment in the European Commission, with the DG for Energy

being co-responsible. The planning entry was approved in Decide Planning under the reference

PLAN/2020/6960. It is included in the 2020 Commission Work Programme under the policy

objective “Commission contribution to COP26 in Glasgow “.

9.1.2

Organisation and timing

The planned adoption date (Q3 2020) included in the Commission Work Programme adopted on

29 January 2020, was unchanged in the revised version adopted on 27 May 2020 following the

COVID-19 crisis.

An inter-service steering group (ISG), was established for preparing this initiative. The ISG met

five times in the period from February until adoption in September 2020.

9.1.3

Consultation of the RSB

A draft Impact Assessment was submitted to the Regulatory Scrutiny Board (RSB) on 9 July

2020. Following the Board meeting on 22 July 2020, it issued a negative opinion on 24 July

2020. After consideration of the Board’s recommendations in the first opinion, a new version of

the draft Impact Assessment submission was submitted on 18 August 2020, to which the Board

issued a positive opinion with reservations on 27 August 2020.

The Board’s recommendations have been addressed as presented below.

RSB 1

Opinion of 24 July 2020

Recommended improvements and how they were addressed

(1) The impact assessment should develop a stronger and more easily accessible narrative that

can support a broad public debate. It should be clearer on which (major) decisions it supports

and which not. It should explain what margin of manoeuvre and scope will be left for the follow-

up sectoral impact assessments, and set out how a coherent approach will be ensured. The link

between the impact assessment and the proposed chapeau communication should be explained.



Sections 1 to 5 where fully reviewed and shortened, improving the logic of how problem

definition, objectives and policy options relate to each other, including the introduction

of an intervention logic.

(2) The report should further develop the problem analysis. It should acknowledge the role of EU

action for global climate policies. It should describe how local environmental and other public

policy problems link to a greater short-term climate policy ambition. It should elaborate on why

a higher ambition for 2030 is needed (e.g. earlier availability of cheaper low-carbon

technologies and co-benefits, greater costs of reaching carbon neutrality in 2050, reducing the

post-2030 mitigation burden, etc.).



The problem definition section 2 has been adapted, focusing on the lack of ambition of

the current EU climate 2030 target and on the need to update the climate and energy

policy framework in the perspective of reaching climate neutrality by 2050.

(3) The objectives section should go beyond the more ambitious target for the next decade and

show how it connects to higher-level objectives of climate policy. The intervention logic should

show clearly the logical chain between the identified problems, what the initiative aims to

achieve and the solutions considered.



The objectives section 4 has been adapted to reflect better how objectives relate to

addressing the problems, notably in the perspective of the higher-level objective of

reaching climate neutrality by 2050. An intervention logic scheme (see section 4.4) has

been added to map problems and problem drivers (the existing climate target is

insufficient and the policy framework is not adequate) with general and specific

objectives (raising the climate target and updating the policy framework). The

intervention logic then relates to the policy options described in section 5 (see Table 2

and Table 3).

(4) The impact analysis should include the missing scenarios (EU-NECP, 50% MIX, COVID-19).

It should include a summary of the main characteristics of the modelling (e.g. how the partial-

equilibrium sectorial modules are combined) and report on headline results. Large parts of the

(quantitative) assessment could be moved into dedicated annexes.



All the missing scenarios have been added to the analysis (see section 5.4 for the

description of scenarios) and a summary of headline results has been included in the

conclusions (section 8, Table 28). Large parts of the quantitative assessment have been

moved to dedicated annexes (Annexes 9.4 and 9.5), with only the main impacts being

discussed in the main body of the report (section 6).

(5) The analysis of the extensive public consultation should be completed and integrated into the

report. This should include an assessment of which groups support which option, giving due

attention to minority views.



The findings of the public consultation have been introduced in relevant places of the

report, including in sections discussing sectoral impacts. See also below the reply to

recommendation (2) of the second Opinion of the RSB.

(6) The rich assessment should lead to conclusions. These should include a clear overview of the

different impacts of the options and their advantages and disadvantages. They should highlight

trade-offs and distributional effects. They should also reflect stakeholder views.



A conclusion section has been added (section 8).

RSB 2

Opinion (Positive with reservations) of 27 August 2020

Recommended improvements and how they were addressed

(1) The problem description should show more convincingly that the current pathway towards

climate neutrality by 2050 would not be 'balanced'. It should present evidence why a more

uniform CO

reduction rate over time is preferable, also in terms of cost-efficiency for different

stakeholder groups. It should be more explicit on its assumptions on the evolution of the cost of

reduction.



The problem definition was further adapted, recognising that a 55% greenhouse gas

target actually sees limitedly higher emission reductions up to 2030 than afterwards. The

impact assessment compares GHG pathways towards climate neutrality that achieve 50%

or 55% GHG reductions by 2030. This allows to assess how these different pathways

impacts costs, including for the different sectors and thus stakeholder groups, and how

they prepare the energy system and economy towards deep decarbonisation after 2030.

(2) The main text should present a more disaggregated view of stakeholder opinions across the

different groups of respondents (e.g. businesses, NGOs, Member State authorities, extra EU

bodies and citizens). The report should distinguish between views of individuals and those of

organised interest groups. The stakeholder consultation annex should clarify how the analysis

has taken account of campaign replies. The graphs and tables in the stakeholder annex would

also benefit from a more granular representation of stakeholder groups.



Annex 9.2 was added with detailed tables with information per group of respondents on

the main outcomes of the public consultation regarding GHG, RES and EE ambition.

Moreover, the text now clarifies what campaigns have been identified and how this

impacts the robustness of the conclusions. A limited amount of additional insights were

added to the main text. A synopsis report as well as an in-depth report on the results of

the open public consultation were prepared, which includes a summary of position papers

received and detailed tables for the remaining questions raised in the public consultation.

(3) The conclusions and executive summary should be more explicit on costs and benefits and on

the distributional effects of the various scenarios across sectors and groups of the population.

They should better explain how the different ambition levels would impact on the various sectors

and what the main related policy choices are (to be addressed now or in subsequent steps).



The main finding regarding the distributional effects of the proposed options have been

summarised in the conclusions and executive summary. The cost and benefits across the

various scenarios have been systematically compared (including in terms of system costs,

investments, carbon revenues, household expenditure and main macroeconomic

aggregates).

(4) The report should be clearer on how far the expected revenues from new carbon revenues will

compensate the distributional effects and support sectoral restructuring.



The Impact Assessment clearly shows that carbon pricing can lead to a better macro-

economic outcome. It assesses the impact of lump sum transfers to household, labour tax

reduction and investments in to greening of the economy, and discusses how addressing

the investment gap is of importance with respect to the COVID-19 crisis. The report

recognises clearer that choices will have to be made between these different options of

recycling, and this involves a trade-off between redistributional and economic

restructuring objectives.

(5) The report should explain why there is no preferred option. It should be clearer that the

purpose of this impact assessment is to stimulate public discussion on the 2030 emission

reduction level and on the choices that will need to be made across different sectors in order to

achieve the selected target.



The concluding section has to be seen as a multi criteria assessment that is dense in

information. While it does not explicitly endorse one option, the conclusion has been

further refined pointing out that the 55% GHG reduction option has a number of co-

benefits compared to the 50% GHG option, while not leading to significant different

costs. This together with the policy architecture assessment in sections 6.6 to 6.10 and

the sectoral assessments in annex should indeed allow for informed decision making and

stimulate a wider public discussion on adopting an increased 2030 climate ambition.

(6) The report does not include the standard quantification table with estimated costs and

benefits. The summary table in the conclusions represents a useful alternative. The report should

briefly explain the differences in scenario outcomes reported in that table.



The differences in scenario outcomes reported in the table are systematically discussed in

the conclusions. The conclusions make reference to the summary table.

(7) The report needs further editing and consistent formatting. It needs to complete the

integration of changes to the first submission throughout the report. The annex section on

procedural

information should explain how it incorporated the Board’s recommendations.



Further editing and formatting have been introduced in finalisation of the report. The

integration of changes compared to the first submission has been completed and a

placement error

was corrected. This annex explains how the Board’s recommendations

have been incorporated.

9.2 Stakeholder consultation: views disaggregated by stakeholder category

for ambition, challenges and opportunities

This section adds further detail on views received from various stakeholder types in the open

public consultation which was conducted through an online survey. The survey was open for 12

weeks (from March 31st to June 23rd, 2020) and received a total of 3915 replies. A synopsis

report as well as an in-depth report on the results of the open public consultation was also

prepared, which includes a summary of position papers received.

This section shows the disaggregated views of these stakeholders types on key questions of

interest to this impact assessment related to ambition, i.e. the overall climate ambition in terms of

the GHG reduction target by 2030, the accompanying 2030 ambitions for renewable energy and

for energy efficiency, as well as the opportunities and challenges associated with these options.

Moreover, a number of campaigns were identified in the open replies and survey attachments.

The largest campaign (8%; 329 respondents), constituting of mostly private individuals,

advocated mainly for a higher climate ambition, and a common carbon price. The second

campaign (<1%; 40 respondents), also mostly private individuals, pushed for a revision of the

methodology to calculate the GHG emissions of the agriculture sector. The third campaign (<1%;

35 respondents), supported mainly by NGOs, requested coherence with the Paris Agreement and

a bigger focus on the costs of inaction. The fourth campaign (<1%; 20 respondents) of private

individuals, proposed a climate dividend for citizens as a carbon pricing mechanism. Overall,

these campaigns are thus part of the views of private individuals as listed in the tables in this

section. The overall conclusions of the stakeholder views are not materially affected even without

the campaign contributions: an increase in the GHG emissions target to at least 55% remains

clearly the preferred option when looking at professional and organised stakeholder replies. The

same is true for ambition in renewables and in energy efficiency, though views of the business

sector are distributed more evenly across the options.

Table 29: Desired 2030 ambition on the climate target

Type of information

As an individual in a personal capacity

Of which:

EU citizen

Non-EU citizen

217

372

2 556

should

remain

unchanged at 40%

220

It should be increased

to at least 50%.

380

It should be increased

to at least 55%

2 584

In a professional capacity or on behalf of an

organisation

Of which:

Academic/research institution

Business association

Company/business organisation

Consumer organisation

Environmental organisation

Non-governmental organisation (NGO)

126

135

320

Trade union

Other

Public authority

Table 30: Desired 2030 ambition on the renewable energy target

Achieve at least a share of 32%

renewable energy in the final

energy consumption in the EU by

2030, i.e. unchanged from the level

already agreed

Stakeholder Type

As an individual in a personal capacity

EU citizen

Non-EU citizen

In a professional capacity or on behalf

of an organisation

Academic/research institution

Business association

Company/business organisation

Consumer organisation

Environmental organisation

Non-governmental organisation (NGO)

Trade union

Other

Public authority

150

148

134

Of which:

129

396

2 357

136

399

Achieve even higher

level of ambition than

at least a share of 40%

renewable energy in

the final energy

consumption in the

EU by 2030

2 378

Achieve at least a share of 35%

renewable energy in the final

energy consumption in the EU by

2030

Achieve at least a share of 40%

renewable energy in the final

energy consumption in the EU by

2030

Do not know/Do not have

an opinion

140

Of which:

114

235

Table 31: Desired 2030 ambition on the energy efficiency target

Achieve at least 32.5% energy

efficiency (in both primary and final

energy consumption) by 2030, i.e.

unchanged from the level already

agreed

172

170

112

Achieve at least 35% energy

efficiency (in both primary

and final energy consumption)

by 2030

193

Of which:

EU citizen

Non-EU citizen

In a professional capacity or on behalf of an organisation

Academic/research institution

Business association

Company/business organisation

Consumer organisation

Environmental organisation

Non-governmental organisation (NGO)

Trade union

Other

Public authority

188

Of which:

446

101

2 113

210

246

Achieve at least 40% energy

efficiency (in both primary

and final energy consumption)

by 2030

448

Achieve even higher level of

ambition than at least 40%

energy efficiency (in both

primary and final energy

consumption) by 2030

2 135

Do not

know/Do not

have an

opinion

250

Stakeholder Type

As an individual in a personal capacity

Table 32: Opportunities related to a higher 2030 climate ambition

It will help

mitigate costs

associated with

climate change to

the society (from

e.g. extreme

weather events,

droughts, loss of

ecosystems etc.)

2 298

It will ensure a

growing EU

economy based on

new production

and consumption

models (e.g.

circular economy

approach)

It will create new

(green) jobs,

including those

that are difficult

to outsource

outside the EU

(e.g. maintenance

of renewable

energy

installations,

construction)

2 001

It will lower

pollution, improve

health, make cities

and buildings

more liveable and

thus increase the

well-being of

citizens.

It will be a chance

to do our part in

saving the planet

and thus fulfilling

our duty towards

the future

generations.

Type of information

As an individual in a

personal capacity

2 607

It will allow a

more gradual

pathway to

reaching a climate

neutral EU by

2050

It will reinforce

EU leadership and

inspire action to

battle climate

change globally

It will give the EU

industry a first-

mover advantage

on global markets

It will improve

energy security

and reduce the EU

dependency on

imported fossil

fuels

Other

1 322

1 762

1 905

Of which:

2 642

1 345

2 047

362

EU citizen

Non-EU citizen

2 575

1 304

2 269

1 741

1 875

1 973

2 609

1 327

2 021

358

In a professional capacity

or on behalf of an

organisation

350

378

357

381

301

Of which:

389

439

273

361

203

Academic/research

institution

Business association

Company/business

organisation

Consumer organisation

Environmental

organisation

Non-governmental

organisation (NGO)

Trade union

Other

Public authority

105

103

104

112

111

100

Table 33: Challenges related to a higher 2030 climate ambition

It will represent a

significant

investment

challenge for EU

industry, services,

transport, and

energy sectors. The

costs of investments

are likely to be

passed on to

consumers via

higher prices or

taxes

1 084

1 065

362

119

109

The simultaneous

transition to climate

neutral, circular,

and digital economy

and society may

lead to significant

labour reallocation

across sectors,

occupations and

regions. Businesses,

especially SMEs

could face

challenges in re-

skilling and

ensuring sufficient

workforce

1 292

1 272

314

Of which:

Academic/research institution

Business association

Company/business organisation

Consumer organisation

Environmental organisation

Non-governmental organisation (NGO)

Trade union

Other

Public authority

103

It may lead to

societal inequalities

due to an initially

higher cost of green

products,

sustainable food

and transport and

renewable energy,

which may

negatively impact

the lower income

people/regions and

contribute to energy

poverty

1 112

1 099

246

Type of information

It will likely lead to

a structural shift

and changing skill

requirements in the

economy, in

particular leading

to a decline of

sectors and jobs

linked to fossil fuels

extraction and

carbon-intensive

manufacturing

1 708

1 686

376

It will change the

existing policy and

will confront us

with reduced lead-

time for devising

and implementing

additional measures

and for the

economic actors to

adjust.

Even with a more

ambitious 2030

target, it is difficult

to ensure sufficient

action to reduce

greenhouse gas

emissions on the

ground

The EU, if acting

alone, will lose

out in terms of

international

competitiveness

Other

As an individual in a personal capacity

EU citizen

Non-EU citizen

In a professional capacity or on behalf

of an organisation

1 284

Of which:

1 273

274

1 271

1 257

228

350

344

219

341

332

199

9.3 Analytical methods

9.3.1

9.3.1.1

Description modelling tools used

Main modelling suite

The main model suite used to produce the scenarios presented in this impact assessment has a

successful record of use in the Commission's energy and climate policy assessments. In

particular, it has been used for the Commission’s proposal for Long Term Strategy

as well as for

the 2020 and 2030 EU’s climate and energy policy framework.

The PRIMES and PRIMES-TREMOVE models are the core elements of the modelling

framework for energy, transport and CO

emission projections. The GAINS model is used for

non-CO

emission projections and the GLOBIOM-G4M models for projections of LULUCF

emissions and removals and the CAPRI model is used for agricultural activity projections.

The model suite thus covers:



The entire energy system

(energy demand, supply, prices and investments to the

future) and

all GHG emissions and removals

from the EU economy.

Time horizon:

1990 to 2070 (5-year time steps).

Geography:

individually all EU Member States, EU candidate countries and, where

relevant Norway, Switzerland and Bosnia and Herzegovina.

Impacts:

on the energy system (PRIMES and its satellite model on biomass),

transport (PRIMES-TREMOVE), agriculture (CAPRI), forestry and land use

(GLOBIOM-G4M), atmospheric dispersion, health and ecosystems (acidification,

eutrophication) (GAINS); macro-economy with multiple sectors, employment and

social welfare (GEM-E3).

The modelling suite was recently updated in the context of the in-depth analysis of the proposal

for an EU Long Term Strategy, with addition of a new buildings module, improved

representation of electricity sector, more granular representation of hydrogen and synthetic fuels

produced with electricity (“e-fuels”), as well updated interlinkages of the models to improve land

use and non-CO

modelling.

The models are linked with each other in such a way to ensure consistency in the building of

scenarios (Figure 21). These inter-linkages are necessary to provide the core of the analysis,

which are interdependent energy, transport and GHG emissions trends.

https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_analysis_in_support_en_0.pdf

Figure 21: Interlinkages between models

9.3.1.1.1 Energy: the PRIMES model

The PRIMES model (Price-Induced Market Equilibrium System)

is a large scale applied energy

system model that provides detailed projections of energy demand, supply, prices and investment

to the future, covering the entire energy system including emissions. The distinctive feature of

PRIMES is the combination of behavioural modelling (following a micro-economic foundation)

with engineering aspects, covering all energy sectors and markets. The model has a detailed

representation of instruments policy impact assessment related to energy markets and climate,

including market drivers, standards, and targets by sector or overall. It simulates the EU

Emissions Trading System in its current form. It handles multiple policy objectives, such as GHG

emissions reductions, energy efficiency, and renewable energy targets, and provides pan-

European simulation of internal markets for electricity and gas.

Figure 22: Schematic representation of the PRIMES model

PRIMES offer the possibility of handling market distortions, barriers to rational decisions,

behaviours and market coordination issues and it has full accounting of costs (CAPEX and

OPEX) and investment on infrastructure needs. The model covers the horizon up to 2070 in 5-

More information and model documentation:

https://e3modelling.com/modelling-tools/primes/

year interval periods and includes all Member States of the EU individually, as well as

neighbouring and candidate countries. PRIMES is designed to analyse complex interactions

within the energy system in a multiple agent

–

multiple markets framework.

Decisions by agents are formulated based on microeconomic foundation (utility maximization,

cost minimization and market equilibrium) embedding engineering constraints and explicit

representation of technologies and vintages; optionally perfect or imperfect foresight for the

modelling of investment in all sectors.

PRIMES allows simulating long-term transformations/transitions and includes non-linear

formulation of potentials by type (resources, sites, acceptability etc.) and technology learning.

Figure 22 shows a schematic representation of the PRIMES model.

It includes a detailed numerical model on biomass supply, namely PRIMES-Biomass, which

simulates the economics of supply of biomass and waste for energy purposes through a network

of current and future processes. The model transforms biomass (or waste) feedstock, thus primary

feedstock or residues, into bio-energy commodities which undergo further transformation in the

energy system e.g. as input into power plants, heating boilers or fuels for transportation. The

model calculates the inputs in terms of primary feedstock of biomass and waste to satisfy a given

demand for bio-energy commodities and provides quantification of the required production

capacity (for plants transforming feedstock into bioenergy commodities). Furthermore, all the

costs resulting from the production of bioenergy commodities and the resulting prices are

quantified. The PRIMES-Biomass model is a key link of communication between the energy

system projections obtained by the core PRIMES energy system model and the projections on

agriculture, forestry and non-CO

emissions provided by other modelling tools participating in

the scenario modelling suite (CAPRI, GLOBIOM/G4M, GAINS).

PRIMES is a private model maintained by E3Modelling

, originally developed in the context of a

series of research programmes co-financed by the European Commission. The model has been

successfully peer-reviewed, most recently in 2011

; team members regularly participate in

international conferences and publish in scientific peer-reviewed journals.

Sources for data inputs

A summary of database sources, in the current version of PRIMES, is provided below:

•

Eurostat and EEA: Energy Balance sheets, Energy prices (complemented by other

sources, such IEA), macroeconomic and sectoral activity data (PRIMES sectors

correspond to NACE 3-digit classification), population data and projections, physical

activity data (complemented by other sources), CHP surveys, CO

emission factors

(sectoral and reference approaches) and EU ETS registry for allocating emissions

between ETS and non ETS

Technology databases: ODYSSEE-MURE

, ICARUS, Eco-design, VGB (power

technology costs), TECHPOL

–

supply sector technologies, NEMS model database

IPPC BAT Technologies

•

E3Modelling (https://e3modelling.com/) is a private consulting, established as a spin-off inheriting staff, knowledge

and software-modelling innovation of the laboratory E3MLab from the National Technical University of Athens

(NTUA).

SEC(2011)1569 : https://ec.europa.eu/energy/sites/ener/files/documents/sec_2011_1569_2.pdf

https://www.odyssee-mure.eu/

•

Power Plant Inventory: ESAP SA and PLATTS

RES capacities, potential and availability: JRC ENSPRESO

, JRC EMHIRES

, RES

ninja

, ECN, DLR and Observer, IRENA

Network infrastructure: ENTSOE, GIE, other operators

Other databases: District heating surveys (e.g. from COGEN), buildings and houses

statistics and surveys (various sources, including ENTRANZE project

, INSPIRE

archive, BPIE

), JRC-IDEES

, update to the EU Building stock Observatory

9.3.1.1.2 Transport: the PRIMES-TREMOVE model

The PRIMES-TREMOVE transport model projects the evolution of demand for passengers and

freight transport, by transport mode, and transport vehicle/technology, following a formulation

based on microeconomic foundation of decisions of multiple actors. Operation, investment and

emission costs, various policy measures, utility factors and congestion are among the drivers that

influence the projections of the model. The projections of activity, equipment (fleet), usage of

equipment, energy consumption and emissions (and other externalities) constitute the set of

model outputs.

The PRIMES-TREMOVE transport model can therefore provide the quantitative analysis for the

transport sector in the EU, candidate and neighbouring countries covering activity, equipment,

energy and emissions. The model accounts for each country separately which means that the

detailed long-term outlooks are available both for each country and in aggregate forms (e.g. EU

level).

In the transport field, PRIMES-TREMOVE is suitable for modelling

soft measures

(e.g. eco-

driving, labelling);

economic measures

(e.g. subsidies and taxes on fuels, vehicles, emissions;

ETS for transport when linked with PRIMES; pricing of congestion and other externalities such

as air pollution; accidents and noise; measures supporting R&D);

regulatory measures

(e.g. CO

emission performance standards for new passenger and heavy duty vehicles; EURO standards on

road transport vehicles; technology standards for non-road transport technologies, deployment of

Intelligent Transport Systems) and

infrastructure policies for alternative fuels

(e.g. deployment

of refuelling/recharging infrastructure for electricity, hydrogen, LNG, CNG). Used as a module

that contributes to the PRIMES model energy system model, PRIMES-TREMOVE can show

how policies and trends in the field of transport contribute to economy-wide trends in energy use

and emissions. Using data disaggregated per Member State, the model can show differentiated

trends across Member States.

The PRIMES-TREMOVE has been developed and is maintained by E3Modelling, based on, but

extending features of, the open source TREMOVE model developed by the TREMOVE

Source: https://www.eia.gov/outlooks/aeo/info_nems_archive.php

Source:

https://eippcb.jrc.ec.europa.eu/reference/

Source:

https://data.jrc.ec.europa.eu/collection/id-00138

Source:

https://data.jrc.ec.europa.eu/dataset/jrc-emhires-wind-generation-time-series

Source:

https://www.renewables.ninja/

Source:

https://www.entranze.eu/

Source:

http://bpie.eu/

Source:

https://ec.europa.eu/jrc/en/potencia/jrc-idees

Source:

https://ec.europa.eu/energy/en/eubuildings

Source:

https://www.tmleuven.be/en/navigation/TREMOVE

modelling community. Part of the model (e.g. the utility nested tree) was built following the

TREMOVE model.

Other parts, like the component on fuel consumption and emissions, follow

the COPERT model.

Data inputs

The main data sources for inputs to the PRIMES-TREMOVE model, such as for activity and

energy consumption, comes from EUROSTAT database and from the Statistical Pocketbook "EU

transport in figures

. Excise taxes are derived from DG TAXUD excise duty tables. Other data

comes from different sources such as research projects (e.g. TRACCS project) and reports.

In the context of this exercise, the PRIMES-TREMOVE transport model is calibrated to 2005,

2010 and 2015 historical data.

9.3.1.1.3 Non-CO

GHG emissions and air pollution: GAINS

The GAINS (Greenhouse gas and Air Pollution Information and Simulation) model is an

integrated assessment model of air pollutant and greenhouse gas emissions and their interactions.

GAINS brings together data on economic development, the structure, control potential and costs

of emission sources and the formation and dispersion of pollutants in the atmosphere.

In addition to the projection and mitigation of greenhouse gas emissions at detailed sub-sectorial

level, GAINS assesses air pollution impacts on human health from fine particulate matter and

ground-level ozone, vegetation damage caused by ground-level ozone, the acidification of

terrestrial and aquatic ecosystems and excess nitrogen deposition of soils.

Model uses include the projection of non-CO

GHG emissions and air pollutant emissions for EU

Reference scenario and policy scenarios, calibrated to UNFCCC emission data as historical data

source. This allows for an assessment, per Member State, of the (technical) options and emission

potential for non-CO

emissions. Health and environmental co-benefits of climate and energy

policies such as energy efficiency can also be assessed.

The GAINS model is accessible for expert users through a model interface

and has been

developed and is maintained by the International Institute of Applied Systems Analysis

. The

underlying algorithms are described in publicly available literature. GAINS and its predecessor

RAINS have been peer reviewed multiple times, in 2004, 2009 and 2011.

Sources for data inputs

Several model enhancements were made compared to the standard TREMOVE model, as for example: for the

number of vintages (allowing representation of the choice of second-hand cars); for the technology categories which

include vehicle types using electricity from the grid and fuel cells. The model also incorporates additional fuel types,

such as biofuels (when they differ from standard fossil fuel technologies), LPG, LNG, hydrogen and e-fuels. In

addition, representation of infrastructure for refuelling and recharging are among the model refinements, influencing

fuel choices. A major model enhancement concerns the inclusion of heterogeneity in the distance of stylised trips; the

model considers that the trip distances follow a distribution function with different distances and frequencies. The

inclusion of heterogeneity was found to be of significant influence in the choice of vehicle-fuels especially for

vehicles-fuels with range limitations.

Source: https://ec.europa.eu/transport/facts-fundings/statistics_en

Source:

http://gains.iiasa.ac.at/models/

Source:

http://www.iiasa.ac.at/

The GAINS model assess emissions to air for given externally produced activity data scenarios.

For Europe, GAINS uses macroeconomic and energy sector scenarios from the PRIMES model,

for agricultural sector activity data GAINS adopts historical data from EUROSTAT and aligns

these with future projections from the CAPRI model. Projections for waste generation, organic

content of wastewater and consumption of F-gases are projected in GAINS in consistency with

macroeconomic and population scenarios from PRIMES. For global scenarios, GAINS uses

macroeconomic and energy sector projections from IEA World Energy Outlook scenarios and

agricultural sector projections from FAO. All other input data to GAINS, i.e., sector- and

technology- specific emission factors and cost parameters, are taken from literature and

referenced in the documentation.

9.3.1.1.4 Forestry and land-use: GLOBIOM-G4M

The Global Biosphere Management Model (GLOBIOM) is a global recursive dynamic partial

equilibrium model integrating the agricultural, bioenergy and forestry sectors with the aim to

provide policy analysis on global issues concerning land use competition between the major land-

based production sectors. Agricultural and forestry production as well as bioenergy production

are modelled in a detailed way accounting for about 20 globally most important crops, a range of

livestock production activities, forestry commodities as well as different energy transformation

pathways.

GLOBIOM covers 50 world regions / countries, including the EU27 Member States.

Model uses include the projection of emissions from land use, land use change and forestry

(LULUCF) for EU Reference scenario and policy scenarios. For the forestry sector, emissions

and removals are projected by the Global Forestry Model (G4M), a geographically explicit agent-

based model that assesses afforestation, deforestation and forest management decisions.

GLOBIOM-G4M is also used in the LULUCF impact assessment to assess the options

(afforestation, deforestation, forest management, and cropland and grassland management) and

costs of enhancing the LULUCF sink for each Member State.

The GLOBIOM-G4M has been developed and is maintained by the International Institute of

Applied Systems Analysis

Sources for data inputs

The main market data sources for GLOBIOM-EU are EUROSTAT and FAOSTAT, which

provide data at the national level and which are spatially allocated using data from the SPAM

model

. Crop management systems are parameterised based on simulations from the biophysical

process-based crop model EPIC. The livestock production system parameterization relies on the

dataset by Herrero et al

. Further datasets are incorporated, coming from the scientific literature

and other research projects.

GLOBIOM is calibrated to FAOSTAT data for the year 2000 (average 1998 - 2002) and runs

recursively dynamic in 10-year time-steps. In the context of this exercise, baseline trends of

Source : http://www.iiasa.ac.at/

See You, L., Wood, S. (2006). An Entropy Approach to Spatial Disaggregation of Agricultural Production,

Agricultural Systems 90, 329–47 and http://mapspam.info/ .

Herrero, M., Havlík, P., et al. (2013). Biomass Use, Production, Feed Efficiencies, and Greenhouse Gas Emissions

from Global Livestock Systems, Proceedings of the National Academy of Sciences 110, 20888–93.

agricultural commodities are aligned with FAOSTAT data for 2010/2020 and broadly with

AGLINK-COSIMO trends for main agricultural commodities in the EU until 2030.

The main data sources for G4M are CORINE, Forest Europe (MCPFE, 2015)

, countries’

submissions to UNFCCC and KP, FAO Forest Resource Assessments, and national forest

inventory reports. Afforestation and deforestation trends in G4M are calibrated to historical data

for the period 2000-2013.

9.3.1.1.5 Agriculture: CAPRI

CAPRI is a global multi-country agricultural sector model, supporting decision making related to

the Common Agricultural Policy and environmental policy and therefore with far greater detail

for Europe than for other world regions. It is maintained and developed in a network of public

and private agencies including the European Commission (JRC), Universities (Bonn University,

Swedish University of Agricultural Sciences, Universidad Politécnica de Madrid), research

agencies (Thünen Institute), and private agencies (EuroCARE, in charge for use in this modelling

cluster); the model takes inputs from GEM-E3, PRIMES and PRIMES Biomass model, provides

outputs to GAINS, and exchanges information with GLOBIOM on livestock, crops, and forestry

as well as LULUCF effects.

The CAPRI model provides the agricultural outlook for the Reference Scenario, in particular on

livestock and fertilisers use, further it provides the impacts on the agricultural sector from

changed biofuel demand. Depending on need it may also be used to run climate mitigation

scenarios, diet shift scenarios or CAP scenarios.

Cross checks are undertaken ex-ante and ex-post to ensure consistency with GLOBIOM on

overlapping variables, in particular for the crop sector.

Sources for data inputs

The main data source for CAPRI is EUROSTAT. This concerns data on production, market

balances, land use, animal herds, prices, and sectoral income. EUROSTAT data are

complemented with sources for specific topics (like CAP payments or biofuel production). For

Western Balkan regions a database matching with the EUROSTAT inputs for CAPRI has been

compiled based on national data. For non-European regions the key data source is FAOSTAT,

which also serves as a fall back option in case of missing EUROSTAT data. The database

compilation is a modelling exercise on its own because usually several sources are available for

the same or related items and their reconciliation involves the optimisation to reproduce the hard

data as good as possible while maintaining all technical constraints like adding up conditions.

In the context of this exercise, the CAPRI model uses historical data series at least up to 2017,

and the first simulation years (2010 and 2015) are calibrated to reproduce the historical data as

good as possible.

MCPFE (2015). Forest Europe, 2015: State of Europe's Forests 2015. Madrid, Ministerial Conference on the

Protection of Forests in Europe: 314.

9.3.1.1.6 Global climate and energy policy context: POLES-JRC

The POLES-JRC model used to provide the global energy and climate policy context is operated

by the JRC

POLES is a global energy model that covers the entire energy balance, from final energy

demand, transformation and power production to primary supply and trade of energy

commodities across countries and regions. It allows assessing the contribution to future energy

needs of the various energy types (fossil fuels, nuclear, renewables) and energy vectors.

In addition, it calculates the evolution of GHG emissions: endogenously for the energy-industry

sectors and through linkage with specialist models for GHG emissions from land-use and

agriculture (GLOBIOM-G4M), and air pollution (GAINS).

The model includes a detailed geographical representation, with a total of 39 non-EU27 regions

and countries covering the world; that includes all G20 countries, detailed OECD and the main

non-OECD economies. It operates on a yearly time step, allowing integrating recent

developments.

The POLES model is well suited to evaluate the evolution of energy demand in the main world

economies and international markets as well as to assess international climate and energy

policies. The POLES model has participated in numerous research projects, and has contributed

to peer-reviewed analyses published widely

Sources for data inputs

Data on socio-economic activity come from the UN and IIASA (population), the World Bank,

IMF and OECD (GDP and economic activity), sectoral databases on industrial and mobility

activity.

The main energy data sources of the POLES-JRC model are IEA, Enerdata, BGR, USGS, Platts,

BP, NEA.

Fossil energy production costs are based on Rystad, complemented by information from the

literature. Renewables potentials are based on NREL, DLR, and GLOBIOM, complemented by

information from the literature. The technology costs and learning curves are based on extensive

literature review, including but not limited to IEA and the SETIS database.

Emissions data are for UNFCCC, EDGAR, National inventories, FAO.

POLES-JRC work developed for this exercise is based on JRC work for the Global Energy and

Climate Outlook (GECO) report series

. The POLES-JRC model was updated with historical

data up to 2018 (population, GDP, energy balances) and 2019 (international energy prices, GDP

projections). It includes country policies that have been legislated as of June 2019 or correspond

to objectives found in the UNFCCC’s Nationally Determined Contributions.

https://ec.europa.eu/jrc/en/poles

https://ec.europa.eu/jrc/en/poles/publications

For non-EU. Sources for the EU are consistent with those of the PRIMES energy model.

https://ec.europa.eu/jrc/en/geco

9.3.1.2

Economic analysis

9.3.1.2.1 GEM-E3

GEM-E3 is a large scale multi-sectoral CGE model that features a series of modelling

innovations that enables its departure from the constraining framework of standard/textbook CGE

models (where all resources are assumed to be fully used) to a modelling system that features a

more realistic representation of the complex economic system. The key innovations of the model

relate to the explicit representation of the financial sector, semi-endogenous dynamics based on

R&D induced technical progress and knowledge spillovers, the representation of multiple

households, unemployment in the labour market and endogenous formation of labour skills. The

model has detailed sectoral and geographical coverage, with 51 products and 46 countries/regions

(global coverage) and it is calibrated to a wide range of datasets comprising of IO tables,

financial accounting matrices, institutional transactions, energy balances, GHG inventories,

bilateral trade matrices, investment matrices and household budget surveys. All countries in the

model are linked through endogenous bilateral trade transactions identifying origin and

destination. Particular focus is placed on the representation of the energy system where

specialised bottom-up modules of the power generation, buildings and transport sectors have

been developed. The model is recursive dynamic coupled with a forward-looking expectations

mechanism and produces projections of the economic and energy systems until 2100 in

increasing time steps: annual from 2015 to 2030 and then five-year period until 2100. Figure 23

shows a schematic representation of the GEM-E3 model.

Figure 23: Schematic representation of the GEM-E3 model

The model has been used to provide the sectoral economic assumptions as input for this Impact

Assessment. GEM-E3 produces consistent sectorial value added and trade projections matching

GDP and population projections by country taken from other sources such as the ECFIN t+10

projections for economic activity, the Europop and the Ageing Report. The model can also be

used to assess the impacts of the energy and climate targets on macroeconomic aggregates such

as GDP and employment.

The most important results, provided by GEM-E3 are: Full Input-Output tables for each

country/region identified in the model, dynamic projections in constant values and deflators of

national accounts by country, employment by economic activity and by skill and unemployment

rates, capital, interest rates and investment by country and sector, private and public

consumption, bilateral trade flows, consumption matrices by product and investment matrix by

ownership branch, GHG emissions by country, sector and fuel and detailed energy system

projections (energy demand by sector and fuel, power generation mix, deployment of transport

technologies, energy efficiency improvements).

This Impact Assessment has used mainly

the European Commission’s JRC version

JRC-GEM-E3

, complemented by the GEM-E3-FIT version operated by E3Modelling

Detailed documentation is publicly available.

Sources

for data inputs

•

EUROSTAT, WIOD, EU-KLEMS and GTAP: Input Output tables, National

Accounts, Employment, Institutional Transactions, Labour force and Participation

rates, Bilateral Trade, GHG emissions, Capital stock, taxes, Household consumption

by purpose

National Statistical Offices: Consumption Matrices

ECB: Bonds, Treasury bills

ILO: Employment, Unemployment rate

World Bank: Infrastructure

IMF and OECD: Interest rates, Inflation, Bonds, Treasury bills

•

9.3.1.2.2 E3ME

E3ME

31 32

is a global, macro-econometric model designed to address major economic and

economy-environment policy challenges.

It includes:

a high level of disaggregation, enabling detailed analysis of sectoral and country-level

effects from a wide range of scenarios;

a capacity to describe social impacts (including unemployment levels and distributional

effects).

Its econometric specification provides a strong empirical basis for analysis. It can fully assess

both short and long-term impacts.

Integrated treatment of the world’s economies, energy systems, emissions and material demands.

This enables it to capture two-way linkages and feedbacks between these components.

E3ME covers 61 global regions, with a detailed sectoral disaggregation in each one, and projects

forwards annually up to 2050. It is frequently applied at national level, in Europe and beyond, as

well as for global policy analysis.

Source: https://ec.europa.eu/jrc/en/gem-e3/model

Source: https://e3modelling.com/

The data sources of energy statistics are the same as in the PRIMES model.

https://www.camecon.com/how/e3me-model/

https://www.e3me.com/

9.3.1.2.3 QUEST

QUEST

is the global macroeconomic model that the Directorate General for Economic and

Financial Affairs (DG ECFIN) uses for macroeconomic policy analysis and research. It is a

structural macro-model in the New-Keynesian tradition with rigorous microeconomic

foundations derived from utility and profit optimisation and including frictions in goods, labour

and financial markets.

There are different versions of the QUEST model, estimated and calibrated, each used for

specific purposes. Model variants have been estimated using Bayesian methods, jointly with

colleagues at the Commission's Joint Research Centre (JRC). These dynamic stochastic general

equilibrium (DSGE) models are used for shock analyses and shock decompositions, for example

to assess the main drivers of growth and imbalances.

Larger multi-country calibrated model versions are used to address issues for which a deeper

level of disaggregation is required, both at the regional and sector level. Many of the main

applications deal with fiscal and monetary policy interactions and either use a one-sector model

or models that explicitly distinguish tradable and non-tradable sectors.

Other model variants also include housing and collateral constraints, and a banking sector. All

calibrated model versions are employed using different country disaggregations, focussing on the

euro area or EU as a whole, and other global regions, or on individual member states.

For the analysis of structural reforms an extended version of the QUEST model is used. This

model captures both investment in tangibles and intangibles, and disaggregates employment into

three skill categories. In this model variant technological change is semi-endogenous.

In this impact assessment we used the E-QUEST model variant which is a two-region,

multisector model specifically developed for climate and energy related policy analysis. The

main innovation in this model compared to the standard DSGE models is the inclusion of energy-

input substitution that allows for a more detailed description of the substitution possibilities

between different energy sources. Firms have limited substitution possibilities between "dirty"

and "clean" capital-energy bundles. In the "dirty" capital-energy bundle, capital is combined with

fossil fuel based energy while in the clean "bundle" electricity is required to use the

corresponding capital.

9.3.2

Assumptions on technology, economics and energy prices

In order to reflect the fundamental socio-economic, technological and policy developments, the

Commission prepares periodically an EU Reference Scenario on energy, transport and GHG

emissions. The latest one dates from 2016

and is currently being revised. This update is not yet

finalised and work is ongoing on Member States details and the related consultations.

Furthermore this work will also be updated to incorporate the impacts of the COVID-19 crisis.

The scenarios assessment as used in this impact assessment incorporate the latest developments

in the update of the Reference scenario, notably related to the socio-economic assumptions,

energy price projections and technological assumptions.

https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/economic-

research/macroeconomic-models_en

https://ec.europa.eu/energy/data-analysis/energy-modelling/eu-reference-scenario-2016_en

9.3.2.1

Economic assumptions

The modelling work is based on socio-economic assumptions describing the expected evolution

of the European society. Long-term projections on population dynamics and economic activity

form part of the input to the energy model and are used to estimate final energy demand.

Population projections from Eurostat

are used to estimate the evolution of the European

population that is projected to change very little in total number in the coming decades.



Pre-COVID economic assumptions

The pre-COVD socio-economic assumptions were prepared before the COVID pandemic

unfolded. The long-term evolution of economic activity was estimated from three sources: DG

ECFIN’s

short term economic forecast, t+10 projections and the 2018 Aging Report projections

elaborated by the European Commission. For the short-term (2020-2021), the projections are

based on actual growth forecast by the Directorate General for Economic and Financial Affairs

(Autumn Forecast 2019). Projections up to 2029 use the associated t+10 work from DG ECFIN,

which is based on projections of potential output growth and a closure of any output gap in the

medium term. The long-term per capita GDP growth projections of the 2018 Ageing Report are

used for the period 2030-2070

. Figure 24 shows the projected evolution of the EU GDP up to

2050. Assumptions on transport activity complement the socio-economic projections.

Figure 24: Projected EU GDP (2015 = 100)

GDP

170

160

150

2015 = 100

140

130

120

110

100

2015

2020

2025

2030

2035

2040

2045

2050

These pre-COVID socio-economic assumptions were used as modelling inputs for all scenario

runs, except COVID-BSL and COVID-MIX.



Post-COVID assumptions

https://ec.europa.eu/eurostat/web/population-demography-migration-projections/population-projections-data

The 2018 Ageing Report: Economic and Budgetary Projections for the EU Member States (2016-2070):

https://ec.europa.eu/info/publications/economy-finance/2018-ageing-report-economic-and-budgetary-projections-eu-

member-states-2016-2070_en

As described in section 6.4.3, the COVID-19 health crisis upended economic projections made in

preparation

of this impact assessment. In particular, the Commission’s Spring Economic Forecast

2020 projected that the EU economy would contract by 7.4% in 2020 and pick up in 2021 with

growth of 6.1%. Together with the associated revision of DG ECFIN’s t+10 projections,

this

implies that real GDP in 2030 could be approximately 2.3% lower compared to the pre-COVID

estimates presented above, based on the Autumn Forecast 2019.

The socio-economic assumptions that will be used for the Reference Scenario update will be fully

updated to reflect the impact of the COVID-19 pandemic.

Beyond the update of the population and growth assumptions, an update of the projections on the

sectoral composition of GDP was also carried out. This aims to integrate the potential medium- to

long-term impacts of the COVID-19 crisis on the structure of the economy, even though this is

clouded with uncertainty. Annex 9.10.1.3 provides more background on what such impacts might

be.

9.3.2.2

Energy prices assumptions

Alongside socio-economic projections, EU energy modelling requires projections of international

fuel prices. The projections of the POLES-JRC model (see annex 9.3.1.1)

–

elaborated by the

Joint Research Centre in the context of the Global Energy and Climate Outlook 2019 (GECO

2019)

–

are used to obtain long-term estimates of the international fuel prices. The projected

evolution of fossil fuel prices is lower than estimates used by the European Commission in the

Reference 2016 Scenario. Among other factors, as discussed in annex 9.10.5 the development of

unconventional oil and gas resources increased fossil fuel supply estimates for the coming

decade.

Table 34 shows the international fuel prices that were used in the different “pre-COVID”

scenarios (BSL, MIX-50, REG, MIX, CPRICE, ALLBNK, the MIX-nonCO2 variant, EU-NECP

variant).

Table 34: International fuel prices assumptions

–

non-COVID scenarios

in $'15 per boe

Oil

Gas (NCV)

Coal

2000

38.4

26.5

11.2

'05

65.4

35.8

16.9

'10

86.7

45.8

23.2

'15

52.3

43.7

13.1

'20

58.0

35.7

13.2

'25

73.2

39.9

16.9

'30

86.9

41.8

18.4

'35

93.9

47.9

19.8

'40

100.8

57.3

20.8

'45

110.4

56.7

21.8

'50

125.5

58.9

22.8

in €'15 per boe

Oil

Gas (NCV)

Coal

2000

34.6

23.4

9.9

'05

58.9

31.7

15.0

'10

78.2

40.6

20.6

'15

47.2

38.7

11.6

'20

52.3

31.6

11.7

'25

66.0

35.4

14.9

'30

78.3

37.0

16.3

'35

84.7

42.4

17.5

'40

90.9

50.7

18.4

'45

99.5

50.2

19.3

'50

113.2

52.1

20.1

Source: JRC, POLES-JRC model, derived from GECO 2019

In order to obtain robust results, international fuel price assumptions were compared to the

similar projections from several sources. Figure 25 shows the comparison between projected oil

prices in 2030 and estimates from selected studies by international organizations: Rystad, World

Bank, Energy Information Administration, International Energy Agency. The price used in the

EU Reference Scenario 2016

is also reported for comparison.

Figure 25: Oil price projections in 2030 according to various sources

140

120

100

USD2015 / bl

WB Oil price Rystad Oil

price

Rystad

IEO2019

Reference

EIA

WEO2019

Impact

WEO2019 EU REF 2016

Stated Assessment Current

Policies

BSL

policies

IEA

COM

IEA

COM

Note: Rystad and World Bank estimates as of 2019

The COVID crisis has had a major impact on international fuel prices (see also annex 9.10.1.3).

In the months following the first wave of outbreaks, a majority of countries across the world

enacted lockdowns, hence limiting transport of people and goods and changing work pattern.

This impacted energy demand with a historic shock only seen worse during the Spanish flu, the

Great Depression and World War II.

The demand decrease during the 2008 financial crisis

came nowhere near the impact of COVID. The lost demand left an oversupply leading to

decreasing prices.

This impact hit oil first and foremost, being the main fuel for transport (culminating in negative

oil prices in one occurrence). Coal consumption also decreased sharply due to lower electricity

demand. In general, fossil fuels were most strongly affected. This effect on prices compared to

pre-COVID estimates is expected to be still felt up to 2030, although this will depend on the

recovery of global oil demand as well as on the compliance with the OPEC+ existing and

possible future deals

to adjust supply.

Table 35 shows the alternative assumptions retained to reflect the COVID impact on the fuel

prices in the two COVID scenarios analysed in this impact assessment (COVID-BSL and

COVID-MIX).

https://ec.europa.eu/energy/data-analysis/energy-modelling/eu-reference-scenario-2016_en

IEA, Global Energy Review 2020, June 2020

IEA, Oil Market Report, June 2020 and US EIA, July 2020.

Table 35: International fuel prices assumptions

–

COVID scenarios

in $'15 per boe

Oil

Gas (NCV)

Coal

2000

38.4

26.5

11.2

‘05

65.4

35.8

16.9

‘10

86.7

45.8

23.2

‘10

78.2

40.6

20.6

‘15

52.3

43.7

13.1

‘15

47.2

38.7

11.6

‘20

37.2

22.2

10.1

‘20

33.5

19.7

8.9

‘25

58.6

31.5

13.9

‘25

52.8

27.9

12.3

‘30

80.1

40.9

17.6

‘30

72.2

36.2

15.6

‘35

90.4

44.9

19.1

‘35

81.5

39.7

16.9

‘40

97.4

52.6

20.3

‘40

87.8

46.6

18.0

‘45

105.6

57.0

21.3

‘45

95.2

50.5

18.9

‘50

117.9

57.8

22.3

‘50

106.3

51.2

19.7

€

'15 per boe

Oil

Gas (NCV)

Coal

2000

34.6

23.4

9.9

2005

58.9

31.7

15.0

Source: Estimates, derived from JRC, POLES-JRC model, GECO 2019

9.3.2.3

Technology assumptions

Modelling scenarios on the evolution of the energy system is highly dependent on the

assumptions on the development of technologies - both in terms of performance and costs. For

the purpose of this impact assessment, these assumptions have been updated based on a rigorous

literature review carried out by external consultants in collaboration with the JRC

Continuing the approach adopted in the long-term strategy in 2018, the Commission consulted

technology assumption with stakeholders in 2019. In particular, the technology database of the

main model suite (PRIMES, PRIMES-TREMOVE, GAINS, GLOBIOM, and CAPRI) benefited

from a dedicated consultation workshop held on 16

May 2018 and a more recent one on 11

November 2019. EU Member States representatives had also the opportunity to comment on the

costs elements during a workshop held on 25

November 2019. The updated list of technology

assumptions will be published together with the upcoming Reference Scenario update.

9.3.3

The existing 2030 framework scenario (BSL) and the EU National Energy and Climate

Plans scenario (EU-NECP) variant

Policies in the existing policies scenario (BSL)

9.3.3.1

In order to assess the trajectory that is entailed by the recent policies and objectives adopted at

EU level, a Baseline scenario (BSL) was developed.

It assumes that measures are taken either at EU or MS level in order to achieve the energy and

climate 2030 targets

, as adopted by EU leaders on October 2014

, further refined on May 2018

with the agreement on the Effort Sharing Regulation and enhanced on June 2018 with the

agreement on the recast of Renewable Energy Directive and the revised Energy Efficiency

Directive.

JRC118275

The 2030 climate and energy framework did set three key targets for the year 2030: (a) at least 40% cuts in

greenhouse gas emissions (from 1990 levels), (b) at least 27% share for renewable energy, and (c) at least 27%

improvement in energy efficiency. They built on the 2020 climate and energy package.

Conclusions of the European Council of 23 and 24 October 2014.

In addition to the headline targets, some of the policies included in this baseline are:



The EU Emissions Trading System

(EU ETS) covers 45% of EU greenhouse gas

emissions, notably from industry, the power sector and aviation. Emissions for the

ensemble of sectors under the system are capped to reduce by 43% by 2030 compared to

2005. The baseline scenario additionally assumes that the Market Stability Reserve will

ensure that the ETS contributes to the achievement of the overall target cost-effectively.

MSR functioning is set to be reviewed

in 2021 and every five years after to ensure its

aim of tackling structural supply-demand imbalances.

Aviation emissions are also covered by the EU ETS. The EU, however, decided in 2014

to limit the scope of the EU ETS to flights within the EEA until 2016 to support the

development of a global measure by the International Civil Aviation Organization

(ICAO).

In light of the adoption of a Resolution by the 2016 ICAO Assembly on the

global measure, the EU has decided to maintain the geographic scope of the EU ETS

limited to intra-EEA flights from 2017 until the end of 2023.

The EU ETS for aviation

will be subject to a new review in the light of the international developments related to

the operationalisation of CORSIA. The next review should consider how to implement

the global measure in Union law through a revision of the EU ETS legislation. In the

absence of a new amendment, the EU ETS would revert back to its original full scope

from 2024.

The Effort Sharing Regulation

(ESR) sets binding annual reduction targets for member

states, with an aim to reduce emissions by 30% compared to 2005 by 2030. The ESR

targets are set according to national wealth and cost-effectiveness. The ESR allows for

flexibilities such as transfers between member states.

The Land Use, Land Use Change and Forestry Regulation

(LULUCF regulation),

whereby accounted emissions should not exceed removals and that includes incentive to

improve land use practices, flexibility and trading, flexibility towards ESR.

emission standards for new cars and vans

and for new trucks

have been defined,

and will contribute towards reducing emissions from the road transport sector.

The Fuel Quality Directive

requires a reduction of the greenhouse gas intensity of

transport fuels by a minimum of 6% to be achieved by 2020.

The revised Renewable Energy Directive

entered into force in 2018. It establishes a

new binding renewable energy target for the EU for 2030 of at least 32%, with a clause

for a possible upwards revision by 2023.

The Energy Efficiency Directive was amended in 2018

establishing a target of at least

32.5% for 2030. This means in absolute terms, that EU energy consumption should be no



Directive 2003/87/EC

Decision (EU) 2015/1814

Regulation (EU) 421/2014

Regulation (EU) 2017/2392

Regulation (EU) 2018/842

Regulation (EU) 2018/841

Regulations (EU) 2019/631

Regulation (EU) 2019/1242

Directive 2009/30/EC

Directive 2018/2001/EU

Amendment 2018/2002 of Directive 2012/27/EU



more than 1128 Mtoe of primary energy and no more than 846 Mtoe of final energy.

The directive allows for a possible upward revision in the target in 2023.

The Energy Performance of Buildings Directive and its amendment in 2018

aim to

achieve a highly energy efficient and decarbonised building stock and to create a stable

environment for investment decisions. It established an obligation for Member States to

present long-term renovation strategies, aiming at decarbonising the national building

stocks by 2050, with indicative milestones for 2030 and 2040.

The Ecodesign and Energy Labelling Directives establish a framework for a set of

regulations to improve the energy efficiency of different product categories. They help

eliminate the least performing products from the market, and support competitiveness

and harmonised standards throughout the internal market.

In the field of transport, besides the post-2020 CO

standards for new light duty and

heavy duty vehicles, the Clean Vehicles Directive and the Directive on the deployment of

alternative fuels infrastructure contribute to the roll-out of recharging infrastructure.

Furthermore, the uptake of sustainable alternative fuels is supported by the Renewables

Energy Directive and Fuel Quality Directive. Improvements in transport system

efficiency (by making the most of digital technologies and smart pricing and further

encouraging multi-modal integration and shifts towards more sustainable transport

modes) are facilitated by e.g. the TEN-T Regulation supported by CEF funding, the

fourth Railway Package, the proposed revision of the Eurovignette Directive, the

Directive on Intelligent Transport Systems, the European Rail Traffic Management

System European deployment plan, the Regulation establishing a framework for the

provision of port services, and others.

For aviation, in addition to implementation of the EU Emission Trading Scheme,

Baseline reflects the Union-wide air transport performance targets for the key

performance area of environment, Clean Sky, Single European Sky and SESAR, and

aeroplane CO

emissions standards, as part of the so-called

“basket of measures” that aim

to reduce emissions from the sector.

For maritime shipping, in addition to emissions being monitored under the Regulation on

Monitoring, Reporting and Verification of Maritime Emissions

, the Baseline scenario

reflects the Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency

Management Plan (SEEMP) adopted by the International Maritime Organisation, as well

as the Sulphur Directive. The Baseline also accounts for other initiatives addressing air

pollution from inland waterways vessels, as well as road safety, and thus reducing the

external costs of transport.

In addition, these policies will continue pushing further GHG emissions reduction, and increasing

energy savings and renewable energies deployment after 2030, either because they do not have a

"sunset clause" (notably ETS, and since recently, Article 7 in revised EED), or because of the

technological learning and cost reductions that they are expected to induce. Moreover, most

actions in the energy system have long-term impacts (e.g. construction of well-insulated houses,

This takes into account the withdrawal of the United Kingdom and the Commission decision for an equivalent target

after EU law no longer applies to the United Kingdom.

Directive 2010/31/EU and amendement 2018/844/EU

Regulation (EU) 2015/757

efficient power plants or other types of infrastructure). The baseline captures these dynamics, but

it needs to be emphasised that no intensification of policies post-2030 was assumed and no target

for GHG emissions reduction in 2050 was set concerning climate neutrality.

Moreover, BSL has been specifically built for the purpose of the development of long-term

decarbonisation scenarios. It does not reflect specific, short-term Member State policies, and, in

particular, no consultation with the Member States has taken place to verify that current or

updated policies are adequately represented, as currently being included under the NECPs. This

is done under the Reference Scenario 2020 exercise, conducted in parallel with the work for this

impact assessment.

Beyond specific climate and energy policies, a range of other policies will definitely play an

important role in achieving reductions of greenhouse gas emissions of the EU economy.

First of all, some sectoral policies will affect directly the dynamics of GHG emission. This is the

case of transport and industrial policies for instance, which will affect notably the way and the

forms in which energy is consumed, and thus will modify associated GHG emissions.

Agricultural policy and waste policy will play an important role on sectoral methane and nitrous

oxide emissions, two powerful greenhouse gases, and will also contribute to the supply of

renewable fuels to the energy sector, and thus to its capacity to mitigate GHG (and notably CO

)

emissions.

Second, other, more “horizontal”, policies are to play an indirect, but crucial, role in shaping the

capacity of the EU economy to deliver GHG reductions. Such policies are often referred to as

“enabling policies” and aim at ensuring a favourable environment for the transformation.

They

relate to the steering of investments, technological development, economic adaptation, and are

critical to guarantee social inclusiveness.

This Commission has launched in 2020 a number of key initiatives that are relevant for this

assessment:

the European Green Deal Investment Plan

the European Industrial Strategy

the Circular Economy Action Plan

the Farm to Fork Strategy

the EU Biodiversity Strategy for 2030

These policies have not be considered in the baseline, but they will contribute to achieving a

higher climate target, and are thus reflected in the policy analysis.

A key element to play a role on the evolution by 2030 of GHG emissions in the EU is the MFF

for 2021-2027, which is being negotiated. A number of policies and funding tools under this

framework matter for the GHG profile, notably to steer investments towards the climate

https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_24

COM(2020) 102 final,

COM(2020) 98 final

COM(2020) 381 final

COM(2020) 380 final

In May 2020, the Commission has proposed a powerful, modern and revamped long-term EU budget boosted by

Next Generation EU - see COM(2020) 442 final

objective, to accelerate research and development on clean solutions with Horizon Europe

through the ambitious CAP strategic plans

Finally, BSL considers key national policies that are existing or reflected in the national NECPs.

9.3.3.2

Existing policies scenario (BSL) and COVID-BSL scenario

In BSL, gross inland consumption

is projected to be 1225 Mtoe in 2030 (Figure 26), a 15%

decrease compared to 2015. Until 2050, this decrease will grow to 23%. This changes the energy

mix profoundly. Solar and wind triple their share in gross inland consumption from respectively

1% and 2% in 2015 to 3% and 6% in 2030. Coal decreases its share from 18% in 2015 to 8% in

2030.

Figure 26: Gross Inland Consumption in the Baseline

Note: * includes peat and oil shale; ** includes waste, *** hydro, geothermal, ocean and ambient heat

Source: 2000-2015: Eurostat, 2020-2050: PRIMES model

Primary energy production (Figure 27) reduces by 10% in 2030, compared to 2015. Fossil fuels

reduce their share in energy production from 38% in 2015 to 23% in 2030 (further declining

towards 2050), mainly driven by the reduction of solid fossil fuels replaced by renewable energy

sources, chiefly wind and solar.

https://ec.europa.eu/info/horizon-europe-next-research-and-innovation-framework-programme_en

https://ec.europa.eu/info/food-farming-fisheries/key-policies/common-agricultural-policy/future-cap_en

Including peat and oil shale, waste, and ambient heat.

Figure 27: Primary energy production in the Baseline

Note: * includes peat and oil shale; ** includes waste, *** hydro, geothermal, ocean and ambient heat

Source: 2000-2015: Eurostat, 2020-2050: PRIMES model

Net imports will decrease by 18% until 2030 and another 14% thereafter until 2050. Over time,

natural gas increases its share in imports at the expense of coal and oil.

Power generation (Figure 28) is growing throughout the projection period. Gross electricity

generation in the BSL increases from 2,902 TWh in 2015 to 3,116 TWh in 2030 (7%) and by

another 17% between 2030 and 2050 due to electrification of demand, notably, in transport.

While in 2015, 2% of power demand came from the transport sector, this share is 5% in 2030 and

10% in 2050.

Figure 28: Gross electricity generation in the Baseline

Note: * includes waste

Source: 2000-2015: Eurostat, Wind Europe, 2020-2050: PRIMES model

By 2030, more than half of generation comes from renewable sources (57%) which will increase

by 2050 to 71%. The biggest increase in the EU power generation mix comes from wind which

more than triples in gross electricity generation by 2030 (compared to 2015) to 840 TWh. It

increases another 67% between 2030 and 2050. Coal-based generation decreases substantially (to

288 TWh) by 2030 and is marginal in 2050. Natural gas continues to play a role in power

generation throughout the period, being responsible for 15% of the electricity generated in 2030

and in 2050.

Figure 29: Net installed capacity in the Baseline

Source: 2000-2015: Eurostat, Wind Europe, 2020-2050: PRIMES model

The significant increase in wind power is also visible in the installed capacity which increases

from 127 GW in 2015 to 343 GW in 2030 and 543 GW in 2050 (Figure 29). Solar power also

expands enormously from 88 GW in 2015 to 313 GW in 2030 and 475 GW in 2050. Between

2015 and 2030, every year, on average 15 GW of new solar capacity will be installed.

The final energy demand in BSL (Figure 30) decreases by 17% between 2015 and 2050 (already

by 2030 it decreases by 10%). The strongest decrease in the period between 2015 and 2030

comes from the residential sector (-12%). After 2030 and towards 2050, by far the biggest

decrease is going to come from the transport sector (-20%). It is also the sector with the single

biggest effort over the entire period of 2015-2050 (28% decrease).

Figure 30: Final energy consumption by sector in the Baseline

Source: 2000-2015: Eurostat, 2020-2050: PRIMES model

Final energy demand for coal drops by 88% over the entire period 2015-2050 (-62% by 2030 and

another -67% thereafter by 2050). Also demand for oil sees a significant decrease of 55% over

the entire period– the most important in absolute terms. Electricity as an energy carrier grows by

30% by 2050 (Figure 31).

Final energy demand in the transport sector excludes international aviation and international maritime navigation.

Figure 31: Final energy consumption by fuel in the Baseline

Note: * includes peat and oil shale; ** includes manufactured gases, *** includes waste

Source: 2000-2015: Eurostat, 2020-2050: PRIMES model

The energy projections described above, result in both reduced energy intensity and carbon

intensity of the energy system. This in turn leads to steadily decreasing energy related CO

emissions across the economy (Figure 32).

Figure 32: Evolution of CO

emissions by sector (left) and their shares (right) in BSL

4000

10%

3500

3000

10%

13%

15%

16%

Industrial Process &

Other non-energy

15%

Residential

CO2 emissions (Mt O2)

2500

2000

15%

16%

17%

Tertiary

Industry

Supply Side

28%

1500

23%

1000

500

2005

30%

36%

38%

Transport

2015

2030

2050

2020

2030

2040

2050

Source: PRIMES model

emissions reduce compared to 1990 by 46% in 2030 and 59% in 2050. Emissions of Power

Generation experience the biggest reductions in 2030 compared to 2015 (52%), followed by the

residential (49%) and the services (47%) sectors. Industrial energy emissions reduce by 18%.

Finally the transport sector, despite the implementation of the CO

standards for vehicles,

achieves only 12.54% reductions by2030.

Refinery CO

emissions are included under industry, consistent with annex 9.4.2.7. Supply side includes power

generation, district heating and the energy branch excluding refineries. Transport emissions include total aviation (intra

and extra EU) but only inland navigation (covering inland waterways and national maritime navigation).

Transport emissions include total aviation (intra and extra EU) but not the international maritime sector.

As shown in Figure 33 reduction of non-CO

emissions reductions are more limited than for CO

Total reductions in 2030 reach 32% compared to 2005 and 26% compared to 2015. CH

emissions, which are close to two thirds of total non-CO

emissions, are only reduced by 26%

between 2015 and 2030, while N

O emissions reduce by 5%. Only F-gases are reduced

drastically by 65%. From a sectoral perspective, agriculture not only remains the biggest emitter,

but as its emissions reduce very slightly over the projection period, its share in total non-CO

emissions gradually increases from 54% in 2015 to 68% in 2030 and 73% in 2050. The sectors

showing the biggest emissions reductions are AC & refrigeration, waste and energy, with

reductions in 2030 compared to 2015 being 68%, 53% and 36% respectively. On the contrary,

non-CO

emissions in agriculture reduces only by 7%, emissions in industry by 6% and

emissions in wastewater remains stable.

Figure 33: Non-CO

emissions by sector and by gas in the Baseline

Non-CO2 Emissions by Sector

900

800

700

600

500

400

300

200

100

2005

Non-CO2 Emissions by Gas

MtCO2-eq

2015

2030

Waste (inc. wastewater)

2050

2005

2015

CH4

N20

2030

F-gases

2050

Industry and other

Agriculture

Energy (inc. heating and cooling)

Source: GAINS model

The LULUCF sector has seen an increase in sink in the period up to 2013 but since, with

increasing harvesting rates and natural disturbances like forest fires, this has reduced. This is

projected to continue. BSL assumes a deterioration of the EU emissions and removals from forest

management and harvested wood products in line with increasing harvesting foreseen as under

the Forest Reference Levels

Figure 34 shows overall GHG emissions for the EU in the BSL.

Annex of the draft delegated act

22 June 2020 - Commission expert group on Land Use, Land Use Change and

Forestry (LULUCF)

Figure 34: GHG emissions profile in the Baseline

5000

4500

4000

3500

MtCO2-eq

CO2 emissions

Non-CO2 emissions

LULUCF*

3000

2500

2000

1500

1000

500

-500

2005

ETS emissions

Non ETS emissions

2010

2015

2020

2025

2030

2035

2040

2045

2050

Note: Includes domestic and international (intra and extra EU) aviation; GHG global warming as of IPCC

AR report; * LULUCF 0 0 proje tio ased o No De it proje tio s see also se tio . .

Source: PRIMES, GAINS and GLOBIOM models

The profile of overall GHG emissions in BSL shows emissions reduce well below the legislated

climate target of -40% GHG reductions by 2030 compared to 1990 (Figure 35). This is the case

both for the ETS and ESR sectors.

It is assumed that emission reductions in BSL are also driven by a meaningful carbon price across

the whole period. Early on in the period, this is provided for with the Market Stability Reserve

rebalancing demand and supply. This has led to a re-establishment of a meaningful carbon price

since 2018, which was maintained also after the COVID-19 crisis significantly impacting

emissions from early 2020 onwards

In summary, GHG emissions for the scope that includes intra and extra EU aviation and maritime

navigation but excludes net LULUCF

reduce by 44.5% compared to 1990 by 2030. Including

net LULUCF, this adds up to a reduction of 46.3%.

Assuming such a meaningful carbon price, as well as assuming the achievement of the RES and EE targets in BSL

would likely require a review of the MSR, as is foreseen in 2021 to keep the surplus from increasing again.

Excluding LULUCF and including intra EU navigation and aviation

Figure 35: GHG reductions in the Baseline

1990

1995

2000

2005

2010

2015

2020

2025

2030

-5%

GHG reduction vs. 1990

-10%

-15%

-20%

-25%

-30%

-35%

-40%

-45%

-50%

excluding LULUCF, including intra and extra EU aviation

including LULUCF*, including intra and extra EU aviation

Note: * LULUCF 0 0 proje tio

ased o No De it proje tio s see also se tio . .

Source: EEA GHG data viewer, PRIMES, GAINS and GLOBIOM models

The absence of additional energy and climate policies though post-2030 do not allow the

continuation of the strong GHG emissions reduction trend, with emissions almost stabilising post

2040. The BSL scenario projects that in 2050 GHG emissions reduce by around 60% compared

to 1990.

In addition, a variant of the BSL, called COVID-BSL, was developed to factor in the COVID-19

crisis (see section 6.4.3).

The key energy indicators for BSL and COVID-BSL are shown in the Table 36.

Table 36: Key energy indicators for BSL and COVID-BSL

Key energy indicators

GIC (Mtoe)

Gross

Inland

Energy

Consumption Shares (%) of:

- Solid fuels

- Oil

- Natural gas

- Nuclear

- Renewables

Final Energy Demand (Mtoe)

Final Energy Demand

industrial sector (Mtoe)

Final Energy Demand

residential sector (Mtoe)

BSL

2030

1 202

2050

1 078

COVID-BSL

2030

2050

1 188

1 049

33%

22%

13%

24%

795

217

201

28%

25%

12%

33%

725

217

186

33%

22%

12%

25%

803

220

206

28%

25%

11%

33%

721

212

192

Final Energy Demand in tertiary

sector (Mtoe)

Final Energy Demand

transport (Mtoe)*

Fuel used in FEC (% share)

- solid fossil fuels

- liquids

- gas

- electricity

- RES and biofuels

- heat distributed

Greenhouse gas emissions

reductions excluding LULUCF vs

1990**

Industry (compared to 2015)

Power (compared to 2015)

Residential (compared to 2015)

Services (compared to 2015)

Transport (compared to 2015)

133

245

127

196

130

248

119

199

31%

20%

30%

12%

21%

38%

11%

31%

20%

29%

12%

22%

37%

12%

-45.6% -59.1% -45.7% -59.5%

-18.2%

-53.0%

-47.2%

-48.7%

-12.5%

-31.0%

-76.5%

-58.6%

-62.5%

-36.3%

-16.3%

-53.9%

-45.8%

-47.5%

-14.0%

-32.8%

-76.4%

-57.1%

-62.1%

-37.8%

-25.8% -32.3% -25.8% -32.3%

non

(compared to 2015)

Note: * Not including international aviation and navigation;

**including intra EU aviation and navigation

Source: PRIMES and GAINS models

The COVID-BSL scenario shows similar overall reductions than BSL in 2030 and 2050, with a

slightly different sectoral profile: emissions reduce more in the transport sector and in power

production in COVID-BSL than in BSL, but less in industry, residential and services.

9.3.3.3

The EU-NECP variant

Finally, as stated in section 5.1 and mentioned section 5.4, an EU-NECP variant was developed

next to the BSL, which reflects in a stylised manner and to the extent possible the aggregate level

the ambition of final NECPs submitted by the Member States. Due to time constraints this

reflection is simplified at this stage, hence detailed results of this scenario are not discussed in

this impact assessment.

The Commission will continue the work on the modelling of its scenario toolkit with a view of

future impact assessments supporting the future implementation of the 2030 Climate Target Plan.

9.3.4

Policy scenarios

The following overview provides the scenario description used in the modelling suite.

Table 37: Scenario assumptions description (scenarios produced with the PRIMES-GAINS-GLOBIOM modelling suite)

Scenario

BSL*

REG

No extension of ETS scope

to buildings and road

transport, but extension of

ETS to intra-EU maritime

navigation

MIX**/ MIX-50

Extension of ETS scope to

buildings, road transport

and intra-EU maritime

navigation but also

keeping road transport and

buildings in ESR

Medium/low ambition

increase of EE and RES

policies in non-ETS

because RES and EE

legislation is revised to

contribute to higher GHG

target.

Additionally, a carbon

price is also applied in

buildings and road

transport

EU27

CPRICE

Extension of ETS scope to

buildings, road transport

and intra-EU maritime

navigation; buildings and

road transport are taken out

of the ESR

ALLBNK

Brief description

Achieving the current 2030

EU targets

Most ambitious scenario

for GHG reductions

Achievement of EE 32.5%

target;

Achievement of 32% RES

target

High ambition increase of

EE and RES policies.

There is no carbon price

applied in buildings and

road transport

Carbon pricing as the

principal instrument to

reduce CO

emissions, no

intensification of EE or

RES policies, some

intensification of policies

related to transport CO

Applies the GHG target on

a broader scope including

all international aviation

and international maritime

navigation

Target scope

Aviation

Intra + Extra EU aviation

is included

International Intra + Extra

EU maritime navigation

not included

Intra EU aviation and navigation included

Maritime navigation

Intra + Extra EU aviation

and navigation included

Scenario

Achieved reduction

(including net LULUCF

sink)

BSL*

REG

Around 55%

MIX**/ MIX-50

At least 50% and

Around 55%

CPRICE

Around 55%

ALLBNK

Around 55%

ASSUMED POLICIES

Carbon pricing (stylised, for international aviation and maritime navigation may represent also other instruments than EU ETS such as taxation or CORSIA for

aviation)

Stationary ETS

Aviation - Intra EU

Aviation - Extra EU

Yes

International Intra EU

maritime navigation not

included

Yes

Yes: mixture 50/50 carbon pricing (reflecting inclusion in the ETS, or taxation, or

CORSIA) and carbon value (reflecting operational and technical measures); total equal

to EU ETS carbon price

Yes, carbon pricing, equal to the EU ETS carbon price

Yes: mixture of 50/50 carbon pricing (reflecting inclusion in the ETS or taxation) and a

carbon value (reflecting operational and technical measures); total equal to the EU ETS

carbon price

Yes

standards for LDVs and HDVs + Charging and refuelling infrastructure development (review of the AFID and

TEN-T Regulation & funding), including strengthened role of buildings

Yes as currently legislated

High ambition increase

Medium/low ambition

increase

Low ambition increase

Medium Ambition increase

Yes

Maritime navigation - Intra

Maritime navigation -

Extra EU

Buildings and road

transport

Coal phase out

Yes

standards for LDVs

and HDVs

Scenario

EE policies overall

ambition

BSL*

Stylised (32.5% EE)

REG

High Ambition increase

(increase in renovation

rate, support for heat

pumps uptake)

EE in Buildings + Industry

Stylised (32.5% EE)

MIX**/ MIX-50

Medium/low Ambition

increase

Medium/low Ambition

increase

(increase in renovation

rate, support for heat

pumps uptake)

Medium/low Ambition

increase

Medium/low Ambition

increase

Medium/low Ambition

increase

(incentives for uptake of

RES in heating and

cooling)

CPRICE

As in BSL

ALLBNK

Medium Ambition increase

As in BSL

As in MIX

EE in Transport

(see details in the section

below)

RES policies overall

ambition

As currently legislated +

proposed revision of the

Eurovignette Directive

Stylised (32% RES)

High Ambition increase

Low Ambition increase

As in MIX

High Ambition increase

(incentives for uptake of

RES in heating and

cooling)

High Ambition increase

Medium Ambition increase

RES in buildings +

Industry

Stylised (32.5% EE)

As in BSL

As in MIX

RES policies in ETS

Stylised (32% RES)

Implications of the new offshore strategy

Scenario

BSL*

REG

High ambition increase of

fuel policies (Renewable

and low carbon fuels

mandate, including

ReFuelEU aviation and

FuelEU maritime

initiatives)

MIX**/ MIX-50

Medium/low ambition

increase of fuel policies

(Renewable and low

carbon fuels mandate,

including ReFuelEU

aviation and FuelEU

maritime initiatives)

CPRICE

Low ambition increase of

fuel policies (reflecting

ReFuelEU aviation and

FuelEU maritime

initiatives)

ALLBNK

RES in transport and

policies impacting

transport fuel content

Stylised (32% RES)

Very high ambition

increase of fuel policies

(reflecting ReFuelEU

aviation and FuelEU

maritime initiatives)

Additional non-CO

policies (represented by

carbon value)

LULUCF policies

Medium Ambition increase

High Ambition increase

No (Separate scenarios assessment of impact of policies that enhance the LULULCF sink)

* A variant of BSL scenario: EU-NECP was also modelled to reflect the aggregate ambition of final NECPs achieved on the EU level.

** A variant of MIX: MIXnonCO2 showing more reductions coming from non-CO

emissions and less reductions from CO

(mostly in the energy system) compared

to MIX.

These policies are presented in the PRIMES modelling tool where some take the form of explicit policies such as for instance improved product energy performance

standards, vehicle CO

standards and fuel mandates and others are induced by Energy Efficiency, Renewable Energy and non-CO

values, which reflect generic

incentives altering investment decisions towards increased energy efficiency and renewable energy options (including removal of non-market barriers and consumer

behaviour in favour of energy efficiency) and abatement of non-CO

emissions. Table 38 shows that these values for the different scenarios typically are higher in

policy scenarios that are based on regulatory approaches than in scenarios that are more based on carbon pricing. The values in BSL reflect the existing policy

framework required to meet the current climate and energy targets.

Table 38: Key modelling variables reflecting underlying policy assumptions

Scenarios

BSL

MIX-50

REG

MIX

MIX-nonCO

CPRICE

ALLBNK

Carbon price ETS sectors

(€'15/ t of

)

Non

carbon values

(€'15/ t of

)

0.0

0.6

Average renewables value

(€'15/ MWh)

177

112

109

111

Average energy efficiency value

(€'15/ toe)

891

951

1270

1194

891

1202

Mitigation potential based on the GAINS model marginal abatement cost curve (see Figure 69) but interpolated to fit PRIMES optimisation.

Specific measures to improve the efficiency of the transport system

Policies

that aim at improving the efficiency of the transport system (corresponding to row “EE

in Transport” in the table above), and thus reduce energy consumption and CO

emissions, are

phased-in in scenarios in terms of level of ambition (low, medium, high ambition increase). All

scenarios assume an intensification of such policies relative to the baseline. Among these

policies, the CO

emission standards for vehicles are of particular importance. The existing

standards

, applicable from 2025 and from 2030, set binding targets for automotive

manufacturers to reduce emissions and thus fuel consumption.

Low ambition increase

In this case, a review of the following policy initiatives is considered that drive improvements in

transport system efficiency and support a shift towards more sustainable transport modes, and

lead to energy savings and emissions reductions:

Incentives for intermodal freight transport;

Initiatives to increase and better manage the capacity of railways, inland waterways and short

sea shipping, supported by the TEN-T infrastructure and CEF funding;

Gradual internalisation of external costs (“smart” pricing);

Incentives to improve the performance of air navigation service providers in terms of

efficiency and to improve the utilisation of air traffic management capacity;

Revision of roadworthiness checks;

Limitedly increase in ambition for CO

emission standards for vehicles (passenger cars, vans,

trucks and buses) as of 2030 or 2035, supported by the roll-out of recharging and refuelling

infrastructure. For cars this corresponds to a reduction of around 40% in 2030 compared to

the 2021 target.

Medium ambition increase

Beyond measures included in the low ambition increase case, in the medium ambition increase

case policies fostering energy-efficiency in transport are intensified through:

Additional efforts to improve the functioning of the transport system: support to multimodal

mobility and intermodal freight transport by rail, inland waterways and short sea shipping;

Deployment of the necessary infrastructure, smart traffic management systems, transport

digitalisation and fostering connected and automated mobility;

Further actions on clean airports and ports to drive reductions in energy use and emissions;

Additional measures to reduce emissions and air pollution in urban areas;

Pricing measures such as in relation to energy taxation (e.g. alignment of minima on energy

content for diesel and petrol), and infrastructure charging;

The existing legislation sets for newly registered passengers cars, an EU fleet-wide average emission target of

95 gCO

/km from 2021, phased in from 2020. For newly registered vans, the EU fleet-wide average emission target is

147 gCO

/km from 2020 onward. Stricter EU fleet-wide CO

emission targets, start to apply from 2025 and from

2030. In particular emissions will have to reduce by 15% from 2025 for both cars and vans, and by 37.5% and 31% for

cars and vans respectively from 2030, as compared to 2021. From 2025 on, also trucks manufacturers will have to meet

emission targets. In particular, the EU fleet-wide average CO

emissions of newly registered trucks will have to

reduce by 15% by 2025 and 30% by 2030, compared to the average emissions in the reference period (1 July 2019–30

June 2020). For cars, vans and trucks, specific incentive systems are also set to incentivise the uptake of zero and low-

emission vehicles.

Revision of roadworthiness checks;

Other measures incentivising behavioural change;

Medium intensification of the CO

emission standards for cars, vans, trucks and buses (as of

2030) as compared to low ambition increase case, supported by large scale roll-out of

recharging and refuelling infrastructure. For cars this corresponds to a reduction of around

50% in 2030 compared to the 2021 target.

High ambition increase

Beyond measures foreseen in the medium ambition increase case, the high ambition increase case

includes:

Further measures related to intelligent transport systems, digitalisation, connectivity and

automation of transport - supported by the TEN-T infrastructure;

Additional measures to improve the efficiency of road freight transport;

Incentives for low and zero emissions vehicles in vehicle taxation;

Increasing the accepted load/length for road in case of zero-emission High Capacity

Vehicles;

Additional measures in urban areas to address climate change and air pollution;

Pricing measures such as in relation to energy taxation (e.g. alignment of minima on energy

content for diesel and petrol and mirroring the alignment in terms of energy content at MS

level);

Higher intensification of the CO

emission standards for cars, vans, trucks and buses (as of

2030) as compared to the medium ambition increase case, leading to lower CO

emissions

and fuel consumption and further incentivising the deployment of zero- and low-emission

vehicles, supported by the large scale roll-out of recharging and refuelling infrastructure. For

cars this corresponds to a reduction of around 60% in 2030 compared to the 2021 target.

9.4 Sectoral transformation to achieve 50% to 55% GHG reduction by 2030

and transition to climate neutrality

This annex gives an overview of the detailed modelling results in the energy system and per

specific sectors that allow the EU economy to achieve 50% to 55% GHG reduction by 2030 and

put it on a pathway towards climate neutrality.

9.4.1

Greenhouse gas emissions per sector

Table 39 below gives an overview of the emission profile and reductions compared to 2005 for

all main sectors for the main scenarios assessed.

In the public consultation, the sectors rated by the respondents as important to increase the 2030 GHG emissions

target were energy supply (48%), mobility and transport (16%), industry (13%), and buildings (7%).

Table 39: Sectoral greenhouse gas emissions per scenario

2030

MtCO

-eq

Total GHG incl. LULUCF

excl. LULUCF

ETS Stationary

ESR sectors

Supply Side

Power generation

Industry

Residential

Services

Agriculture energy

Transport

Of which Road Transport

Intra EU aviation & navigation

Extra EU Aviation

Non-CO

LULUCF

1990

4673.6

2005

4320.2

3812.9

2073.1

2485.9

1405.4

1257.1

835.1

404.6

166.9

77.0

874.2

770.4

91.3

71.9

819.9

-312.6

2015

3611.2

3156.6

1601.3

2235.5

1116.7

987.9

635.7

309.5

146.6

60.8

819.2

731.8

79.7

82.9

747.9

-293.2

BSL

2481.3

2124.8

932.6

1687.7

555.0

464.7

520.2

163.5

75.2

42.2

716.4

611.7

98.4

102.1

581.1

-224.5

MIX-50

2289.2

1965.8

838.9

1594.5

469.0

387.2

506.4

134.5

63.7

38.7

697.1

597.8

93.0

98.9

547.9

-224.5

REG

2101.3

1810.1

728.7

1520.9

365.7

299.9

502.2

112.5

68.1

38.3

675.4

580.1

89.0

93.1

515.8

-224.5

MIX

2104.0

1812.7

722.4

1528.1

362.5

288.9

493.4

117.7

61.8

38.1

685.5

588.5

90.7

96.3

515.8

-224.5

MIX-non-

CO2

2099.8

1834.4

744.5

1501.8

383.5

309.2

495.1

117.8

61.4

38.0

685.0

588.0

90.7

96.4

489.9

-224.5

CPRICE

2102.0

1810.7

718.9

1528.9

362.7

292.0

487.3

120.8

58.0

37.9

691.2

593.8

91.2

97.3

515.8

-224.5

ALLBNK

1969.5

1704.2

648.4

1471.7

300.7

236.0

475.8

108.8

57.7

36.9

673.9

581.1

86.5

92.7

489.9

-224.5

-254.8

Source: PRIMES model, GAINS model

Including domestic and intra EU aviation and navigation

Including power generation, energy branch, refineries and district heating

Including process CO

emissions from industry

9.4.2

9.4.2.1

Energy sector

Energy mix and demand

The first conclusion that can be drawn from the analysis is that achieving 55% GHG reductions

in 2030 would require further lower total energy demand (gross inland consumption), by around

21% compared to 2015 in REG, MIX and CPRICE, i.e. equivalent to around 5% below BSL.

Reaching the reduced GHG reduction goal of 50% leads to an energy demand reduction of 19%.

After 2030, the uptake of energy intensive new fuels

including hydrogen

, e-gas and e-liquids,

leads to slower reductions (see Figure 36)

The energy mix in 2030 remains overall still dominated by fossil fuels, but renewables increase

significantly from 15% of the GIC in 2015 to 31-32% in 2030 in scenarios with 55% GHG

reduction, i.e. 5-6 percentage points (p.p.) higher than in BSL. The ALLBNK case leads to an

uptake of renewables, of 34% of the gross inland consumption, hence 2 p.p. more than REG (382

Mtoe vs. 368 Mtoe). Lowering the GHG ambition to 50% GHG reductions lead to a RES share of

28% in MIX-50 (339 Mtoe). Spurred by decreasing costs and better integration, the increasing

contribution of renewables is mostly driven by non-biomass renewables

, which become larger

than biomass by 2030 in all cases. The contribution of nuclear energy remains relatively stable at

11% in the policy scenarios with 55% GHG reduction (13% in 2015 and in MIX-50), resulting

from the operation of existing nuclear power plants and the commissioning of new plants. In

contrast, coal use is projected to decrease by more than 70% compared to 2015 (15-18 p.p. more

than BSL), oil

by 30-32% (15-18 p.p. more than BSL) and natural gas by 26-28% (12-14 p.p.

more than BSL). These decreases are somewhat less pronounced in MIX-50 with coal reducing

by 64%, oil by 29% and natural gas by 24%. The ALLBNK case shows markedly strong

reductions, notably for natural gas (-30%), oil (-32%) and then coal (-81%). These projected

evolutions are in line with scenarios from third parties

though natural gas use in residential

buildings decreases faster (-44% between 2015 and 2030 for MIX).

The changes of the energy mix lead to a reduction of CO

emissions from the fossil fuel

combustion

in 2030 of 56% compared to 1990. The MIX-50 scenario leads to 4 p.p. lower (-

52%) and the ALLBNK scenario to 3 p.p. higher (-59%) reductions as compared to MIX.

By 2050, the trends observed by 2030 are greatly amplified. The growth of renewables is

dramatic, more than tripling compared to 2015

, while fossil fuels represent in 2050 only 10-

11% of the GIC in energy uses, complemented by non-energy uses

By convention, both the production of e-gas and e-liquids and the inputs for this production are accounted for in

gross inland energy consumption.

The policy scenarios considered see a ramp up of the installed electrolyser capacity between 37-66 GW by 2035,

responsible for a production of up to ca. 8 Mt of hydrogen in 2035.

The effect is more visible in CPRICE scenario as new fuels are developing stronger in that scenario.

Non-biomass renewables in the total energy demand are hydroelectricity, wind electricity, solar electricity, solar

heat, geothermal heat, ambient heat (from heat pumps) and ocean electricity.

Excluding non-energy uses of oil

See: Tsiropoulos I., Nijs W., Tarvydas D., Ruiz Castello P., Towards net-zero emissions in the EU energy system by

2050

–

Insights from scenarios in line with the 2030 and 2050 ambitions of the European Green Deal, EUR 29981 EN,

Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-13096-3, doi:10.2760/081488,

JRC118592.

Including international aviation

Figure 36: Energy gross inland consumption

Note: * includes peat, oil shale, ** includes waste

Source: 2000, 2015: Eurostat, 2030-2050: PRIMES model

The evolution of the gross inland consumption follows the evolution of final energy consumption

(FEC).

The FEC declines in all scenarios but slightly more strongly in REG and MIX than in

CPRICE as the latter depends less on moderation of energy demand in different sectors but

features more of fuel switching. The overall fuel mix for final demand changes progressively and

the specific sectoral drivers and dynamics are described in the relevant sections.

While biomass would double by 2050, other renewables would grow sevenfold compared to current level.

Compared to the Baseline, natural gas reduces most (up to 80% lower).

A majority in the public consultation perceived that an increase to greater than 40% for energy efficiency by 2030

was required. This is driven mainly by the opinion of individuals rather than professional respondents.

Figure 37: Final energy demand by energy carrier

Note: * includes peat, oil shale, ** includes manufactured gases, *** solid biomass, liquid biofuels, biogas,

waste

Source: 2000, 2015: Eurostat, 2030-2050: PRIMES model

The following general trends can be noticed. First of all, coal becomes marginal in final energy

demand in 2030 with 12 Mtoe in BSL, driven by reductions in industry and the declared policies

in a number of Member States to reduce coal for heating purposes, as well as the required

increase in uptake of renewables in BSL to achieve the renewable energy target of 32% by 2030.

The coal share further reduces to 9-11 Mtoe in the policy scenarios, and then virtually disappears

by 2050. Oil and natural gas remain significant contributors to the final energy demand (reaching

226-235 Mtoe and 123-135 Mtoe respectively in 2030), albeit at lower level compared to today

(339 and 197 Mtoe in 2015 for oil and gas respectively). By 2050, the situation changes radically.

Oil and natural gas consumptions are reduced to a fraction of current levels in the policy

scenarios (12-16 Mtoe and 7-8 Mtoe respectively), while they are still important in BSL (152 and

155 Mtoe respectively). They are partially substituted by new renewable and low-carbon fuels,

mainly of gaseous form (39-49 Mtoe in 2050) and to a lower degree of liquid form (11-18 Mtoe).

These types of energy vectors would retain an important role in satisfying the energy needs of the

economy in the long term, building on an increasingly integrated energy system

Conversely, the contribution of electricity in final demand increases across all scenarios,

including in BSL, although electrification is further accelerated in the policy scenarios. From

23% in 2015, the share of electricity in final demand goes up to 29 - 31% in 2030 (234-239 Mtoe,

about the same level as BSL with 238 Mtoe) and to 46-50% in 2050 (293- 296 Mtoe). The 2030

electricity demand in MIX-50 and ALLBNK (235 and 237 Mtoe respectively) is within the range

of the REG, MIX and CPRICE scenarios. This increase is driven by the uptake of heat pumps in

buildings, the electrification of industrial processes as well as the further electrification of

The Energy System Integration Strategy further elaborates on the linking of multiple energy carriers, infrastructures,

and consumption sectors as an enabler for a greenhouse gas neutral energy system for the EU.

transport. The direct contribution of renewables in final energy demand is also increasing

significantly.

Among the different sectors, the residential sector undergoes the highest energy demand

reduction by 2030, ranging from CPRICE with -22% compared to 2005 to REG with -25% (2-5

p.p. beyond BSL), triggered notably by the strengthening of dedicated policies and measures (see

detailed assumptions in annex 9.3.4). The decline is somewhat lower in MIX-50 (-21%) and at

the higher end in ALLBNK (-25%).

Energy demand for transport shows a markedly different profile: the reduction is more limited by

2030 (-14 - 16%, 1-3 p.p. beyond BSL), but then goes through a dramatic evolution over 2031-

2050 to reach -54% to -61% compared to 2005. This is driven by the substitution of conventional

internal combustion engine vehicles by zero- and low-emission vehicles spurred notably by the

further tightening of CO

emission standards.

Finally, energy demand in industry is reduced by 25 - 28% in 2030 (2-4 p.p. beyond BSL).

Afterwards, industrial activity, driven by future economic growth, tends to have lower energy

reductions in energy demand compared to the other sectors.

Figure 38: Evolution of final energy consumption (compared to 2005)

Note: Final energy sectors as per Eurostat energy balances (transport excludes international aviation),

* includes agriculture

Source: 2005, 2015: Eurostat, 2030-2050: PRIMES model

The relative sectoral evolutions lead to a changing sectoral composition of the final energy

demand (Figure 39), with industry and services becoming relatively more important over time,

while residential and transport are declining. This effect is stronger in REG than in MIX and

CPRICE.

Figure 39: Share of sectors in final energy consumption

Source: 2000, 2015: Eurostat, 2030-2050: PRIMES model

9.4.2.2

Renewable energy supply and demand

Renewables are increasingly becoming a prerequisite in any decarbonisation strategy (see also

section 6.2.1.2). From currently just above 18% in gross final energy consumption, the overall

renewables share

increases to just above 32% in the BSL scenario, representing the required

increase in uptake to achieve the renewable energy target of 32% and to at least 37.9% in the

policy scenarios up to 38.7% in REG. Lowering the GHG reduction ambition leads to a RES

share of 35.1% in MIX-50. The renewables share increases further to 40.4% in ALLBNK. This

dynamic is observed in all major demand sectors over the whole period analysed and compared

to BSL (Figure 40).

Figure 40: Renewables shares

Source: PRIMES model

By 2030, the electricity sector

will see the highest share of renewables (“RES-E”) with 55% in

the BSL scenario and 64-65% in the main policy scenarios, driven by a combination of much

Defined as per Directive (EU) 2018/2001 of 11 December 2018 on the promotion of the use of energy from

renewable sources (recast).

A majority in the public consultation was in favour of increasing renewable energy shares in final energy

consumption by 2030 greater than 40%. This is driven mainly by the opinion of individuals rather than professional

respondents.

more ambitious renewables policies and/or a further increase in the ETS carbon price, whether

the ETS is expanded to the buildings and road transport sectors or not. Lowering the 2030 GHG

reduction ambition leads to a RES-E share of 58% in MIX-50. In the ALLBNK scenario, the

RES-E share reaches 67%. By 2050, renewables in power generation are projected to more than

85%. This implies that substantial acceleration, compared to observed trends of renewable

electricity growth of 3% per year observed over 2010-2018, will be needed.

During the same time period, the share of renewables in the heating and cooling sector

(“RES-

H&C”) will increase to 33% in BSL in order to achieve the existing 2030 RES target and 39-40-

% in the policy scenarios to contribute to the increased GHG ambition. This reduces to 37% in

the MIX-50 scenario while the ALLBNK scenario sees a RES-H&C share of 42%. The annexes

on buildings (annex 9.4.2.5) and on industry (annex 9.4.2.7) provide more information on the

developments in the heating and cooling sector.

Of all sectors, transport has, in 2015, the lowest penetration of renewables with a share

(“RES-

T”) of 6%

. By 2030, this increases to 18% in BSL and to 22% (CPRICE) - 26% (REG) in the

main policy scenarios. The MIX-50 scenario achieves 20% (2 p.p. less than CPRICE) while in

the ALLBNK scenario this share reaches the same level as in REG. Annex 9.4.2.6 provides more

detail on the development in the transport sector.

Figure 8 in section 6.2.1.3 shows the breakdown of renewable energy supply by different sources.

In 2015, the overall production in the EU was at 204 Mtoe. By 2030, this will increase to

316 Mtoe in the BSL scenario and to 363 (MIX)

–

371 (REG) Mtoe in the policy scenarios.

Renewable energy supply further increases to 385 Mtoe in the ALLBNK scenario.

Along with the growth, the portfolio of renewable energy supply options is getting more diverse

(Figure 41). Biogenic sources, currently responsible for about 124 Mtoe or 61% of all renewable

energy supply in 2015, are currently the single largest contributor. By 2030, the production is

going to increase modestly to 141 Mtoe in the BSL scenario and to 151 (CPRICE)

–

154 (REG)

Mtoe in the policy scenarios. This figure reduces to 146 Mtoe in the MIX-50 and increases to 164

Mtoe while in the ALLBNK scenario. Due to the strong growth of other sources, however, the

share of biogenic sources (in all renewable energy sources) is going to fall to 42% in the BSL

scenario and in the policy scenarios. Likewise, the share of hydropower will decrease from 14%

in 2015 to 10% in the BSL scenario and 9% in the policy scenarios, despite growing in absolute

terms from 29 Mtoe to 32 Mtoe (across all scenarios)

During the same time, the share of wind energy in total renewable energy production will

increase from 13% to 23% in the BSL scenario and to 24% (REG) to 25% (MIX, CPRICE) in the

policy scenarios. The share of solar energy will increase from 6% in 2015 to 12% in the BSL

scenario and 11% (REG) - 12% (MIX, CPRICE) in the policy scenarios.

According to Articles 25-27 of Directive 2018/2001/EC (revised RED) where specific caps and multipliers apply for

different renewable fuels. If the share was to be calculated according to the methodology in Directives 2009/28/EC and

2015/1513/EC (RED up to 2020) it would be equal to 7%.

Due to geographical conditions, its growth potential in Europe is limited, apart from the extension =of pumped

hydropower and small hydropower. Potential developments will need to take into account the need to restore

freshwater ecosystems and the natural functions of rivers in order to achieve the objectives of the Water Framework

Directive.

Figure 41: Renewable energy production

Note: includes biofuel production for international air and maritime bunkers

Source: 2000, 2015: Eurostat, 2030-2050: PRIMES model

Final consumption of renewable energy solutions based on biomass, solar thermal, geothermal

and biogases in the industrial and building sectors (excluding derived heat) are the main

contributors to renewable energy in the heating and cooling sector by 2030. These renewable-

based solutions represent 19-24% of the energy demand for heating and cooling in the policy

scenarios. Ambient heat from heat pumps is responsible for 10-13. Renewable derived heat also

increases over time, supplying 7% of final consumption in the policy scenarios in 2030. The

share of solid fossil fuels and oil as fuel inputs for district heating decreases considerably, as well

as the share of gas in the policy scenarios when compared to the BSL. Finally, renewable fuels of

non-biological origin (RFNBOs) are expected to play a role after 2030 in the policy scenarios, as

they gradually penetrate the industrial and buildings sectors.

Figure 42: Disaggregation of the renewables share in heating and cooling

Source: 2005, 2015: Eurostat, 2030-2050: PRIMES model

Based on the current the RES-T

target calculation, renewable electricity would contribute

around 9-11% for the target in the main policy scenarios (against 8% in BSL), driven by the

Articles 25-27 revised RED where specific caps and multipliers apply for different renewable fuels

uptake of electric vehicles and further progress in the electrification of rail. This figure drops to

8% in MIX-50 while staying at 11% in ALLBNK.

The modelling results show that the total amount of liquid biofuels used in transport increases in

the main policy scenarios, representing a share of 13-14%, compared to 10% in BSL. In the

MIX-50 scenario, this value reduces to 11% while in ALLBNK, it stays at the upper level of

14%. The allocation of fuels between transport modes varies for the maritime and aviation

sectors, which have fewer options to decarbonise. Advanced biofuels and, in the longer run

possibly renewable and low-carbon fuels, including RFNBOs, will be more important.

Figure 43: Disaggregation of the renewable transport target as per RED II

Source: PRIMES model

Detailed sectoral overviews on what transformation requires from individual sectors in relation to

their energy emissions can be found in annex 9.4.2.1 addresses the electricity sector, annex

9.4.2.4 addressed the gas sector, annex 9.4.2.5 addresses the buildings sector, annex 9.4.2.6

addresses the transport sector and annex 9.4.2.7 addresses the industrial sectors.

9.4.2.3

Electricity supply and demand

In the context of a fuel switch away from fossil fuels to an increasing role of technologies like

heat pumps or electric vehicles, the demand for electricity increases in all scenarios between

2015 and 2030, by 11% (REG) to 13% (CPRICE) and grows further by 2050

Relative to the level in 2015, demand increases to between 240 and 250 Mtoe by 2030, between 270 and 290 Mtoe

by 2050

Figure 44: Final electricity demand

Source: 2015: Eurostat, 2030-2050: PRIMES model

Electrification will be driven by demand growth in the transport, industry and residential sectors

while there is some decrease in services and agriculture, as shown in Figure 45.

Experiencing a stronger deployment of electric vehicles and some modal shift towards rail

transport, the transport sector shows the strongest growth. Its electricity demand will increase

over the period 2015

–

2030 by a factor of 2.5 in BSL and 2.5 - 2.9 in the policy scenarios. The

policy scenarios also see a rise in electricity demand in the residential sector between 2015 and

2030 between 18% (REG) - 23% (CPRICE) vs. 19% in BSL. This figure reduces to 17% in MIX-

50. The carbon price mechanisms acting in CPRICE leads to a comparatively stronger fuel switch

towards electricity, notably for heating purposes, than in REG where increased energy efficiency

reduces the demand for electricity (see annexes 9.4.2.5 and 9.4.2.7).

Industry and services show a mixed picture. While electricity consumption in industry grows in

all scenarios, it does moderately less so in the policy scenarios (2% in REG and MIX and 3% in

CPRICE) compared to BSL (+4% vs. 2015). Electricity consumption in the services and

agricultural sectors range from lower than 2015 (REG, -3%) to slightly above (CPRICE, +1%),

as a result of the interplay of electrification and energy efficiency.

Figure 45: Evolution of final electricity demand (compared to 2015)

Source: 2015: Eurostat, 2030-2050: PRIMES model

Until 2030 the production of electricity follows the path of the final energy demand for electricity

(see Figure 46). In the BSL scenario, electricity generation increases from 2900 TWh in 2015 to

3100 TWh in 2030.

The energy mix of electricity generation continues moving away from fossil fuels. In the BSL

scenario, their share in electricity generation falls steeply from 42% in 2015 to 24% in 2030. In

the main policy scenarios, it reduces to 17% (MIX) - 18% (REG and CPRICE) in 2030. This

figure increases to 20% in MIX-50 and falls further to 16% in ALLBNK. No significant

deployment of CCS for power generation is projected in any of the considered scenarios during

this time period.

Representing around 31% of gross electricity generation in 2015, the contribution of renewables

keeps increasing across all scenarios. In BSL, renewables will be responsible for 57% of

electricity generation in 2030, while for the policy scenarios this figure increases to 67% (REG,

CPRICE) - 68% (MIX). This figure reduces to 61% for MIX-50 and further increases to 69% for

ALLBNK.

The electricity system will increasingly face the need to integrate fluctuating wind and solar

generators. Between 2015 and 2030, the share of wind and solar energy in electricity generation

is projected to increase from 13% to 39% in BSL and to 48% in the main policy scenarios. The

MIX-50 scenario sees a lower share of 43% while the figure further increases to 69% in

ALLBNK. By 2030, wind energy would become the single electricity source with the highest

share, providing 27% of all electricity in BSL and 34% (REG, CPRICE) - 35% (MIX) in the

main policy scenarios. Lowering the GHG ambition leads to a wind share of 30% in MIX-50. In

ALLBNK, this figure increases further to 36%. Solar energy will provide 12% of all electricity in

BSL and MIX-50 and 14% in all other policy scenarios.

Driven by the Member States’ policies,

nuclear electricity generation falls by 2030 in both

absolute and relative terms compared to 2015 to 585 TWh in BSL and 466 (REG) -493

(CPRICE) TWh in the main policy scenarios.

Nuclear generation increases to 578 TWh in

theMIX-50 scenario while in ALLBNK, with 469 TWh, the figure stays in the range of the policy

scenarios.

Figure 46: Electricity production

The nuclear capacity somewhat increases post-2035. The 2030 nuclear capacity in the scenarios is close to what

appears in the latest Nuclear Illustrative Programme (PINC) as per COM(2017) 237 final. Further information on the

assumptions can be found in the methodological annex 7.3.

Source: 2015: Eurostat, 2030-2050: PRIMES model

Due to the meteorologically determined load factors of wind and solar electricity generation, the

total installed capacity will have to increase by more than twice the rate than the electricity

produced. In BSL, the capacity installed increases from 870 GW in 2015 to 1189 GW in 2030

and to about 1330

–

1343 GW in the main policy scenarios. In MIX-50, this figure reduces to

1241 TWh while it further increases to 1369 in ALLBNK.

By 2030, wind energy will have the highest installed capacity (343 GW in the BSL scenario and

433

–

439 GW in the policy scenarios), with most of the installed capacity being located onshore

(295 GW in the BSL scenario and 361

–

365 GW in the policy scenarios). Lowering the GHG

reduction ambitions would lead to an installed capacity of 390 GW (of which 326 GW offshore).

ALLBNK will see an installed capacity of 452 GW, of which 374 onshore.

Europe’s seas will be

at the forefront of the EU’s efforts to go carbon-free:

offshore wind

will be the fastest growing

technology, with the installed capacity in 2030 reaching 48 GW in the BSL scenario and 70

(CPRICE)

–

73 (MIX) GW in the policy scenarios. This reduces to 64 GW in MIX-50 and

increases to 79 GW in ALLBNK.

Figure 47: Installed power production capacities

Source: 2000, 2015: Eurostat, 2030-2050: PRIMES model

By that date, solar energy will grow to 311 GW in the BSL scenario and to 363

–

370 GW in the

policy scenarios. Lowering GHG reduction ambitions leads to an installed PV capacity of 329

GW in MIX-50. In ALLBNK, the installed capacity for solar energy reaches 374 GW.

During the same time, the installed fossil-fuel capacity will decrease to 272 GW in BSL and to

261

–

268

GW in the policy scenarios. By 2030, the combined installed capacity of the EU’s

nuclear power plants is projected to decline to 92 GW in all scenarios.

The increasingly volatile nature of the electricity generation sources will require deployment of

storage solutions, as shown in Figure 48. Daily storage needs are currently met by pumped

hydropower (PHS) and increasingly by batteries. By 2030, the PHS capacity will grow by from

currently 45 GW to 64 GW in BSL and to 63 (CPRICE)

–

65 (REG) GW in the policy scenarios.

Gearing up these will require overcoming a number of barriers, in terms of costs decrease but also, like for offshore

wind, anticipating potential conflicting uses of sea, seabed and coastal areas. It is paramount to guarantee that the

expected deployment of offshore renewable energy does not harm the environment and contributes to the wider

objectives of the European Green Deal, beyond the climate-neutrality target.

Batteries will add another 21 GW of electricity storage in the BSL scenario and 34 (REG)

–

43 GW (CPRICE) in the policy scenarios.

The increasing demand for renewable and low-carbon fuels for transport and industry, in

combination with a power system with increasing number of instances where electricity

generation exceeds the electricity that can be consumed directly, increases the need for long-term

storage of electricity and triggers the deployment of electrolysers for the production of hydrogen.

By 2030, the installed electrolyser capacity

is projected to reach 1.5 GW in BSL and between

12-13 GW in the policy scenarios. The growth of the installed electrolyser capacity is expected to

accelerate significantly after 2030, reaching already between 40 to 70 GW in 2035 and between

528 and 581 GW in 2050 in the policy scenarios. This development will go along with the

decarbonisation of the gas system, which may necessitate partial repurposing of gas

infrastructure

Figure 48: Electricity storage and new fuels production capacity

Source: PRIMES model

9.4.2.4

Gas supply and demand

The coal phase out, taken into account in BSL, combined with the rising ETS prices promotes

coal-to-gas switch in power generation. This was already noticeable in 2019. By 2030, natural

gas is expected to remain an important contributor to total energy needs, being only 13% lower

than in 2015. This result is in line with the results obtained in comparable modelling exercises.

100

Measured in terms of electricity going into the electrolyser

The deployment to scale of hydrogen infrastructure implies an enabling regulatory framework to trigger the

development of new lead markets as well as sustained research and innovation bringing solutions to the market. Taking

all steps would allow for an accelerated deployment of this option towards 2030, as foreseen by the Hydrogen Strategy.

Tsiropoulos I., Nijs W., Tarvydas D., Ruiz Castello P., (2020). Towards net-zero emissions in the EU energy system

by 2050

–

Insights from scenarios in line with the 2030 and 2050 ambitions of the European Green Deal, EUR 29981

EN, Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-13096-3, doi:10.2760/081488,

JRC118592.

100

With similar 2030 climate and energy targets, the in-depth analysis attached to the long term strategy

(Communication COM(2018) 773) showed markedly lower demand for natural gas than in the impact assessment: the

main difference stems from the consideration, in this impact assessment, of the coal phase out policies announced by

Member States.

However, policies aiming at further GHG reductions will lead to the substitution of natural gas by

other forms of energy, notably renewables and electricity in final demand. As a consequence, the

demand for gaseous fuels in the policy scenarios is lower than in BSL by 10% (CPRICE and

MIX-50) - 13% (MIX and REG) (see Figure 49).

Natural gas plays a dominant role among gaseous fuels until 2030. However, by 2050, its

unabated use will become incompatible with the climate-neutrality objective and its use is to be

reduced by 66 - 71% compared to 2015 (as discussed in section 6.2.1.2).

101

Conversely, the

demand for renewable and low-carbon gases is projected to become more than twice as high as

the demand for natural gas. This is in sharp contrast with BSL, where renewable and low-carbon

gases account for only 9% of the 298 Mtoe of gaseous fuels consumed (see also section 6.2.1.3).

This trend constitutes a major technological transformation for the gas industry.

Figure 49: Consumption of gaseous fuels per gas type.

Note: * includes manufactured gases, ** includes waste gas

Source: 2015: Eurostat, 2030-2050: PRIMES model

The potential for biogas is limited and it is expected to be fully utilised by 2050. In all policy

scenarios, hydrogen and e-gases account for 71% of all renewable and low-carbon gases in 2050.

Among renewable and low-carbon gases, hydrogen is the most widely used accounting for

approximately 46% (CPRICE)

–

49% (REG) of these.

While renewable and low-carbon gases play a limited role by 2030, they are nonetheless

increasingly deployed. In 2030, their consumption amounts to 17 (REG)

–

20 Mtoe (CPRICE)

respectively, compared to 15 Mtoe in BSL (and 16 Mtoe in MIX-50). This mostly includes

biogas, while hydrogen is deployed modestly: at 0.4 Mtoe (REG) to 1 (MIX/CPRICE). As

discussed in annex 9.4.2.1 dedicated policy measures may result in anticipated deployment of

hydrogen and other renewable fuels.

The public consultation revealed that most stakeholders believed that natural gas’ continued use will create issues

for achieving the 2030 climate ambitions, and that the focus should be on energy efficiency and electrification (2 265

stakeholders, 59%). There was, however, a significant difference between respondents in individual capacity (64%)

and respondents in professional capacity (35%). This is also reflected in the responses to infrastructure planning where

individuals prioritised electricity transmission and smart grids (40%) while professionals saw a balance between

electricity and gas infrastructure as important (34%). The role of gas in the transition was, for example, also made by

the paper submitted by EUROGAS.

101

Figure 50: Consumption of gaseous fuels per sector.

350

300

250

Other energy

Transport

200

Mtoe

150

100

Res, Ser, Agr

Industry

Power

CPRICE

MIX-50

ALLBNK

CPRICE

Non-energy

MIX

BSL

MIX

2015

2030

2050

Note: includes natural gas, manufactured gases, biogas, waste gas, hydrogen, e-gas

Source: 2015: Eurostat, 2030-2050: PRIMES model

While consumption of gases in 2030 is similar in all scenarios, there are significant differences in

their consumption per sector. Figure 50 shows consumption of gaseous fuels per sector. In 2030,

consumption of gaseous fuels in the power sector decreases to 91 Mtoe in BSL and to 78 (REG)

–

86 (CPRICE) Mtoe in the policy scenarios.

The situation is different in industry: consumption of gaseous fuels in 2030 amounts to 64 Mtoe

in BSL and drops in policy scenarios to 57 (CPRICE) 59 (REG) Mtoe (60 Mtoe in MIX-50). In

the residential, services and agricultural sectors, the use of gaseous fuels decreases in the BSL

from 119 Mtoe in 2015 to 91 Mtoe in 2030. The decrease is steeper in the policy scenarios,

reaching in 2030 75 Mtoe in MIX-50 and 69 (REG, MIX)

–

70 (CPRICE) Mtoe in the other

scenarios. In the transport sector, the use of gaseous fuels increases from 3 Mtoe in 2015 to 11

Mtoe in 2030.

9.4.2.5

Buildings, including fuel mix

Buildings (residential and non-residential in services sector), currently consume a large share

(40%) of final energy in the EU. They are also responsible for 36% of GHG emissions, if

emissions from final energy consumption are combined with supply side emissions stemming

from electricity and heat consumed in this sector.

The evolution of energy demand is differentiated in the scenario results. In addition to policies

present already in the BSL, a carbon price of EUR 60/t of CO

in 2030 in CPRICE delivers a

significant switch of heating fuels already in 2030, shifting away from natural gas and other fossil

fuels

102

to mostly electricity but also renewable energy (e.g. ambient heat consumed by heat

pumps, biomass, biogas and solar thermal). REG delivers quite similar results, albeit mostly

focused on heat pumps uptake as both incentives for renewable energy in H&C and dedicated

policy to support heat pumps are assumed in this scenario.

102

In 2030, solid fossil fuels and oil have marginal shares in the fuel mix of buildings already in BSL. These fuels are

used by buildings that do not have the full menu of options (remote areas or poor households).

ALLBNK

REG

On the other hand, the carbon price alone delivers only a weak incentive for the renovation

103

buildings in CPRICE. Its impacts are limited to a small increase in medium scale renovations,

mainly in the services sector. Conversely, in REG, high ambition renovation policies push for a

large increase in the rate of deep renovations of buildings envelope

–

especially in the residential

sector but also in services.

MIX uses all four policy levers mentioned above: a carbon price of EUR 44/t of CO

in 2030,

incentives for renewables in H&C, support for heat pumps and renovation policies - albeit all of

them at smaller intensity compared to REG. As a result MIX represents an approach in-between

REG and CPRICE. ALLBNK scenario has very similar drivers and performance compared to

MIX in terms of renovations. In terms of fuel mix in buildings, ALLBNK achieves the deepest

reduction of the fossil fuels share due to very high carbon price of EUR 65/t of CO

in 2030.

MIX-50 scenario has the same results as CPRICE in terms of renovations while its share of fossil

fuels is highest among all policy scenarios in the residential sector and within the range of other

scenarios in services.

The projections discussed below show that fuel switch in heating in buildings is the key avenue

for buildings to contribute to an increased 2030 climate target. Energy efficiency measures are

also a powerful enabler as they lower energy demand needed thus also reducing the size of the

heating equipment needed. This also reduces related capital and running costs, shielding

vulnerable consumers from the impact of increasing energy prices.

As a result of fuel switch and renovations, in all policy scenarios considered in this IA, buildings

generate the largest (amongst other final energy consumption sectors) GHG reduction levels by

2030 (compared to 2015), i.e. 61% to 65% in the residential sector and 54-61% in services for

55% GHG scenarios. Fuel switch is the key factor for the decarbonisation present in all scenarios,

triggered by carbon pricing in CPRICE, or renewables incentives and support for heat pumps (in

REG) or combination of all drivers (in MIX). Within the range indicated above, ALLBNK and

CPRICE achieves the highest reductions in the services sector and REG and ALLBNK in the

residential sector. MIX-50 has lower GHG emissions reductions in the residential sector that

other policy scenarios but for services, it is results are within the range.

In order to achieve climate neutrality by 2050, both the push for renovations and fuel switch will

need to be intensified after 2030, the latter aided by the deployment of renewable and low-carbon

gases (notably hydrogen and e-gas).

Energy efficiency in buildings

103

Energy renovation means the change of one or more building elements (building envelope and technical building

systems), which leads to energy savings and improves the energy performance of a building. There are different

approaches to define the depth of renovation of the building envelope. It can be defined based on the total floor area

affected by renovations (in square meters) or based on achieved energy savings (average annual reduction of energy

consumption for different renovation depths, that represent different ranges of energy savings achieved).

- Light

renovations (3% ≤ x ≤ 30% savings)

Medium renovations (30% < x ≤ 60% savings)

- Deep renovations (x > 60% savings)

The different depths do not necessarily need to cover a specific minimum number of measures but are just classified

depending on the savings achieved compared to the energy performance level of the building before the energy

renovation.

The annual renovation rate is defined as the percentage of the building stock that is renovated. The bulk of the existing

building stock was built without serious energy performance requirements, while the current renovation rate is only

about 1% annually. The rate of deep renovation is only around 0,2%.

The most important single energy use in buildings is space heating and cooling. Consequently,

the key action for energy efficiency in buildings is reducing the demand for heating and cooling

via renovation of the building envelope (e.g. insulation and windows), especially for buildings

constructed years ago, without high energy performance standards.

104

Renovations of buildings

envelope improve thermal integrity of buildings and thus lowers their demand for space heating

(and cooling), without lowering the comfort levels in terms of indoor temperature. Besides

renovations of the building envelope, minimum energy performance standards for new buildings,

standards and labelling for new energy consuming equipment (notably heating equipment),

electrification of heating, uptake of renewable solutions (e.g. solar systems) in heating or simply

change for a more efficient heating equipment as well as “smart buildings” technologies also lead

to moderation of buildings energy demand. Consumer choice can be also a strong driver (as

discussed in the in-depth

analysis accompanying “Clean Planet for All” Communication) but was

not explored in detail in the scenarios of this impact assessment due to the shorter time focus.

This effort to moderate energy demand needs to happen against the foreseen trend of growing

number of dwellings, their size and comfort level in the residential sector. As for the services,

energy consumption is expected to raise even faster as their share in the economy grows. These

socio-economic trends push up the energy consumption in buildings. While the first trend is of

modest strength due to current demographic outlook, the latter is stronger.

Moderation of energy demand is well underway in the EU as illustrated by the BSL scenario,

assuming effective policies are put in place to achieve the EE and RES targets. Achieving the

existing 2030 energy targets would result in significant final energy savings discussed in annex

9.3.3, and the policy scenarios would lead to further energy consumption reductions. In the

residential sector, these would result in reductions ranging from 22% (CPRICE) to 25% (REG)

compared to 2005. The ALLBNK scenario is close to the upper range. MIX-50 scenario has

lower reductions than all 55% GHG scenarios. Much stronger reductions are achieved in REG,

which illustrates the effects of energy efficiency policy targeted at renovations. In the other

policy scenarios renovations trends are more modest but electrification of the fuel mix also

reduces energy demand. The reductions would deepen by 2050 with a widening range from 27%

(MIX-50) to 37% (REG) compared to 2005.

In the services sector, energy savings in all scenarios are projected at between 6-7% compared to

2005, with CPRICE and ALLBNK performing marginally stronger, which illustrates how in the

services sector a significant carbon prices would incentivise renovations as well as reduce energy

demand through electrification. The reductions would deepen and range would widen by 2050

with reductions ranging from 17% (CPRICE, MIX-50) to 21% (REG), still compared to 2005.

104

The option rated as most relevant in the public consultation for residential buildings is also improving the thermal

properties of buildings (‘better isolation’) as 1 426 stakeholders (40% rating 5) answered. For non-residential

buildings

this is not the top option but still achieved rating 5 for 26% of all responses

–

introducing more energy efficient heating

and cooling system also is rated 5 for a high number of respondents. Decarbonising the heating and cooling systems

through improving thermal efficiency, substituting fossil fuel heat by different technologies (such as electrification or

solar power) and building renovations to upgrade older systems was also the focus of the position papers submitted.

Figure 51: Evolution of the energy consumption in buildings in 2030 (compared to 2005)

Source: 2005: Eurostat, 2030: PRIMES model

The reduction in final energy demand for space heating & cooling follows a similar pattern as

total final energy consumption. In the policy scenarios, both in residential and services sectors,

further reductions (compared to BSL) are achieved. In the residential sector, the reductions

(compared to 2005) are the highest in REG scenario (32%) while in services sector reductions are

the highest in CPRICE (9%). By 2050 these reductions magnify in all scenarios. Climate

neutrality by 2050 will rely strongly on further reduction of energy demand for space heating and

cooling.

The reduction of energy demand for heating and cooling is due, to a large extent, to the

improvement of the thermal integrity of the building shell mainly through an increased

renovation rate and depth reaching the minimum energy performance standards for renovated

buildings. The high energy efficiency performance standards of new buildings as required by the

EU legislation have a smaller effect due to very low rate of new constructions

105

. Importantly, the

scenarios have results that reflect a broad category of renovations:

Type 1: improvement of thermal integrity of buildings through renovation of the building

shell,

Type 2: change of heating equipment,

Type 3: combination of both actions.

A very significant increase of Type 1 renovations is assumed in REG and MIX, with ALLBNK

assumptions that are very close to MIX. MIX-50 scenario has assumptions slightly lower than

MIX and consequently results close to CPRICE. Renovations in CPRICE is driven mainly by the

high carbon price, which appears to incentivise them only very modestly. Type 2 renovations

(that lead to fuel switch) are also incentivised by carbon pricing (CPRICE) or the general energy

efficiency and renewables in H&C incentives and support from heat pumps uptake (REG) or all

four drivers combined (MIX). No specific targets for such rates were, however, assumed. No

assumptions were made on Type 3 renovations, which in the results exhibit very low rates and

little differentiation among policy scenarios.

105

In fact, the BSL and all policy scenarios apply existing measures under the EPBD, which require new buildings to

be nearly-zero energy buildings in terms of energy consumption as of 2021 (2019 for public buildings).

Focussing on Type 1 renovations, in the residential sector, MIX assumes a doubling of building

shell renovations, from 1% achieved on average in 2016-20 period to 2% on average in 2026-30

period

106

. REG assumes more than a doubling of the rate, from 1% to 2.4% on average in

2026-30 period.

Similarly, in the services sector, MIX reflects a doubling of the rate of building shell renovations

from 0.6% achieved in 2016-20 period to 1.1% on average in 2026-30 period. REG assumes

more than a doubling of the rate from 0.6% to 1.5% on average in 2026-30 period.

Both scenarios also assume addressing the current market failures (e.g. access to finance, split-

incentives, etc.) preventing economic actors from renovations that are cost-effective. As a

consequence, the scenarios project higher renovation rates with deeper energy-related renovation

than observed historically and in the BSL.

Figure 52: Renovation rates (Type 1) in buildings in 2026-30

Source: PRIMES model

Both scenarios also assume increased average depth of renovations, with REG aiming at even

deeper renovation than MIX. In the residential sector, in the period 2026-30, REG is the scenario

that has, by design, the highest rate of deep renovations (i.e. intervention on walls, windows, roof

and basement) “at the expense” of light renovations (i.e. intervention on windows only), which

are lower than in the BSL. MIX also increases the rate of deep renovations (but less so than

REG), while its rates of light renovations are also lower (compared to BSL). Finally, CPRICE

keeps all types of renovations stable compared to BSL except for a small uptick in medium

renovations (i.e. intervention on walls, windows and roof). The different depths of renovations

pursued result in differing energy savings achieved from refurbishment. The savings resulting

from all these types of renovations combined vary in the residential sector from 66% (REG) to

52% (CPRICE) compared to 50% in BSL (average annual values for 2026-30).

The results are different in the services sector as here in the period 2026-30 all scenarios further

increase (compared to BSL) medium type of renovations albeit with smaller differentiation

among policy scenarios. Differentiation is also smaller for deep and light types of renovations.

REG has the highest increase of deep, medium and light renovations (compared to BSL). As to

the resulting savings from all these types of renovations combined, they are over 40% in all

scenarios compared to 37% in BSL (average annual values for 2026-30).

106

PRIMES model solves for every 5-year period and cannot reflect precisely scaling up of the renovation rates during

these 5-year periods.

Figure 53: Renovation rates (Type 1) per type of energy renovation in Residential buildings in 2026-30

Source: PRIMES model

Figure 54: Renovation rates (Type 1) per type of energy renovation in Services buildings in 2026-2030

Source: PRIMES model

While the focus of the policy options described across scenarios is 2030, increased rate and depth

of renovation will have to be maintained also post-2030 in order to reach climate neutrality. In

this time-frame, REG would still see the highest rate and depth of renovations in both residential

and services sectors.

Rates of renovations that concern the change of heating equipment only (Type 2) show less of

differences between the scenarios as they are around 4% in all policy scenarios in both residential

and services sector. CPRICE achieves slightly higher rate of heating equipment change under the

pressure of the carbon price. This rate of renovation reflects in fact the fuel switch described in

detail in the section below. Finally, some of the renovations of the building envelope also involve

changing the heating equipment (Type 3 renovations). The rate of such renovations is low and

differs only slightly among scenarios, between 0.3%-0.6% in residential and services sector. The

highest rate of such renovations happen in REG in line with the highest rate of building shell

renovations.

Higher and deeper renovation of the building envelope, together with change of heating

equipment, lead to higher investment needs (and thus capital costs) for buildings. However, these

investments are to some extent (depending on the condition of the building and the type and

depth of the renovation) compensated by decreasing energy purchase expenditure, leading to only

moderate increases in the total energy system costs, both in residential and services sectors

–

see

annex 9.5.2.1. While energy purchases costs decrease in all scenarios thanks to renovations

lowering energy demand, the carbon price in MIX and CPRICE makes these reductions smaller if

full energy costs are taken into account

107

. Capital costs can be split into equipment costs (mostly

relating to heating equipment but covering also appliances) and renovation costs (for the building

envelope). Both equipment capital costs and renovations capital costs are the highest in REG

with differences in residential sector more pronounced than in the services.

The sections above describe the main factors in the moderation of energy demand in buildings. It

has to be noted that in both sectors, particularly in the services sector, increasing electrification of

heating is a strong trend, which also reduces energy demand. The increased uptake of modern

electric heating (notably heat pumps) leads in fact to efficiency gains in heating consumption.

While the share of electricity in heating increases very fast in policy scenarios, the overall

electricity consumption of heating grows at a slower pace thanks to the efficiency of the modern

electric heating. This effect is even more pronounced in the services sector, where electricity has

already today a higher share, which further increases towards 2030.

Beyond renovation of the building (envelope and heating equipment), improvements in the

energy performance of heating equipment and appliances, digitalisation through buildings

automation, control and smart systems (BACS, and other “smart buildings” technologies) also

contribute to reducing energy demand (especially of useful energy demand) of buildings in the

scenarios. A “smart building” can partially reduce the need for

renovation. However, the

scenarios only included rather conservative and not differentiated assumptions reflecting this

aspect (mostly in terms of demand-side response).

Fuel mix in buildings

All scenarios display already by 2030 some fuel switch that is amplified by 2050. Interestingly,

this fuel switch is driven by different policy set-up. The key trend that can be observed already

historically and in the previous modelling exercises is that buildings will experience a rapid

growth of electricity consumption and a decrease of fossil fuels (notably gas). In the residential

sector, the share of electricity would increase from almost 25% today to 35-37% in all policy

scenarios in 2030 and this share will be around 45% in all scenarios by 2050. In services, the

electricity share today is already much higher: almost 50% and would increase to around 55% in

all policy scenarios by 2030 and will reach some 60% in all scenarios by 2050. MIX-50 has the

electricity shares that are broadly in range with all other policy scenarios albeit at the lower end.

Conversely, ALLBNK is also within the range but closer to higher end. As discussed in the in-

depth analysis accompanying Clean Planet for All Communication, electrification of the demand

combined with decarbonised electricity supply and self-generation of renewables are fundamental

aspects in order to reach climate neutrality by 2050

108

In both sectors, electrification is driven by rapid deployment of modern electric heating that also

helps with moderation of energy demand as described in the section above. Efficiency of the use

of electricity in buildings sector is well illustrated by the limited growth in absolute consumption

of electricity contrasted with rapid increase in electricity shares, especially in services sector.

107

See discussion in section

Error! Reference source not found.

on the impacts of recycling of carbon price

revenues.

108

The paper submitted by Energy Norway for example also mentions electrification of buildings and its dependency

on energy efficiency and infrastructure.

This trend would be amplified by 2050. An ever increasing number and use of appliances (albeit

moderated by energy efficiency measures) also drives up electricity demand.

Figure 55: Energy demand in residential buildings

Source: 2000-2015: Eurostat, 2030-2050: PRIMES model

Figure 56: Energy demand in services

Source: 2000-2015: Eurostat, 2030-2050: PRIMES model

With the higher penetration of electricity, and an overall reduction of demand, the consumption

of other fuels, notably fossil fuels declines accordingly. Non-electricity fuels are used only for

heating purposes and looking at them, the decline of fossil fuels is even more clearly visible.

Figure 57: Non-electricity energy consumption in (residential and services) buildings

Source: 2000-2015: Eurostat, 2030, 2050: PRIMES model

Natural gas still represents the bulk of remaining consumption in final energy consumption in

residential buildings albeit falling from the 31% share observed now to slightly over 20% in all

policy scenarios in 2030. In the services, from 29% currently observed, gas share decline to also

some 20% in all policy scenarios in 2030. Very pronounced fuel switch in ALLBNK, CPRICE

and MIX scenarios shows that carbon pricing at levels that are projected for these scenarios has a

strong impact at supressing demand for natural gas. But also incentives for renewables

deployment in heating and cooling together with support for heat pumps are effective in REG,

MIX and ALLBNK scenarios. ALLBNK scenario has the smallest absolute amount of gas use in

residential buildings. In services sector it is carbon pricing that leads to smallest absolute

amounts of gas use in CPRICE and ALLBNK. MIX-50 has the natural gas shares that are only

slightly higher compared to all other policy scenarios in both sectors.

The trends amplify further in 2050 with natural gas shares declining to around some 1% in both

residential and services sector in all policy scenarios as in this perspective e-gas and hydrogen

uptake would lead to a considerable substitution among gaseous fuels. Neither hydrogen nor e-

gas have any uptake in buildings in 2030 perspective.

Renewable energy (other than ambient heat required for heat pumps) increases slightly its share

in buildings in the BSL in 2030 and in 2050 perspective. Biomass (used in modern stoves)

increases only very slightly its share in residential sector from 17% today to 18% in 2030 in MIX

and ALLBNK while REG shows slightly declining share (as here heat pumps uptake dominates

the fuel switch) and in CPRICE the share is stable. Likewise, in the services sector the share of

biomass in policy scenarios increases very slightly from 3% today to 4% in 2030 in MIX and

CPRICE while in REG the share is stable. In modelling results, biogas, solar thermal and

geothermal also have only marginal shares in energy consumption. Distributed heat maintains by

2030 its share of today 9% of total energy demand in residential buildings in REG or grows it by

1 p.p. in all other policy scenarios. In services sector the current share of 6% is maintained by

2030 in REG and grows by 1-2 p.p. in other policy scenarios. Both in residential and services

sectors, the share of distributed heat remains stable post-2050.

9.4.2.6

Transport, including fuel mix

Overall Transport Activity

In the BSL scenario, which does not take into account the implications of the Covid-19

pandemic, intra-EU passenger transport activity is projected to rise by 19% between 2015 and

2030, with the highest growth seen in intra-EU aviation (56%). Rail would grow by 32%, driven

in particular by the opening of the market for domestic passenger rail transport services and the

assumed completion of the core TEN-T network, supported by the CEF funding. Activity of

private cars is projected to grow at a slower pace, by 14% during 2015-2030. At the same time,

international extra-EU aviation

109

is expected to rise by 52%. However, with aviation being one

of the most affected sectors by the COVID-19 pandemic and considering the large uncertainties

related to the duration of the pandemic and its impacts on transport activity, growth scenarios are

likely to be affected, particularly in the coming years. After 2030, also under pre-COVID,

passenger transport activity is expected to grow at a slower pace for all transport modes. This is

linked to the assumed socio-economic developments and saturation effects (e.g. car ownership is

close to saturation levels in many Western European countries).

Regulatory measures and carbon pricing included in scenarios REG, MIX, CPRICE and

ALLBNK would lead to some reduction in the overall passenger transport activity of the most

polluting modes relative to the BSL. However, passenger transport activity still shows sustained

growth relative to 2015 in all scenarios (18-20% by 2030) In CPRICE scenario, the carbon

pricing and the gradual internalisation of external costs (“smart” pricing) for buses, cars and vans,

favour a shift from road towards rail. The MIX and REG scenarios also reflect specific measures

that support multimodal mobility and investments in sustainable, safe and smart transport,

measures that incentivise connected mobility and improved traffic management and measures to

support sustainable urban transport. In addition, the REG scenario also covers other measures to

push digitalisation and automation in transport. The highest impact on rail transport activity is

projected in the REG scenario, showing around 13% increase in 2030 compared to BSL

Incentives for sustainable urban transport and the review of energy taxation would lead to higher

impact on private vehicles in the REG scenario relative to CPRICE, resulting in 1.2% decrease in

road activity relative to the BSL in 2030. CPRICE and ALLBNK scenarios show higher impacts

on air transport activity, driven by carbon pricing and other technical and operational measures,

projecting a decline of 0.7 to 1.1% by 2030 compared to BSL respectively. In general, ALLBNK

strengthens the effects of MIX. In the less ambitious MIX-50 scenario, reductions are 0.45% in

passenger transport activity compared to BSL.

In BSL scenario, the overall freight transport activity is projected to grow at faster pace than

passenger transport activity, at around 33% between 2015 and 2030. The highest growth would

take place for rail freight activity (40% by 2030), supported by the completion of the TEN-T core

network, followed by heavy goods vehicles activity (34% increase by 2030). Transport activity of

freight inland navigation (inland waterways and national maritime navigation) also benefits from

the completion of the TEN-T core network and the promotion of inland waterway transport and

would grow by 19% by 2030. The significant growth in rail freight activity and freight inland

navigation is also supported by road pricing (the revision of the Eurovignette Directive) and the

implementation of electronic documentation for freight transport. After 2030, the growth in

freight transport activity is projected to slow down in line with the assumed macro-economic

developments.

All policy scenarios lead to a shift from road towards rail and inland navigation for freight

transport, driven by initiatives to increase and better manage the capacity of railways and

109

Flights between EU member states and third countries

waterborne transport, incentives for intermodal transport and gradual internalisation of external

costs (“smart” pricing). The largest

impact on rail freight and inland navigation activity is

projected in the REG scenario (13% increase for rail freight in 2030 relative to the BSL and 11%

increase for inland navigation) but the impact is positive in all scenarios (0.8 to 13% increase for

rail and 0.5 to 11% for inland navigation). On the other hand, road freight activity declines by 1.7

to 3.1% in 2030 relative to the BSL. The highest decrease relative to the BSL is projected in the

REG scenario, driven by the revision of energy taxation, ambitious measures to gradually

internalise the external costs (“smart” pricing) and other measures to improve the efficiency of

road freight transport. In MIX-50, road transport activity declines by 2.2%.

As shown in Figure 58, international maritime transport activity is expected to grow strongly in

BSL (by 23% between 2015 and 2030), due to, for instance, rising demand for primary resources

and container shipping. In the policy scenarios, the growth in activity is somewhat lower than in

BSL (around 22% for 2015-2030) despite some shifts taking place from road to short sea

shipping. This is primarily due to lower imports and thus transport demand for fossil fuels.

Figure 58: International maritime freight activity in BSL in 2015, 2030 and 2050

25000

20000

15000

Tankers

General Goods ships

Gtkm

10000

Dry Bulk carriers

Containers

5000

2015

2030

2050

Source: PRIMES model

Vehicle technologies in road and other land based transport

emissions standards for vehicles play a key role in emissions reductions, energy

consumption and powertrain technologies. Intensification of their ambition level has an important

impact on penetration of zero- and low-emission vehicles and on greenhouse gas emission

reductions by 2030. It is instrumental to further reduce emissions and energy consumption in the

period post-2030 with the renewal of the fleet and a faster penetration of zero-emission vehicles.

As shown in Figure 59, the vehicle stock share of electric cars is projected to go up to 11% by

2030 in the BSL scenario and to 11-14% in the policy scenarios. The share of low and zero

emission cars (including battery electric, fuel cells and plug-in hybrids) would increase from 16%

in 2030 in BSL to up to 20% in the policy scenarios, driven by the assumed tightening of the

vehicle standards supported by the deployment of the recharging infrastructure for electric

vehicles and refuelling infrastructure for fuel cells. These shares will increase rapidly post 2030

thanks to the fleet renewal (vehicle standards apply to new vehicles therefore there is a delay

between their introduction and the powertrain changes in the stock of vehicles), driving down

greenhouse gas emissions from road transport even more intensely than in the period up to 2030.

For example, the REG scenario has 47% zero and low emissions cars (ZLEV), out of which 33%

zero emission cars (ZEV) by 2035, whereas in the CPRICE scenario the numbers are 33% ZLEV

and 23% ZEV, and in the baseline 27% LEV and 17% ZEV. This shows that the impact of

vehicle efficiency standards set for 2030 would be very significant, albeit with a time delay. By

2050, almost all cars (between 88-99% of the vehicle stock) need to be low or zero emission in

order for the climate neutrality target to be attainable. Large scale deployment of recharging

infrastructure for electric vehicles and refuelling infrastructure for fuel cells would be needed to

support these developments. In 2050 zero emission vehicles are projected to represent 99% of the

fleet in REG, due to strong vehicle efficiency policies. On the other hand, with existing policies

and targets, as in BSL, low emission vehicles are projected to reach 54% of the stock in 2050, but

fossil ICEs remain common in the fleet. This analysis confirms that intensification of the existing

emission standards is necessary.

Figure 59: Car stock by type of drivetrain in 2030 and 2050

100%

90%

80%

Share in car stock

70%

60%

50%

40%

30%

20%

10%

Fuel Cell

Elecric

Plug-in Hybrid

ICE gaseous

Gasoline ICE

Diesel ICE

CPRICE

MIX

ALLBNK

CPRICE

MIX50

MIX

MIX50

NECP

BSL

REG

BSL

REG

2015

2030

2050

ALLBNK

Source: PRIMES model

The penetration of zero emission vans in the vehicle fleet in 2030 is projected to go up from 7%

in BSL to up to 8% in the policy scenarios, while the share of plug-in hybrids would increase

from 5% in BSL to around 8% in the policy scenarios. Similarly to cars, these developments

would need to be driven by tighter vehicle efficiency standards supported by the deployment of

recharging and refuelling infrastructure. In the long run, the share of low emission vans would

range from 87% in CPRICE to 97% in REG, while zero emission vans would represent between

75% and 93% in the same scenarios. Similar considerations as for the cars segment applies to the

vans, including the need to intensify the existing CO

emission standards.

Figure 60: Van stock by type of drivetrain in 2030 and 2050

100%

90%

80%

Share in van stock

70%

60%

50%

40%

30%

20%

10%

Fuel Cell

Elecric

Plug-in Hybrid

ICE gaseous

Gasoline ICE

Diesel ICE

MIX

CPRICE

ALLBNK

CPRICE

MIX50

BSL

REG

2015

2030

2050

ALLBNK

Source: PRIMES model

In the heavy goods vehicle segment, as shown in Figure 61, hybrids are projected to represent

around 16% of the stock in 2030 in BSL while ICE running on gaseous fuels (LPG and LNG)

around 6% of the stock. In the policy scenarios, tighter vehicle standards would result in an

increase to 8-9% of gas-fuelled ICEs by 2030, as well as a possible penetration of up to 1% zero

emission vehicles. Again, due to the slow turnover of the vehicle stock, the CO

standards for

new vehicles in 2030 would take time to show impacts in terms of changes in the structure of the

fleet. However, by 2050 the structure of the fleet changes significantly, with the share of

hydrogen trucks representing between 23% in CPRICE and 26-27% in REG, MIX (and MIX-50)

and ALLBNK. The share of electric trucks would go up from only 1% in BSL in 2050 to 14% to

20% in CPRICE and REG respectively. Conventional, mild hybrid and gaseous ICEs make up

the rest of the fleet in 2050, requiring low and zero-carbon fuels to reach climate neutrality.

Figure 61: Heavy Goods Vehicle stock by type of drivetrain in 2030 and 2050

100%

90%

80%

Share in HGV stock

70%

60%

50%

40%

30%

20%

10%

Hydrogen

Electric

ICE gaseous

Diesel Hybrid

Diesel Conventional

MIX

CPRICE

ALLBNK

CPRICE

MIX

MIX50

BSL

REG

2015

2030

2050

ALLBNK

Source: PRIMES model

Fuel mix in land based transport, aviation and navigation

The share of alternative fuels

110

, including fossil-sourced natural gas, is projected to represent

11.3% of transport energy demand (including international aviation and international maritime

transport) in BSL by 2030. Around 5% of all transport fuels in 2030 would be of biological

origin, as shown in Figure 62, driven by policy measures such as the Renewable Energy

Directive.

In CPRICE scenario the share of alternative fuels would go up to 13.5% by 2030, driven by

carbon pricing and policy measures towards reducing emissions in aviation and maritime

navigation. Biofuels and biomethane would represent 6.4% in CPRICE by 2030. The share of

biofuels and biomethane increases further in MIX and REG scenarios by 2030 (6.6% and 6.9% of

transport energy demand, respectively) thanks to dedicated fuel policies, including for aviation

and maritime navigation. Overall, total alternative fuels are projected at around 14% of the

transport fuel mix in MIX and 15.1% in REG by 2030. E-fuels would represent around 0.2% of

the transport energy demand in CPRICE and MIX and 0.4% in REG, driven by fuel obligations

for aviation and maritime navigation. The share of alternative fuels would go up to 15.5% in

ALLBNK, driven by the highest ambition policies focussed in particular on aviation and

navigation fuels in this scenario, and higher carbon pricing. The share of e-fuels would also be

slightly higher at around 0.5% by 2030 in ALLBNK. In MIX-50, the alternative fuels share is

around 13.2%.

Figure 62: Share of alternative fuels in Transport (incl. aviation and maritime navigation)

18,0%

% alternative fuels in transport

16,0%

14,0%

E-Liquids

12,0%

10,0%

8,0%

6,0%

4,0%

2,0%

0,0%

BSL

2015

BSL

MIX-50

REG

2030

MIX

CPRICE

ALLBNK

Liquid Biofuel

Natural Gas

Biogas

E-Gas

Hydrogen

Electricity

Source: PRIMES model

By 2050, the large majority of fossil fuels will be replaced in all scenarios, in order to reach

climate neutrality. Over 85% of fuels will not be based on fossil oil sources, with oil products

remaining primarily in sectors such as aviation and maritime navigation. Energy demand in the

110

According to the Directive 2014/94/EU, ‘alternative fuels’ means fuels or power sources which serve,

at least

partly, as a substitute for fossil oil sources in the energy supply to transport and which have the potential to contribute

to its decarbonisation and enhance the environmental performance of the transport sector. They include, inter alia:

electricity, hydrogen, biofuels, synthetic and paraffinic fuels, natural gas, including biomethane, in gaseous form

(compressed natural gas (CNG)) and liquefied form (liquefied natural gas (LNG)), and liquefied petroleum gas (LPG).

transport sector is projected to decline by 13% in BSL during 2015-2050, and by 35-41% in the

policy scenarios (between CPRICE and REG respectively) driven by improvements in energy

efficiency and in the efficiency of the transport system. In the policy scenarios, the bulk of

transport fuels are projected to cover a mix of electricity, hydrogen, biofuels, biomethane and e-

fuels in addition to some remaining fossil fuels. Electrification in road transport will further

increase, as a consequence of stricter CO

emission standards for vehicles and increased

availability of the necessary charging infrastructure.

Figure 63: Fuels in transport (including aviation and maritime navigation)

400

Fuels in transport (Mtoe)

350

300

250

200

150

100

Oil Products

E-Liquids

Liquid Biofuel

Natural Gas

Biogas

E-Gas

Hydrogen

MIX-50

MIX

CPRICE

MIX50

BSL

ALLBNK

2015

2030

2050

ALLBNK

REG

Electricity

Source: PRIMES model

Greenhouse gas emissions in land based transport, aviation and navigation

Total CO

emissions from transport (excluding international maritime navigation) are projected

to decline by 10% in BSL by 2030 compared to 2015, and between 13% (CPRICE, MIX-50) to

16% (REG, ALLBNK) in the policy scenarios. As shown in Figure 64, by far the largest

contribution to this decline is due to increased fuel efficiency of cars, as well as vans.

Intensification of the CO

emission standards for vehicles in 2030 has in fact a very important

impact already for emission reduction by 2030. This will be instrumental to further reduce

emissions and energy consumption in the period post-2030, when the effects will be even

stronger as a result of the fleet renewal. Aviation has been one of the fastest growing sectors in

terms of CO

emissions over the past decades. Total CO

emissions from flights departing from

the EU27 and domestic flights within the territory of a Member State of the EU27 grew from

around 111 million tonnes (Mt) in 2005 to 120 Mt in 2015, equal to a 7.9% increase. For the

future, significant further growth is projected: 25% by 2030 relative to 2015 in the BSL scenario,

equivalent to 34% growth over the 2005-2030 period. Taken together however, declines in cars

and vans emissions over the 2015-2030 horizon are around 111 Mt in BSL and 112 Mt to 139 Mt

in the other scenarios.

emissions from passenger transport decline by 13% in BSL by 2030 compared to 2015, and

between 15% (CPRICE) and 18% (REG, ALLBNK) in the other scenarios. The largest

contribution comes from passenger cars, driven by vehicle efficiency standards. Intensification of

the CO

emission standards for vehicles in 2030 has in fact an important impact already for

emission reduction by 2030, and it is instrumental to further reduce emissions and energy

consumption in the period post-2030, when the effects will be even stronger as a result of the

fleet renewal. CO

emissions from freight transport go down by 3% in BSL by 2030 compared to

2015, and decline between 8% (CPRICE, MIX, REG,) and 9% (ALLBNK) in the other scenarios,

driven by vehicle efficiency standards and initiatives to increase and better manage the capacity

of railways and waterborne transport, incentives for intermodal transport and gradual

internalisation of external costs (“smart” pricing). In MIX-50,

by 2030, CO

emissions from

passenger transport decline by 13%, whereas CO

emissions from freight transport go down by

7%, both compared to 2015.

By 2050, CO

emissions from transport are projected to go down by over 90% compared to 2015

in order to meet the climate neutrality targets. This implies a very rapid decline in emissions post-

2030. The emissions reduction profile is strongly impacted by the type of policy combinations

developed for 2030. The size of these declines, especially in road transport, are consistent with

the impact of stringent vehicle standards, as well as of renewable fuels and policies driving

improvements in the overall efficiency of the transport system and shifts towards more

sustainable transport modes.

Figure 64: CO

emissions from Transport

1.000

900

800

CO2 emissions in Mton

700

600

500

Aviation

Inland Navigation

Rail

Other Road Transport

Vans

Heavy Duty Vehicles

400

300

200

100

2015

BSL

MIX50

REG

MIX

CPRICE

ALLBNK

Cars

2015

2030

Source: PRIMES model

In international maritime navigation, emissions are expected to increase in all scenarios except

ALLBNK from 2015-2030, between 3-4% in REG, MIX, CPRICE and 18% in BSL. In

ALLBNK we see that emissions decline by 4% with a carbon price at €65 and blending mandates

similar to the MIX scenario.

However, literature suggests that the maritime sector could achieve higher reduction potentials

through regulatory and pricing instruments over time. A comprehensive literature review

111

found

that emissions could be reduced by 33-77% compared to a 2050 baseline scenario based on

current technologies only. Actions listed that can reduce emissions include improving ship

operations (e.g. speed optimisation, weather routing, scheduling), improving ship design (e.g.

hull design, power and propulsion optimisation, vessel size), using renewable energy sources

111

Bouman, E. A., Lindstad, E., Rialland, A. I., & Strømman, A. H. (2017).

(e.g. wind) or using sustainable alternative fuels or electrification where appropriate. Tapping

into these greenhouse gas emission reduction potentials will require an appropriate basket of

measures to reduce energy end-use and promote the uptake of sustainable alternative fuels.

Considering that it is difficult to fully capture in the current modelling greenhouse gas emission

reduction related to operational efficiency improvements and retro-fitting options, additional and

complementary analysis will be required to assess the impact of specific shipping measures, as

announced in the European Green Deal. A more detailed study will be performed in the

forthcoming impact assessment for measures in the maritime sector itself, which will be taking a

more in-depth look at the possibilities to curb emission growth in the maritime sector, including

the extension of emissions trading to the maritime sector.

Overall the scenarios analysed in this impact assessment confirm that the reduction of emissions

from the transport sector will require large scale deployment of zero-emission drivetrains or for

those sectors where this is not feasible low- and zero-carbon fuels, as well as large scale system

efficiency improvements, making full use of the benefits of transport digitalisation and

connected, cooperative and automated mobility. This will likely require a combination of actions

and measures and pricing policies. Finally as demonstrated in the ALLBNK scenario compared

to the other policy scenario, a 2030 EU GHG target that sees aviation maintained and inclusion of

maritime emissions in its scope, will require bringing about additional emissions reductions in

other sectors and transport modes to compensate for this growth.

The transport sector was also a focus for several stakeholders who responded to the public

consultation. Stakeholders mentioned as key topics the development of high-speed rail network,

reducing private vehicles in urban areas, the introduction of low emission zones (LEZs)

infrastructure changes to promote sustainable life, the uptake of sustainable biofuels, ban on

vehicles with combustion engines, electrification of vehicles and national development of

charging infrastructures to support this transition.

9.4.2.7

Industry, including fuel mix

All the different scenarios have an impact in the industry sector, notably for those sub-sectors

consuming currently more fossil fuels. The industrial sector is composed by many diverse

subsectors with different energy and material needs resulting in different types, mixture, volumes

and concentration of industrial effluents containing greenhouse gases.

Industry has been steadily reducing its emissions and increasing its energy savings over the past

decades. Only in the last fifteen years between 2004 and 2018 European industry

112

reduced its

emissions by 20%, while compared to 1990 reductions are estimated to have surpassed 30%.

Despite facing strong international competition, European industry has adapted its business

models and practices in line with the climate and energy ambitions of Europe, and in a viable

economic manner.

The industry stakeholders and associations that participated in the public consultation of this

initiative

113

do see opportunities in further increasing the climate ambition for 2030, notably in

112

113

Total industrial emissions (energy combustion and process emissions), including refineries sector.

Including the submissions in the public consultation of major industrial associations, including Business Europe,

CEFIC, CEMBUREAU, CEPI, CERAME-UNIE, EUROFER, Eurometaux, European Aluminium, Fertilisers Europe,

Fuels Europe, Glass Alliance Europe, IFIEC Europe and confederations of national industries e.g. from AU, CZ, DE,

FR, PL, etc.

terms of jobs creation and contribution to an economic growth based on new production and

consumption models (e.g. circular economy approach). However, the significant investment

challenge and the risk in terms of international competitiveness if the EU acts alone are also

stressed. 2030 is considered a fairly short time horizon, compared to the long investment cycles

of industry, for a significant contribution of industrial sectors in terms of GHG reductions by

then.

Achieving further reductions in industry will depend increasingly on: (i) proving the technical

and economic feasibility of expensive breakthrough technologies, particularly for energy

intensive industrial processes, still under development or at the demonstration level, and on: (ii)

the deployment of infrastructure necessary to deliver at their installations renewable energy and

low carbon solutions like e.g. hydrogen and e-fuels. In addition, many stakeholders note the need

to have a stronger EU Emissions Trading System carbon price signal, coherent with other price

signals like taxes and levies for incentivising clean energy technologies, as well as importance of

making mandatory the implementation of the recommendations in energy audits.

Overall, the PRIMES model results show relatively limited additional GHG emission reductions

in the next decade in the policy scenarios compared to the baseline. In BSL, industrial sectors

including refineries see CO

emissions reduced by 19% in 2030 compared to 2015, mainly driven

by the use of more energy efficient processes (improved waste heat recovery) and to a lesser

extent due to fuel switching from fossil fuels to electricity and biomass. In the policy scenarios

the reductions improve, with REG and MIX delivering a 23% reduction compared to 2015.

CPRICE and ALLBNK, where the carbon price increases to €60-65/tCO

, complemented by

further energy efficiency and renewable energy policies in the case of ALLBNK, reduce

emissions by 24% and 26% respectively.

Significant additional effort will be required to decarbonise the industrial sectors between 2030

and 2050, when EU’s climate neutrality ambition will require industry to reduce its emissions to

around 90-95% compared to 1990 levels, as explained in the Long Term Strategy. The policy

scenarios on this impact assessment achieve from 88% reductions compared to 2015 (REG) up to

92% (CPRICE) and 93% (ALLBNK). A major part of the reductions in 2050 is due to

technologies such as clean gases and carbon capture and storage and carbon removals, including

CCUS technologies and CO

storage in materials. Clearly, the step up of technology deployment

between 2030 and 2050 will be a significant challenge.

Figure 65: CO

emissions in industry by sector and type (sectoral emissions refer to energy-related

emissions)

Source: PRIMES model.

Currently, energy efficiency and electrification of industrial heat and steam production seem to

be the most technologically mature options for reducing energy-related industrial emissions.

Electrification of processes also has a high potential, but not across all industrial sectors.

The potential of further energy savings in different parts of industry can be seen in Figure 66. In

the BSL, the combination of energy and climate policies deliver in 2030 around 10.6% energy

savings in industry compared to 2015. The scenario focusing more on regulatory measures REG,

with strong policies driving improvements in waste heat recovery, increase the energy savings by

4 p.p. to 14.7%. The scenario based on carbon pricing CPRICE triggers more energy savings

(15.8%) than the MIX scenario (14.9%). The highest energy savings are achieved by ALLBNK

(16.8%). In all four scenarios, the textile, food & drink, chemicals and refinery sectors show by

2030 the biggest energy savings, between 6% and 13% more than in BSL.

Figure 66: Energy Consumption in Industrial Sectors

350

300

250

Refineries

Others

Textiles

Engineering

Food, beverages & tobaco

Pulp, paper & printing

Non-ferrous metals

REG

MIX-50

Mtoe

200

150

100

CPRICE

MIX

BSL

ALLBNK

Non-metallic minerals

Chemicals

Iron & steel*

2000 2015

2030

2050

Note: Includes final energy consumption in industry, consumption in refineries, *includes blast furnace

Source: 2000-2015: Eurostat, 2030, 2050: PRIMES model

The shares of fuels in total energy consumption in industry provide insights on how energy

demand is met. Overall, the scenarios exhibit a similar fuel mix for industry in 2030, with

electricity ranging between 34.6% in BSL to 36.5% in CPRICE and ALLBNK, natural gas

between 28.4% in CPRICE (28.1% for ALLBNK) to 29.6% in BSL, oil between 12.6% in

CPRICE (11.8% in ALLBNK) to 13.7% in BSL and finally bioenergy ranges between 9% in

BSL to 12.1% in REG (12.6% in ALLBNK). The fuel mix changes significantly by 2050 for all

policy scenarios when half of the energy demand is satisfied by electricity (slightly less in

CPRICE), 14-15% from biomass, 8%-9% from e-gas, 8% from hydrogen and between 12-15%

from steam.

Concerning the angle of energy related emissions, it is interesting to see the differences in fuel

consumption of the various policy scenarios against the baseline. This indicates how energy

related emissions are mitigated and what type of fuel switching takes place. Figure 67 reports

these differences on the left hand side for 2030 and in the centre for 2050, while on the right side

one can see the fuel mix of the baseline. In 2030, fuel switching remains still limited. Instead by

2050 significant fuel switching is displayed with associated energy savings, with almost all

natural gas being replaced by low-carbon gases, i.e. hydrogen, e-gas and a little biogas. There is

additionally some more electrification, including a higher share of energy produced by CHP.

Figure 67: Differences in energy consumption in industry compared to Baseline

2030

2050

CPRICE ALLBNK REG

MIX

CPRICE ALLBNK

Reduced Demand

Electricity

Other RES

Bioenergy**

Marketed Heat

Hydrogen

e-gas

Natural gas*

Oil

Coal

250

BSL consumption (Mtoe)

2030

2050

Difference compared to BSL (Mtoe)

MIX-50

100

-20

-40

-60

-80

-100

REG

MIX

200

150

100

Note: Includes final energy consumption in industry, consumption in refineries and blast furnace, *includes

manufactured gas, **includes waste

Source: 2000-2015: Eurostat, 2030, 2050: PRIMES model

An important conclusion resulting from this modelling exercise is with carbon prices increasing

up to €65/tCO

, additional GHG reductions compared to 2015 are lower than other sectors except

transport. The industrial sector has already significantly invested in improving its energy

efficiency, mainly to address its high energy costs compared to its international competitors.

Thus, further strengthening energy efficiency policies, mainly targeting the increase of waste heat

recovery, are insufficient to drive significant additional emissions reductions.

Innovative low carbon and carbon neutral technologies, such as CCS or hydrogen based steel

production, are necessary to turn industry carbon neutral. These are not expected to enter the

market at scale at the carbon price levels observed in the projections in 2030, but closer to 2035

or 2040. CCS for instance enters in significant numbers only by 2040 with carbon prices at that

time of €200/tCO

or more. Deployment of such solutions requires the necessary energy and CO

infrastructure to be in place when the related technologies have been proved at scale. At the same

time a supporting regulatory framework is necessary

114

that will promote the deployment of such

technologies, both on the production side, but also on the side of demand, creating for example

lead markets for low carbon products

115,116

The figure below presents an overview of the development of the emissions in the main industrial

sectors during phase 3 of the ETS (2013-2020)

117

. Four sectors out of industry represent more

than 75% of direct industrial emissions under the ETS (refineries, chemicals excluding fertilisers,

cement excluding lime and iron & steel). The ETS has seen relatively stable and slightly

increasing industrial emissions since 2013 up to 2017, a period where carbon prices were very

low due to the surplus of allowances on the market. Since 2018, with the establishment and

considerable strengthening of the Market Stability Reserve, carbon prices have recovered again.

The GHG emissions trend changed also for industrial emissions starting to decrease again. In

2018, emissions from industrial installations decreased by almost 1% compared with 2017. The

reversed trend accelerated in 2019 with an additional decrease in emissions of 2%, compared to

2018.

Figure 68: Historic GHG emissions related to industrial sectors in the EU ETS (EU27, Norway and

Iceland)

Emissions from main industrial sectors

700.000.000

613.212.720

616.664.066

617.761.935

618.856.943

632.985.181

627.636.720

614.941.723

600.000.000

500.000.000

tonnes CO

equivalent

400.000.000

300.000.000

200.000.000

100.000.000

2013

Pulp and paper

Refineries

2014

Chemicals (excluding fertilisers)

2015

Fertilisers

Glass

2016

Ceramics

2017

Cement (excluding lime)

Lime

2018

Iron & Steel

2019

Non-ferrous metals

Wyns et. al., (2019), Industrial Transformation 2050

–

Towards an Industrial Strategy for a Climate Neutral Europe,

IES

115

ICF & DIW (2020), Industrial Innovation: Pathways to deep decarbonisation of Industry. Part 3: Policy

Implications

116

Climate Strategies (2019), Building blocks for a climate-neutral European industrial sector

117

Based on date from the European Transaction Log of verified emissions reported by industrial installations with

adjustments made to take into consideration the heat flows between installations, the emissions related to electricity

production and the transfer of waste gases outside of the installations boundaries for electricity production. Data

collected in the National Implementation Measures submitted under the ETS Directive by September 2019 was used

for correcting EUTL emissions. Data presented is for EU27 plus Norway and Iceland, while the PRIMES projections

presented only cover EU27. Furthermore, PRIMES includes a number of installations that produces heath or electricity

linked to industrial in the power sector, while these are included in industrial emissions in this assessment based on the

European Transaction Log of verified emissions.

114

Source: Own calculation based on EUTL Data combined with data provided in the NIMs for calculating

corrections for heat imports and exports, waste gases exports and electricity production for the years 2014

to 2018. For years 2013 and 2019 extrapolation of NIMs data for corrections.

Based on NIMs

118

data it is possible to calculate the evolution of the specific emissions expressed

in tonnes CO

per tonne of product for the different product benchmarks used for calculating the

free allocation received by different sectors.

Using this data per sector, different scenarios can be constructed for identifying the readily

available emission reduction potentials of implementing already existing technologies in most

installations in a sector.

119

Two methods are explored:

One with relatively high ambition estimating the impact on GHG of a shift of all

installations in the sector with emissions above those representing the average of the 10%

best installations to the level of emissions of the 10% best.

One focussed on the worst performing installations (those with emissions above the

median) in the sector and assuming they would reduce their emissions to a level

equivalent to

the emissions of the 2016/2017 “median” installation in the sector;

Table 40: Emission reduction potential based on provisional updated benchmarks repressing medium and

best performing installations

Sector

Cement (excl. lime)

Ceramics

Chemicals (excl. fertilisers)

Fertilisers

Glass

Iron & Steel

Lime

Non-ferrous metals

Pulp & Paper

Refineries

Total

Emissions in 2019

(MtCO

)

117.7

14.9

93.3

39.2

17.9

185.6

25.7

16.7

27.0

126.3

664.3

Savings (Median)

(MtCO

)

2.4

2.0%

0.2

1.4%

8.8

9.4%

3.5

9.0%

0.8

4.2%

13.3

7.2%

1.6

6.2%

1.7

9.9%

14.8

55.0%

6.3

5.0%

53.4

8.0%

Savings (Best 10%)

(MtCO

)

13.9

11.8%

1.1

7.3%

29.4

31.5%

17.8

45.4%

3.1

17.4%

41.1

22.1%

8.0

31.0%

2.8

16.7%

26.5

98.2%

51.4

40.7%

195.0

29.4%

The potentials, referring to 2019 emission levels, vary per sector, from relatively modest values

for sectors with important shares of process emissions (cement, ceramics, lime) to high potentials

in sectors such as chemicals and fertilisers. For all sectors combined, the abatement potential of

further deployment of existing technologies up to the level of the current best 10% can be

estimated at almost 30% of the 2019 emissions. Simply making the worst performers move to the

existing median performer would already reduce emissions compared to 2019 by 8%.

118

National Implementation Measures submitted under the ETS Directive by September 2019 with industrial historical

emission and production data

119

Small and very small emitters excluded under Articles 27 and 27a of the ETS Directive, installations renouncing to

free allocation and installations for which data is incomplete have been removed from the analysis.

The PRIMES projections sit within this range of total estimated reduction potentials based on the

benchmarking data.

This is a relatively static assessment of mitigation potential which might not be possible to

achieve by all installations and by 2030. It does not take into account the development of new

technologies. Some technologies are incremental while others, including some climate neutral

technologies like high temperature heat pumps, electric boilers, hydrogen or CCS will allow for

significant further reductions.

A recent study

120

revisited bottom up the mitigation potential in the main ETS industrial sectors.

The study used the production projections of the PRIMES modelling and assessed bottom up for

a number of existing and new technologies what the resulting mitigation potential could be. Most

reduction potential by 2030 assessed came from existing technologies with only limited use of

technologies no yet applied in EU ETS installations. Overall, this bottom up exercise has

identified a total mitigation potential by 2030 of between 16% and 25% compared to 2019 for the

four main industrial sectors in terms of GHG emissions (iron & steel, refineries cement and

chemicals) combined. The lower end of the mitigation potential assumes that only technologies

already in place in some installations will be further deployed in others, while the higher range of

the estimation assumes that some new technologies will start to be implemented by 2030.

Looking at the potential revealed based on the PRIMES model projections, the benchmark data

and the recent bottom up study estimates for additional reduction potential by industrial emitters

are within the same order of magnitude.

Most of these reductions by 2030 are based on existing technologies and show a levelling off of

additional mitigation potential. With a view on decarbonising the industrial sector as a whole

towards 2050, new clean technologies will need to be deployed at scale. Higher carbon prices

will be needed for both existing and new technologies.

Some new technologies have costs that are higher than projected carbon prices in the next

decade. Other enabling measures might be needed to ensure the implementation in the market of

these new technologies. These enabling measures include inter alia the Innovation Fund for first

of its kind project and contracts for difference.

The modelling above does not include the impacts of the COVID-19 outbreak in Europe and the

lower emissions which will be registered in 2020. In addition, the economic downturn caused by

the outbreak will probably impact the possibilities of companies to carry out investments to

reduce its emissions. On the other hand, financial support programmes for industry are being put

in place.

9.4.3

Non-CO

sectoral mitigation potential

The below

table reports the historic emission profile of the EU’s non-CO

emissions using two

different standards. The reason for reporting both accounting standards is transparency: presently

the official greenhouse gas emissions inventories are being reported according to the 4

IPCC

Assessment Report global warming potentials for calculations of CO

equivalents of non-CO

emissions over 100 years (AR4). The inventory reporting will, however, change in the near future

120

Study contract

–

Assessment of potential carbon leakage in the third and fourth trading phase of EU Emissions

Trading System. Under Framework contract CLIMA.001/FRA/2015/0014. Öko-Institut, Trinomics, Ricardo, Adelphi,

(2020).

to reflect updated IPCC inventory guidelines using global warming potentials from the 5

IPCC

assessment report (AR 5). This change, moreover, has already been included in the EU regulatory

framework covering emissions from 2021 onwards

121

. The forward-looking modelling, including

the exploration of mitigation options, is therefore based on AR5 calculations. However, the AR4

numbers allow to directly compare numbers to the current official greenhouse gas inventories. As

can be seen in Table 41, in 2015, methane was the dominant non-CO

greenhouse gas in the

European Union. According to the baseline estimate based on GAINS, in 2030 there will still be

emissions of 366 MtCO

-eq of methane, 180 MtCO

-eq of nitrous oxide, and overall 35 MtCO

eq emissions of different fluorinated greenhouse gases (F-gases for short).

Table 41: Emissions of non-CO

greenhouse gases in AR4 and AR5 across all sectors (MtCO

-eq)

1990

MtCO

-eq

Sum CH

Sum N

Sum F-gases

Sum Non-CO

GHGs

AR4

595

335

985

AR5

666

298

1017

AR4

459

260

798

2005

AR5

513

231

820

AR4

406

215

104

725

2015

AR5

455

191

745

2030-

BSL

AR5

366

180

581

Source: EU GHG inventory under UNFCCC and GAINS model

Sector-wise, agriculture emits the largest share of non-CO

greenhouse gases, followed by

energy, waste and industrial emissions or manufactured products that include F-gases (see Table

42). Whereas non-CO

greenhouse gas emissions in energy, waste and industry are projected to

significantly decrease already in the baseline, this is not the case with agriculture where the

decrease is projected to be more limited. It should be noted that the baseline does not incorporate

any specific policies that might be undertaken under the future Member States’ CAP strategic

plans or other new policy initiatives under the European Green Deal.

Table 42: Baseline emissions for non-CO

greenhouse gases by sector (MtCO

-eq, AR5)

MtCO

-eq

Energy (incl. heating and cooling)

Agriculture

Waste (incl. wastewater)

Industry and other

2005

167

409

203

2010

170

394

190

2015

170

404

166

2020

2025

2030

149

118

388

380

375

150

120

106

Source: GAINS model

Figure 69 below shows that there is still significant potential to reduce non-CO

emissions in

2030 compared to the baseline. The order of magnitude depends also on the efforts made on

energy efficiency and renewable energy and the resulting carbon prices in the various options.

The figure shows at which carbon price this would become economically feasible. The GAINS

model estimates that from the bottom up perspective taken in the analysis, significant win-win

mitigation potential exists, that can reduce non-CO

emissions at a marginal cost of zero €/tCO

eq. The dotted grey lines indicate

abatement costs of €10/tCO

-eq

and €55/tCO

-eq, respectively

121

COMMISSION DELEGATED REGULATION (EU) 2020/1044 of 8 May 2020 supplementing Regulation (EU)

2018/1999 of the European Parliament and of the Council with regard to values for global warming potentials and the

inventory guidelines and with regard to the Union inventory system and repealing Commission Delegated Regulation

(EU) No 666/2014.

to illustrate the economic mitigation potential still available through 2030 in the non-CO

greenhouse gases.

Figure 69: 2030 marginal abatement cost curve across all non-CO

greenhouse gases

Source: GAINS model

These mitigation potentials are quantitatively shown in the Table 43. It looks at mitigation

potential that could be tapped within a range of €0/tCO

-eq

to €55/tCO

-eq.

Table 43: 2030 mitigation options for non-CO

GHG emissions across all sectors in the EU27 compared to

baseline (MtCO

-eq, AR5)

BSL

Mitigation

F-gases

Sum

2030 emissions after mitigation

Reduction compared to 2005

Reduction compared to 2015

n.a.

581

-29%

-22%

€0/tCO

-eq

MtCO

-eq

29.3

8.4

17.6

55.3

525.7

-36%

-29%

€10/tCO

MtCO

-eq

34.3

10.6

20.3

65.2

515.8

-37%

-31%

€44/tCO

MtCO

-eq

44.3

11.8

21.5

77.6

503.4

-38%

€55/tCO

MtCO

-eq

44.9

24.7

21.5

91.1

489.9

-40%

-32%

-34%

Source: GAINS model

The figure below illustrates the reduction potential beyond baseline for each of the gases

separately. Methane emissions are expected to go down by 34% in the baseline compared to

2005. At a marginal cost of

€55/tCO

-eq, additional mitigation still remains at a level of 44.9

MtCO

-eq

in 2030. At zero cost and at €10/tCO

-eq there is already a large mitigation potential,

mainly stemming from the energy sector as well as heating and cooling applications (see below

for sectoral discussion). At a marginal cost

of €55/tCO

-eq, methane is reduced at a rate of 38%

in 2030 compared to 2005.

For nitrous oxides, which predominantly stem from the use of mineral and organic fertilisers in

agriculture, similar reductions are expected at marginal costs of €55/tCO

-eq, yielding a

mitigation of overall 33% in 2030 compared to 2005. At marginal costs of zero and €10/t,

reductions in nitrous oxides emissions are significantly lower since some of the options (e.g.

variable rate technology in agriculture) are only available at higher marginal costs. In baseline,

O emissions reduce by 22% in 2030 compared to 2005, and this increases at a marginal cost of

€55 to 33%.

For F-gases, emissions will already be reduced by 53% in 2030 compared to 2005 in the baseline,

due to strong existing regulations increasingly banning the use and release of F-gases in the EU.

For marginal costs of €55/tCO

-eq this increases to 82% but beyond that there is not much further

reduction potential.

Figure 70: 2030 marginal abatement cost curve by non-CO

greenhouse gas

Source: GAINS model

Turning now to the mitigation potential by economic sector, at lower marginal costs the energy

sector clearly has the highest potential to reduce non-CO

greenhouse gas emissions, in particular

for CH

, compared to the baseline. These zero- and low-cost mitigation options reflect the wider

international landscape on the cost of reducing methane emissions in the oil and gas sector. The

IEA methane tracker website

122

, for instance, uses detailed data to estimate possible mitigation

122

https://www.iea.org/reports/methane-tracker-2020/methane-abatement-options#abstract

actions and the associated cost for the whole sector. Upstream operations generally show a

variety of negative cost mitigation options, while a large number of mitigation options at near

zero cost are available throughout the whole sector. This is reflected in the estimates shown

above for this impact assessment. Academic research confirms these conclusions based on a

detailed study of natural gas production in the United States

123

, and similar conclusions are to be

found in the NGO community

124

. Options to reduce methane are good practice-leakage control

and addressing major leaks in production of crude oil and natural gas to reduce methane and pre-

mining degasification of coal mining but also doubling of the control frequency of gas

distribution networks, tools mentioned by stakeholders in Europe

125

, who nevertheless caution

that action on energy methane emissions should be accompanied by a phase-out of fossil gas by

2035. Reducing the leakage of long-distance gas transmission is another option. Modification in

fluidised bed combustion will reduce nitrous oxides emissions in the power sector and industry.

Finally, further reductions of energy combustion will also reduce further fugitive emissions as

well as emissions from incomplete combustion of fuels. These mitigation options are generally

cost-effective, suggesting that the energy sector is responsive to the level of the carbon value

starting from low levels.

The energy sector also includes heating and cooling applications that can lead to emissions of F

gases. For F gases, as shown above, zero cost abatement options exist that would, given the right

regulatory framework, be available at current technologies. From a technical modelling point of

view, it is important to note that the PRIMES model implements the marginal abatement cost

curves from GAINS via a smooth function for purposes of optimization. For this technical

reason, PRIMES can yield a lower mitigation potential for the lower range of carbon values for

non-CO

greenhouse emissions compared to GAINS.

Table 44: Potential emission reductions of non-CO

greenhouse gases by sector in 2030 in the EU27

compared to baseline (AR5)

Sector

Agriculture

Energy (incl. heating and cooling)

Waste (incl. wastewater)

Industry and other

Total

€0/tCO

MtCO

-eq

12.3

30.0

7.8

5.2

55.3

€10/tCO

MtCO

-eq

12.3

34.9

7.8

10.1

65.2

€44/tCO

MtCO

-eq

17.2

41.3

7.8

11.2

77.6

€55/tCO

MtCO

-eq

30.6

41.3

8.0

11.2

91.1

Source: GAINS model

Agriculture is the sector with the second highest-abatement potential, particularly at the higher

carbon price. The figure below illustrates this potential, and shows that mitigation options exist at

significant price differences. The dotted lines indicate marginal mitigation cost of €10/tCO

-eq

and €55/tCO

-eq, respectively reducing emissions by between 3% and 8% compared to baseline

in 2030. Of the most economical options that represent clear win-win strategies, farm-scale

Marks, Levi (2019): ”The Abatement Cost of Methane Emissions from Natural Gas Production“, Job Market Paper,

University of California at Santa Barbara.

124

https://www.edf.org/icf-methane-cost-curve-report

125

Environmental Investigation Agency (2020): “Environmental Investigation Agency’s contribution to the Public

consultation on the Roadmap “2030 Climate Target Plan”.

123

anaerobic digestion with biogas recovery is an important emission reduction technology for dairy

cows and cattle farms, for both small and large farms. Its use would also allow to increase the

supply of biomass available for biomethane production

126127

, a technology which stakeholders see

as relevant for the future

128

. Breeding through selection could enhance productivity, fertility and

longevity to minimise the methane intensity of dairy and meat products is an option both for

dairy cows and sheep. Moreover, feed additives combined with changed feed management

practices can reduce methane emissions, again in large and small farms. Overall, the results show

that a significant number of win-win abatement technologies exist for agriculture. Nitrification

inhibitors are an option at higher marginal costs for larger farms (30 to 150 hectare) to reduce

nitrous oxides at scale. The same applies for variable rate technology to reduce emissions of

nitrous oxide emissions related to more efficient fertiliser use.

Figure 71: 2030 marginal abatement cost curve for all non-CO

greenhouse gas emissions in the

agricultural sector

Source: GAINS model

Municipal Waste Europe (2020): “MWE Response to the European Commission Roadmap on the Inception impact

assessment on the Climate 2030 Target

Plan”, dated April 2020.

127

Orsted (2020): “Roadmap 2030 Climate Target Plan – Inception impact assessment. Orsted comments.”

128

International Association of Oil & Gas Producers (2020): “IOGP feedback to the Impact Inception Assessment

‘2030 Climate Target Plan’”, dated 15 April 2020.

126

The JRC has also closely examined the options to mitigate non-CO

greenhouse gas emissions

129

While JRC calculations also include options to reduce CO

emissions from land use (notably

winter cover crops and fallowing histosols for carbon storage, see LULUCF section 6.10), the

non-CO

greenhouse gas reduction potential found at a price of €40/tCO

-eq is of a similar order

of magnitude as calculated with the GAINS model, though estimates of costs of individual

technologies differ.

In the context of the EU Biodiversity Strategy

130

, promoting the goal of zero pollution from

nitrogen and phosphorus fertilisers through reducing nutrient losses by at least 50% and reduce

the use of fertilisers by at least 20% in the EU could have significant co-benefits in reducing

related nitrous oxide emissions in the future.

In this regard, another modelling exercise

131

conducted by the European Commission’s Joint

Research Centre provides a quantitative assessment of the effects of the targets stemming from

the Biodiversity and Farm to Fork Strategies in combination with the implementation of the

future Common Agricultural Policy (CAP), based on the 2018 Legal Proposal of the Commission

and assuming an enhanced climatic ambition in Member States’ Strategic Plans. This work

confirms the significant role the CAP would play, in particular thanks to the boosted uptake of

mitigation technologies and changes in farming practices, and linked to the implementation of the

targets with 17.4% reduction of non-CO

GHG emissions in the agricultural sector by 2030,

going up to 19.0% with the additional budget made available under the “Next Generation EU”.

Another driver for reductions in non-CO

greenhouse gas emissions related to agriculture in the

EU can be changes in lifestyle choices of European citizens and consumers. For instance,

changes in dietary choices can affect the related agricultural emissions of methane and nitrous

oxide. Traditionally, red meat has played a strong role in European society. However, observed

trends have been changing recently. In its in-depth analysis for the Long-Term Strategy

132

, the

European Commission explored, through a sensitivity analysis, the greenhouse gas mitigation

implications of 5 different possible diets, ranging from light decreases in meat and dairy (diet 1)

to more substantial decreases (diet 5). These diets would bring with them benefits for the health

of Europeans, and would avoid food waste. In all diets, dairy and meat consumption would still

remain at a relatively high level.

Forthcoming: Pérez Domínguez I., Fellmann T., Witzke P., Weiss F., Hristov J., Himics M., Barreiro Hurle J.,

Gómez Barbero M., Leip A. (2020), Economic assessment of GHG mitigation policy options for EU agriculture: A

closer look at mitigation options and regional mitigation costs (EcAMPA 3), EUR 30164 EN, Publications Office of

the European Union, Luxembourg, 2020, ISBN 978-92-76-17854-5, doi:10.2760/4668, JRC120355

130

COM(2020) 380 final

131

Barreiro-Hurle, J., Bogonos, M., Himics, M., Hristov, J., Pérez-Domiguez, I., Sahoo, A., Salputra, G., Weiss, F.,

Baldoni, E., Elleby, C. 2020. Modelling environmental and climatic ambition in the agricultural sector with the CAPRI

model. The case of the Farm to Fork and Biodiversity strategies and the 2030 Climate targets, EUR30317, Publications

Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-20889-1, doi: 10.2760/98160.

132

https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_analysis_in_support_en_0.pdf

129

Figure 72: Evolution of consumption of animal products for five different possible dietary choice

Animal products (excl. fish)

1.050

1.000

kcal/capita/day

950

900

850

800

750

700

1990

1995

2000

Diet 1

2005

2010

2015

Diet 3

2020

2025

2030

Diet 5

Animal Products

Diet 2

Diet 4

Source: FAO

As shown in the figure above, the consumption of animal products in terms of kcal per person per

day evolves differently through 2030. Diet 5 sees the largest drop in consumption of animal

products for nutrition. The greenhouse gas mitigation benefits of these changes are shown in

Figure 73 below. As can be seen, mitigation gains on top of baseline reductions as analysed for

the Long-Term Strategy are substantial, and can exceed 30 MtCO

-eq though they do not take

into account any feedback effects for instance if this would change. Any such effects were not

included in the BSL nor policy scenarios by 2030, but would be of an order of magnitude

equivalent to the technical reduction potentials of the agriculture sector.

Figure 73: Greenhouse gas emissions effects of different dietary choices through 2030

Diet 1

Diet 2

Diet 3

Diet 4

Diet 5

Change in GHG emissions (in

Mt CO

eq.)

-5

-10

-15

-20

-25

-30

-35

2025

2030

Source: GLOBIOM and GAINS models

The Farm to Fork Strategy

133

also concludes that a pathway to more plant-based diet with less red

and processed meat and with more fruits and vegetables will reduce not only risks of life-

threatening diseases, but also the environmental impact of the food system

134

Another avenue for reducing food chain-related greenhouse gas emissions, releasing land and

relieving pressure on freshwater resources and biodiversity is the production of protein from

aquaculture, shellfish and algae

135

. The Commission’s

Group of Scientific Advisors considered

that oceans can produce more food through low-trophic aquaculture

136

. These feed on the excess

nutrients that are causing eutrophication in Europe’s seas. A number of studies have looked for

instance at the impact of increased cultivation of these in new offshore wind turbines parks which

can bring benefits in reduced GHG emissions

137

. The feasibility of scaling up production to these

levels is demonstrated by marine production in China which is 30 times greater than the EU27 for

shellfish and 100,000 times for algae

138

Emissions from the waste sector could benefit from treatment of wastewater both for domestic

wastewater as well as for the paper and food industries. In all of these applications, cost-efficient

biogas recovery from anaerobic digestion offers significant mitigation potential by 2030.

Wastewater treatment could additionally use optimised processes aimed at reducing N

O to

mitigation emissions further at reasonable cost. Both options start to be triggered at a low carbon

price, thus explaining why mitigation potential becomes available at €10/tCO

-eq.

The last sector with a still large additional potential, heating and cooling, is part of the energy

sector but its applications often rely on technical F-gases, some of which are highly potent

greenhouse gases. Alternative agents (including ammonia, CO

or HCFs with a GWP below 150)

can be used for air conditioning as well as refrigeration in industry and the commercial sector. In

other sectors where HFC are used they could be replaced, too, with alternative agents. The use of

could be banned in some applications. Fire extinguishers and stationary air-conditioning

could use alternative agents such as CO

. The semiconductor industry could switch from PFC to

(with destruction of the latter in the process) or other alternatives.

9.4.4

The LULUCF sector

Historic GHG emissions and removals in the LULUCF sector

Since 1990, the land use and forestry sector has removed from the atmosphere an average of 300

MtCO

-eq annually with inter-annual variations ranging from 250 MtCO

-eq in 1992 to 336

MtCO

-eq in 2006. In 2018, the last reported year from 2020 UNFCCC inventories, the

LULUCF sink removed 264 MtCO

-eq from the atmosphere with a net removal of 283 MtCO

carbon dioxide and an emission of 6 MtCO

-eq of methane and 13 MtCO

-eq of nitrous oxide. It

also includes the removal of 42 MtCO

through harvested wood material produced in 2018. On

average over the last 5 years the sink was equivalent to 279 MtCO

-eq.

COM(2020) 381 final

FAO and WHO (2019), Sustainable healthy diets

–

guiding principles.

135

Aquaculture is not part of the mitigation options modelled in this impact assessment.

136

High Level Group of Scientific Advisers “Food from the Oceans”, 2017

137

Nijdam et al. (2012): “The price of protein: Review of land use and carbon footprints from life cycle assessments of

animal food products and their substitutes”, Food Policy, Volume

37, Issue 6, December 2012, pages 760-770

138

FAO Aquaculture, Capture and Global production databases

134

133

Figure 74: LULUCF emissions and removals in the EU

200

100

MtCO2eq

-100

-200

net l ulucf sink

-300

-400

-500

1990

1992

1994

1996

1998

2000

2006

2008

2010

2012

Cropland

Grassland

2014

2016

2018

Settlements and Other land

Harvested Wood Products

Wetland

Forest land

Source: UNFCCC inventories 2020

The detail of LULUCF categories shows a continuous reduction of LULUCF emissions for

cropland and grassland since 1990 but an increase in emissions for settlements and wetlands. The

forest areas are responsible for most of the variability in the inventories of the EU LULUCF sink,

with a notable reduction of the forest sink in the last 5 years. Wood harvest (for material and

energy purposes), forest ageing and natural hazards drive most of the variations of the forest

removals. For a detailed discussion on these drivers as well as expected increases in biomass

needs for energy, see annex 9.4.4.

Figure 75: Changes vs. 1990 in emissions or removals by LULUCF category in the EU

MtCO2eq

-10

-20

-30

-40

-50

-60

1990

1995

Cropland

Settlements

2000

2005

Grassland

Harvested wood products

2010

2015

Wetlands

Forest land

Source: UNFCCC inventories 2020

The role of bioenergy demand on increased biomass production

Use of forest resources in the EU has an impact on the overall sink function. The production of

biomass for industrial and energy purposes in the EU has continuously increased over the last 30

years, with a stable share of approximately 25% fuel wood and 75% industrial wood. While

industrial wood is primarily harvested to be processed in sawmills, wood pulp and panel

industries, a substantial share of this wood (e.g. process residuals or industrial wastes) is

indirectly used as energy feedstock. The JRC Biomass Study

139

indicates that about half of the

total wood harvested in the EU is directly or indirectly used for the production of energy, even

though significant uncertainty remains in the reported statistics of biomass supply and demand in

the EU. The 2020 UNFCCC inventories report that a caloric value of 128 Mtoe of forest,

agriculture and waste biomass was used as substitute for fossil fuel in the energy sector of the

EU. The combustion of an equivalent caloric content of the 2018 EU fossil fuel mix would have

released about 345 Mt of fossil fuel CO

to the atmosphere.

Sustainable forest management practices in the EU

140

have enabled an increase in wood

production of 200 Mm

between 1990 and 2018, without a direct major impact on the forest sink

up to now

–

though recent years show a limited decline due to pests, wildfires but also an

intensification of harvesting activities

141

. Maintaining a sustainable management of the European

forest is of key importance to ensure that this decline does not become the beginning of a

continuous reduction of forest removals.

Figure 76: Wood production in the EU

600

500

400

Mm3

300

200

100

1990

1995

2000

Industrial Wood

2005

Fuel Wood

2010

2015

Source: FAOstat 2020

All the scenarios analysed in this assessment rely on a substantial use of biomass for energy with

a consumption of bioenergy by 2030 at around 150 Mtoe. Power generation and residential

heating today make up most of the biomass demand. By 2030, the use of biomass in the

residential sector is expected to decrease slightly but the overall picture will not change

dramatically. By 2050, the power sector would absorb most of the additional demand in

bioenergy in all scenarios, with more than a doubling of the bioenergy dedicated to the

production of electricity. In this time-frame, coupling the use of solid biomass with CCS

installations in power and industry sectors will contribute to the removal of CO

from the

atmosphere. The decarbonisation of road, maritime and air transport requires advanced biofuels

139

Cazzaniga N.E., Jonsson R., Pilli R., Camia A. (2019). Wood Resource Balances of EU-28 and Member States. EC

Joint Research Centre, Publications Office of the European Union, Luxembourg, doi:10.2760/020267, JRC114889.

140

EEA Report No 5/2016

–

European Forest ecosystems

–

State and trends333

141

Ceccherini, G., Duveiller, G., Grassi, G. et al. Abrupt increase in harvested forest area over Europe after 2015.

Nature 583, 72–77 (2020).

https://doi.org/10.1038/s41586-020-2438-y

that could be produced at scale after 2030, nevertheless it would not represent more than 20% of

the total use of biomass in any of the scenarios.

Figure 77: Use of bioenergy by sector and by scenario

300

250

200

mtoe

150

100

2015

BSL

MIX-50

REG

2030

MIX

CPRICE ALLBNK

BSL

REG

MIX

2050

CPRICE ALLBNK

Power

Maritime Navigation

Industry

Service & Agriculture

Road Transport

Residential

Air Transport

Other

Source: PRIMES model

Towards 2050, an increase in solid forms of bioenergy and a strong increase in liquid and

gaseous forms is projected to reach the objective of net-zero emissions in hard to abate sectors or

to generate net removals in combination with CCS. The total gross available energy from

biomass and waste ranges from 230 Mtoe to 250 Mtoe across the policy scenarios.

Figure 78: Gross inland consumption of biomass and waste for energy

300

250

200

mtoe

150

100

2015

BSL

MIX-50

REG

MIX

CPRICE ALLBNK

BSL

REG

MIX

2050

Waste Industrial Solid

Biofuels

Biogas

Waste Gas

CPRICE ALLBNK

2030

Bio - Solids

Waste Municipal Solid

Source: PRIMES model

The combination of feedstock used to supply the demand in bioenergy by 2030 is similar to

today’s needs with in particular biofuels relying on cereal and oil crops. The long term is

characterised by a phase out of conventional biofuels, to be replaced by much larger volumes of

advanced biofuels produced from energy crops and a better mobilisation of agriculture residues.

Another significant share of bioenergy feedstocks comes from the waste sector with a progressive

improvement in the industrial and municipal waste collection. The use of harvested stemwood

increases slightly compared to 2015 level while the increase in the sustainable extraction of forest

residues is more pronounced. The optimisation of the sustainable exploitation of all sources of

biomass would supply in the most demanding scenario up to 350 Mtoe of feedstock for bioenergy

production to the EU economy in 2050.

142

Figure 79: Break down of bioenergy feedstocks

400

350

300

250

mtoe

200

150

100

2015

BSL

MIX-50

REG

2030

MIX

CPRICE ALLBNK

BSL

REG

MIX

2050

CPRICE ALLBNK

Waste

Food crops

Paper and pulp residues

Agriculture residues

Forest stemwood

Short rotation coppice

Forest residues

Lignocellulosic grass

Source: PRIMES model

In all the scenarios, more than 93% of the bioenergy used in the EU economy is produced

domestically in 2030 as well as in 2050.

Imports increase only marginally from 2020 to 2030 to remain around 8 Mtoe or less (Figure 80).

Solid biomass makes up most of the biomass imported from third countries. The respect of RED

II criteria will ensure this biomass is imported from sustainable sources and correctly accounted

in global UNFCCC emission inventories

143

. Bioenergy imports drop by 2050 in the baseline but

increase up to 14 Mtoe in the policy scenarios.

142

The energy losses in the transformation of the bioenergy feedstock to the final form of bioenergy explain the

differences in energy content shown in Figure 77 and Figure 79.

143

Since the 2030 bioenergy imports are very similar in baseline and policy scenarios, the differences across baseline

and policy scenarios in emission impacted and accounted in third countries from EU bioenergy imports would be

marginal. The difference between baseline and policy scenarios would be more noticeable by 2050 depending on the

sources of the biomass.

Figure 80: Imports of Bioenergy

10%

Mtoe

CPRICE

MIX-50

CPRICE

BSL

2020

2015

REG

MIX

2030

Biomass Solid

Biodiesel

Bioethanol

Bio-kerosene

2050

Share of imports (%)

Source: PRIMES model

As indicated in section 6.2.3 the optimisation of the sustainable exploitation of all sources of

biomass would supply in the most demanding scenario up to 350 Mtoe of feedstock for bioenergy

production to the EU economy in 2050 in the PRIMES-GAINS-GLOBIOM modelling tool.

This is in line with estimates of the S2Biom project

144

. It reviewed existing publications on the

potential and projections for the future of biomass supply for bioenergy production in the EU28.

The study considered feedstock such as energy crops, agriculture residues, forest biomass and

biomass waste to estimate that the EU has a potential to provide a minimum of 260 Mtoe and a

maximum of 540 Mtoe from biomass for its energy consumption, compatible with the volumes of

biomass used in PRIMES modelling.

Enhancing the LULUCF sink

The analysis

carried out in the context of the communication “A Clean Planet for All”

145

showed

that a climate-neutral EU will have to rely on a substantial amount of carbon removals, well

beyond the current sink. By 2050 about 500 MtCO

of annual carbon dioxide removal is required

to offset residual emissions too difficult to abate. Both nature-based and technological solutions

are required and their mix is scenario-dependent. All scenarios need a strong LULUCF sink and

technological solutions that often involve the use of biomass to capture the CO

from the

atmosphere.

The deployment of nature-based solutions to enable the long-term enhancement of the LULUCF

sink is a slow process

–

one that should start now to maximise the 2050 carbon removal potential.

However, some concrete forest and agriculture management actions can also generate carbon

removal benefits in the short term, and therefore support the EU 2030 climate ambition. The

144

145

www.s2biom.eu

https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_analysis_in_support_en_0.pdf

ALLBNK

REG

potential for the enhancement of the LULUCF sink at 10 year and 30 year time horizons is

illustrated in Figure 81. GLOBIOM modelling shows that some measures such as limiting

deforestation, or some soil carbon sequestration and forest management practices could already

generate up to 80 MtCO

of additional LULUCF sink within 10 years. Beyond 30 years, the

potential for enhancement from reducing deforestation is almost exhausted and replaced by the

removal of carbon by new, actively growing 20 to 30 year old forests. These new forests are

additional to the standing old-grown forests. A right balance needs to be found in the sustainable

management of the natural resources in terms of climate, biodiversity and other environmental

considerations. This requires short term action that reflect long-term objectives to optimise the

contribution of the LULUCF sink to the 2050 climate neutrality goal while preserving other

ecosystem services.

Figure 81: Potential for carbon sequestration and LULUCF sink enhancement at different carbon prices in

2030

140

120

100

MtCO2

10 years

30 Years

euro/tCO2

Forest Management

Afforestation

Avoided deforestation

Agriculture Land

Source: GLOBIOM model

The 2020 UNFCCC inventory submissions indicate that the exploitation of organic soils in the

EU, in particular drained peatlands, emitted about 100 MtCO

with around 70 MtCO

from a very

restricted area of agriculture lands.

Protecting organic soils from intensive use would be highly beneficial from the perspective of

climate action in the agriculture sector. It could be achieved by limiting or using appropriate

agriculture management on these limited areas, and by restoring peatlands and wetlands through

the elevation of groundwater level, in order to reduce the oxidation of the organic material.

The GLOBIOM model does not cover mitigation measures addressing the specificity of organic

soils, and their CO

emission reduction potential is therefore not represented in Figure 10, section

6.2.3. The EcAMPA 3 study

146

however includes the option to fallow organic soils, and estimates

that the CO

emissions from agricultural activities could be reduced by about 50 MtCO

in 2030

146

Pérez Domínguez I., et al. (2020). Economic assessment of GHG mitigation policy options for EU agriculture: A

closer look at mitigation options and regional mitigation costs (EcAMPA 3), EUR 30164 EN, Publications Office of

the European Union, Luxembourg, 2020, ISBN 978-92-76-17854-5, doi:10.2760/4668, JRC120355

at reasonable cost (Figure 82). The CAPRI model used in EcAMPA considers this option as one

of the most efficient solutions to reduce GHG emissions in agriculture.

There is a potential to enhance at a reasonable cost the LULUCF sink to levels similar to the net

LULUCF removals from the climate-neutral scenarios of the EU long-term strategy. It would

require, however, measures to trigger land actions at the most optimal location in the Union.

Figure 82: Technical potential for CO

and non-CO

emission reductions on agriculture land by 2030

(EcAMPA 3)

Source: CAPRI model (EcAMPA 3)

Natural disturbances and need for adaptation

Climate change is already affecting Europe’s forests ecosystems –

whether intensively managed

for wood production, or protected as forest nature reserve

–

and it will continue to do so

throughout this century. In fact, many European forests are vulnerable to forest fires, water

scarcity, storms, pest attacks and other disturbances, which climate change exacerbates directly

and indirectly

147

Modelling and assessing forest response to climate change is very difficult, notably because of

uncertainties when it comes to tree mortality

148

. However, there are many reasons to be deeply

concerned and to follow a precautionary approach.

In fact, during the last three years, a series of large-scale forest disturbances have occurred that

can be linked to the exceptional dry and warm weather conditions

–

including exceptional bark

beetle outbreaks in Central and Eastern Europe, uncontrollable ‘mega-fires’ in Swedish forests,

or drought-related forest dieback in Germany.

The frequency of meteorological droughts in many parts of Europe has already gone up and this

trend will continue, exposing many forests to more frequent, severe, and longer lasting droughts.

Water scarcity reduces photosynthesis and tree growth, impairs important tree defence

mechanisms against insect attacks, and can kill trees directly through hydraulic failure. Extreme

https://www.eea.europa.eu/publications/climate-change-impacts-and-vulnerability-2016#tab-figures-used;

https://ec.europa.eu/jrc/en/peseta-iii

148

Bugmann, H., et al. 2019. Tree mortality submodels drive simulated long‐ term forest dynamics: assessing 15

models from the stand to global scale. Ecosphere 10( 2)

147

heat and drought are increasing forest fire risks, their frequency, intensity and severity, the area at

risk and the probability of extreme wildfire events.

Efforts to improve fire management have generally been successful in the last 30 years and have

resulted in a slightly decreasing trend of burnt area in the Mediterranean

–

even though the

meteorological fire hazard has increased over the same period

149

. This trend is also captured in

the UNFCCC inventories (Figure 74). However, there is high inter-annual variability and more

European countries suffered large forest fires in 2018 than ever before; for example, Sweden

experienced the worst fire season in reporting history. The unprecedented forest fires in several

European countries in 2017 and 2018 coincided with record droughts and heatwaves.

It is imperative to adapt forests to the changing climate is thus so as to maintain the many

functions they provide. The forthcoming EU adaptation strategy and EU forest strategy will put

forward initiatives to enhance natural sink and resilience of forests to climate change, support

effective preservation and restoration of forest in the EU, reduce the vulnerability to natural

disturbances and promote the bio-economy, in full respect for ecological principles favourable to

biodiversity.

Figure 83: GHG emissions from wildfire in the EU28

MtCO2eq

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Forest

Grassland

Source: UNFCCC inventories 2020

Adaptation for a resilient natural sink

The study PESETA IV

150

has analysed the potential vulnerability of forest ecosystems to

windstorms, wildfire and insect outbreaks and assessed the possible evolution of natural

disturbances impacts in the future.

The study concluded that although windstorms are amongst the most damaging natural hazards in

Europe, climate model projections do not suggest they will become more intense or happen more

frequently with global warming over most of the European continent. By contrast, global

warming will likely increase disturbances from fires and insect outbreaks.

149

150

EEA indicator assessment of forest fires

–

Januray 2020

https://ec.europa.eu/jrc/en/peseta-iv

100

The probability of high-to-extreme wildfire danger is projected to rise as a result of changing

weather conditions. The increase in fire danger intensity and number of days with high-fire

potential amplifies with the level of warming, and would be strongest in southern European

countries, where fires already occur more often and are more intense (Figure 84).

Climate conditions play a prominent role in insect outbreaks. The last two decades have shown

that an increasing amount of forests in Europe has become vulnerable to insect outbreaks and

global warming will worsen the trend.

Figure 84: Additional number of days per year with high-to-extreme fire danger for different levels of

global warming compared to present (1981-2010).

Source: PESETA IV

Trees have some adaptive traits and capacity to buffer heat and droughts, but the rapid advance of

climate change with its various negative impacts will be a shock for many of them. Trees

individuals and entire species that cannot resist in a certain region will disappear. Many of them

will be gradually replaced by more drought-tolerant species and the forest as such will eventually

recover, but this may take several human generations and many regions will not have the same

forests as before.

Pro-active adaptive measures are therefore needed to minimise climate change impacts on forests

by making forest ecosystems more resilient to climate change and, where needed, supporting

their conversion

to more adapted forest types. Promising silvicultural ‘no-regret’ adaptation

measures depend on location and species, and may include among others the improvement of age

class forests structure, more genetically and biologically diverse stands, structure-rich forests,

managed in a continuous cover forestry regime. Mixed-species forests can be more resilient to

disturbance and still perform in terms of forest productivity and hence carbon sink.

Pro-active adapting measures are also needed for the protection of carbon rich soils other than

forests, such as peatland and wetland, as well as managed agricultural land with good level of soil

organic carbon.

101

9.5 Environmental, economic, social impacts

–

details

9.5.1

Synergies and trade-offs of bio-energy use and land management in the context of

increase climate ambition with biodiversity

The five main direct drivers of biodiversity loss identified by the Intergovernmental Science-

Policy Platform on Biodiversity and Ecosystem Services

151

are changes in land and sea use,

overexploitation of natural resources, climate change, pollution, and invasive alien species.

Climate change is a direct driver that is increasingly exacerbating the impact of other drivers,

reducing the GHG emission is essential to preserve our ecosystems and their biodiversity.

The deployment of renewable energy is at the heart of the EU climate action, including the use of

bioenergy as an alternative to fossil fuels

152

. The Renewable Energy Directive contains a set of

sustainability criteria to ensure that the production, imports and use of bioenergy in the EU and

does not harm the environment. In particular, the land criteria aims at preventing the conversion

of biodiverse and carbon-rich land for bioenergy feedstock and other requirements

address/minimise soil quality and soil carbon impacts that could be associated to the use of

agricultural and forest residues for advanced biofuel production.

Increasing the EU climate ambition for 2030 may increase demand for bioenergy. Assessing its

potential impact on biodiversity is not straightforward and depends on the type of biomass used,

for instance woody biomass from existing forests or plantations, from agriculture lands or

through increased waste recycling and cascading use.

Biodiversity loss is a complex matter

153

to model. The International Institute for Applied System

Analysis (IIASA) has developed a methodology to analyse the impact of EU energy policies on

biodiversity through the two main drivers that are land use change and overexploitation of natural

resources. This methodology relies on the PDF indicator (Potentially Disappeared Fraction of

global species) to evaluate the potential of land use and forest management practices on species

(expressed as a share of global species) compared to a situation where global ecosystems would

be in their undisturbed original state (i.e. without human intervention)

154,155

. Applied to the EU, it

estimates how much EU land use affects global species diversity compared to the undisturbed

state and expresses the impact as a percentage of global species. The PDF indicator differentiates

extensive and intensive forest management or fast growing tree plantations but does not capture

all the diversity within management practices for a given use of land. This methodology does not

provide a complete overview of biodiversity impacts since population abundance, community

composition, habitats and ecosystems extent or intactness are other important aspects not

addressed here, results should therefore be interpreted with care.

IPBES 2019

This section focuses on the assessment of the impact on biodiversity of bioenergy deployments. Other renewables

are not addressed due to the lack of information that could allow an assessment of their impact on biodiversity,

however this impact is expected to be rather limited and can be positive in some circumstances (e.g. offshore wind, can

allow for fish stock regeneration).

153

IPBES, glossary, at:

https://ipbes.net/glossary/biodiversity-loss

154

Chaudhary et al. 2015. Quantifying land use impacts on biodiversity: combining species−area models and

vulnerability indicators. Environ. Sci. Technol. 2015, 49 (16), 9987−9995.

155

The PDG indicator builds on the responses of species to different land uses and intensities of forest management for

four vertebrate taxa (mammals, birds, amphibians, and reptiles) and for vascular plants and includes 804 ecoregions. It

follows a methodology recommended by the joint Life Cycle Initiative under the United Nations Environment

Programme (UNEP) and the Society of Environmental Toxicology and Chemistry (SETAC).

152

151

102

The PDF value of a hypothetical undisturbed EU state is 0, i.e. the EU land use would not have

driven any extinction of global species. The PDF of EU land use in 2010 instead is estimated to

be equivalent to 0.64% of global species, meaning that the way EU land was managed in 2010

has potentially reduced species in the EU in a manner that would have reduced global species

totals by 0.64% compared to a state without human-induced disturbances. This is driven by the

combined effect of land use practices that have affected the bulk of EU land in a predominant

temperate zone, which is on a global scale relatively less dense in species than for instance the

tropics. The largest impact is from cropland with a PDF associated five time greater than for

pasture land, while covering an area that is only the double of the pasture land area relatively

richer in species diversity.

The global extinction of vertebrates (amphibians, birds, mammals and reptiles) due to global land

use change has been estimated at 11.1% in the year 2000 compared to pristine land conditions

156

A PDF of 0.64% indicates that the EU land use would be responsible of approximately 6% of the

species losses happening at global level (both methodology cover similar taxa).

This indicator thus allows comparing the relative impact of various scenarios affecting land use

in the EU (expressed as impact on global species loss). Figure 85 shows the changes in land use

compared to 2010 in the baseline and in a policy scenario (MIX). The trajectories are very similar

until 2030 but diverge significantly afterwards when more bioenergy is required to reach net zero

emissions by 2050.

Figure 85: Changes in land use in the baseline scenario (dashed line) and in the mitigation scenario (solid

line)

Mha

2010

-5

-10

2020

2030

2040

2050

-15

-20

Forest

Energy Crops

Cropland

Pasture

Other Natural Lands

Source: GLOBIOM model

Forest areas increase by approximately 2 Mha between 2020 and 2030 and keep increasing at the

same pace post 2030. This is an afforestation or reforestation rate in line with the roadmap

announced in the EU Biodiversity Strategy to plant at least 3 billion additional trees in the EU by

2030. The forest will have to expand through sustainable forest management practices to not

cause unfavourable and bad conservation status of forest habitats and species under the EU

156

Newbold et al. 2018. Future effects of climate and land-use change on terrestrial vertebrate community diversity

under different scenarios.

https://doi.org/10.1098/rspb.2018.0792

103

Habitats Directive

157

. Replacing old-growth and diversified forests by fast growing monocultures

like eucalyptus plantations would affect biodiversity, carbon retention in soil and risks of forest

fires.

What is most striking is the increase in production of energy crops on agriculture land for

sustainable advanced biofuels and other type of bioenergy after 2030. The land required to

produce this feedstock is taken from cropland previously dedicated to the production of

conventional biofuel and from other natural land. The other natural land category includes for

instance non-productive grassland, agriculture land set aside, fallowed or abandoned and other

type of vegetation not classified in other categories. This land category may represent

biodiversity- and carbon-rich ecosystems, they are therefore considered as pristine ecosystems in

the modelling to specifically account for the potential negative impact of the conversion to

energy crops

158

This PDF indicator varies over time in baseline, though marginally. Impact are more significant

in the policy scenario relying on a significant amount of biomass feedstock for energy. The

overall impact of EU land use remains relatively stable towards 2050 (Figure 86) but the relative

impact of the land use categories changes substantially. This stability is the result of the

combined effects triggered by the production of bioenergy feedstock in the mitigation scenario:



the PDF for managed forests increases in the mitigation scenario due to net afforestation

expanding the area of managed forests and a limited intensification of the forest

management, with intensive management of forests increasing by 11% between 2010 and

2050 in the baseline and by 13% in the mitigation scenario;

the PDF of energy crops increases. Where it replaces other natural land it leads to a

deterioration of the overall PDF but where it replaces cropland it actually improves the

overall PDF because energy crops are permanent crops with a lesser impact on

biodiversity than the annual crops they replace, such as rapeseed used for the current

production of biodiesel.



Figure 86: Potentially Disappeared Fraction of global species (PDF) indicator

0,7

0,6

PDF indicator

0,5

0,4

0,3

0,2

0,1

0,0

2010

BSL

2030

MIX

BSL

2050

MIX

Cropland

Managed Forests Intensive

Energy Crops

Managed Forests Extensive

Pasture

Source: IIASA

EEA, 2015, State of nature in the EU, EEA Technical Report No 2/2015, European Environment Agency.

In this exercise the category 'other natural land’ was assumed

to have a similar PDF as undisturbed land, i.e. 0 to

recognise it is typically more species diverse.

158

157

104

Combined these impacts result in a relatively stable PDF over time, even in case of increased

biomass production in the EU for energy purposes. But impact on biodiversity could be larger.

The expansion of energy crops over other natural land only without a substantial share of annual

existing cropland substitution or a further intensification of forest management would have a

larger overall impact.

These are two key variables that condition the sustainability of the bioenergy production in

Europe. Furthermore, impacts could also be larger if biomass is not produced in the EU but

imported from regions with land use practices more harmful for the biodiversity than in the

159

Finally, a potential large scale deployment of energy crops should not increase the risk for an

alien species to become invasive and cause damages to native ecosystems. The EU should

produce its bioenergy feedstocks in accordance with the objective of the EU Biodiversity

Strategy for 2030 to reduce by 50% the number of Red List species threatened by invasive alien

species. Appropriate species selection and land use planning is required to minimise the risk and

possibly provide environmental benefits such as water filtration, ecosystem niches for insects and

wild animals, protection against strong wind or soil carbon increase.

9.5.2

9.5.2.1

Energy system

–

economic impacts

Energy system costs

Energy system costs for the entire energy system include capital costs (for energy installations

such as power plants and energy infrastructure, energy using equipment, appliances and energy

related costs of transport), energy purchase costs (fuels + electricity + steam) and direct

efficiency investment costs, the latter being also expenditures of capital nature. Capital costs

(also for the equipment that is scrapped prematurely, i.e. reflecting the costs of stranded assets)

are expressed in annuity payments, calculated on the basis of sector-specific discount rates. For

transport, only the additional capital costs for energy purposes (additional capital costs for

improving energy efficiency or for using alternative fuels) are covered, but not other costs

including the significant transport related infrastructure costs e.g. related to rail to accommodate

the increased rail capacity. Direct efficiency investment costs include additional costs for house

insulation, double/triple glazing, control systems, energy management and for efficiency

enhancing changes in production processes not accounted for under energy capital and

fuel/electricity purchase costs. Unless specified, energy system cost do not include any disutility

costs associated with changed behaviour, nor the cost related to auctioning of allowances which

lead to corresponding revenues which can be recycled. Energy system costs are calculated ex

post after the model is solved

160

159

The PDF indicator used for this assessment focuses on land use management and land use changes in the EU. It

does not reflect the potential impact on biodiversity of indirect land use changes (ILUC) that could happen in other

regions of the world in case of a non-sustainable production or consumption of bioenergy. The Renewable Energy

Directive sets limits on high ILUC-risk biofuels, bioliquids and biomass fuels with a significant expansion in land with

high carbon stock and that could also impact biodiversity.

160

The calculated cost is influenced by the discount rate used. The discount rate of 10% is used to reflect in the

perspective of the private investor faced with real world investment constraints. It is also applied ex-post to calculate

system costs. The value of 10% is kept constant between modelling scenarios, including BSL to ensure comparability

with of scenarios. For planning investments, the model uses slightly different discount rates that are representative of

105

Table 45 gives a detailed overview of how this translates in energy system costs per sector, split

between capital costs and energy purchases.

Table 45: Sectoral disaggregation of Energy System Costs

Energy System Costs per Sector

in bn €' 5 average annual

(excl. carbon pricing payments and disutility costs)

Industry

Residential

Tertiary

Transport

Total

Capital Costs and Direct Efficiency

Investment Costs

Industry

Residential

Tertiary

Transport

Total in demand side

Energy purchases

(excluding carbon pricing payments)

Industry

Residential

Tertiary

Transport

Total

BSL

MIX-50

REG

MIX

MIX-

nonCO2*

223

572

279

547

1,621

MIX-

nonCO2*

276

111

501

MIX-

nonCO2*

194

296

193

436

1,120

CPRICE

ALLBNK

220

551

276

545

1,593

BSL

251

108

467

BSL

194

299

195

438

1,126

224

563

278

547

1,612

MIX-50

263

110

486

MIX-50

196

299

193

437

1,125

224

581

281

569

1,654

REG

289

110

515

REG

196

292

193

459

1,139

224

574

281

547

1,626

MIX

276

111

501

MIX

196

298

195

437

1,125

222

571

281

546

1,620

CPRICE

266

110

490

CPRICE

193

306

196

435

1,130

221

581

283

547

1,633

ALLBNK

277

111

505

ALLBNK

192

304

196

436

1,128

Source: PRIMES model

Sectoral system costs are most contrasted across scenarios in the residential sector. In terms of

capital costs, REG is the more expensive than CPRICE due to the specific investments it requires

for renovations (see section 6.4.1.3), while MIX is in-between. Conversely, energy purchases in

REG are the lowest for residential and services, in line with lower energy demand, while for

these two sectors CPRICE has the highest energy purchases costs. Similarly, for transport, REG

is much more expensive for energy purchases due to the more ambitious fuel policies with MIX

in the middle.

Energy purchase costs are driven in part by electricity prices that tend to rise over the modelling

horizon. Figure 87 shows the average price of electricity for final consumers is not significantly

differentiated across policy scenarios for each project period, which means that the reduction in

energy purchase expenditure is mainly due to reduced energy consumption.

investors’ hurdle rates in the sector. For a detailed explanation we can refer to the 2016 reference projection that

included a full annex dedicated to this methodology.

https://ec.europa.eu/energy/data-analysis/energy-modelling/eu-reference-scenario-2016_en)

106

Figure 87: Average price of electricity

Source: PRIMES model

Importantly, energy system modelling captures well the energy system costs but the costs

associated with the transition are much broader and the challenge to address them much bigger.

Rapid structural change will lead to the devaluation of equipment and other assets of several

industries notably in fossil fuels extraction and processing. It will also force consumers to replace

durable consumer goods and renovate houses more quickly. Workers with sector specific

knowledge might lose part of their investment in training and education. These phenomenon will

have to be addressed by active labour market policies with greater demand on public

expenditures.

9.5.2.2

Investment challenge across the sectors

While section 6.4.1.3 discusses the overall investment challenge linked to higher climate

ambition and different policy set-up this annex looks at investments needs of specific sectors.

In all policy scenarios, supply side investments would represent almost 30% of total energy

system investment (excl. transport) at some EUR 105-125 billion annually in 2021-2030, with a

nearly equal repartition between grid investments and capacity investments (mainly in power

generation)

161

. Increases in power generation and the grid would both be necessary. However, a

sharper increase in generation relative to BSL would be needed (in 55% GHG policy scenarios,

there is some 30% increase for generation compared with around 15% for the grid) in order to

achieve a renewables share of over 60% in electricity production by 2030, which is a feature of

all 55% GHG policy scenarios. Across scenarios, REG (and even more so MIX-nonCO2 variant)

would be slightly less investment-intensive than MIX, CPRICE or ALLBNK in terms of supply

side investment, though (in case of REG) the difference is small and counter-balanced by a

significantly higher investment intensity on the demand side.

Supply-side investments would be expected to increase less, relative to BSL, than demand-side

investments (excl. transport) as the bulk of energy system investments needs to take place in

demand sectors (some 70% of total energy system investment for all the policy scenarios). While

supply side investments vary little across scenarios, REG requires a significantly higher level of

161

Capacity investments cover power generation installations and electrolysers for hydrogen production. In the former

category there are also fossil fuels capacities that will be scrapped prematurely (i.e. stranded assets).

107

investment than CPRICE, MIX and ALLBNK on the demand side, in particular for the

residential and tertiary sectors. Average annual energy system investment needs on the demand

side amount to EUR 319 billion in 2021-2030 under REG, compared to EUR 282 billion and

EUR 241 billion under CPRICE and BSL, respectively.

Under the 55% GHG policy scenarios, the bulk of the increase is expected to be required in the

residential sector to improve thermal integrity of buildings and to reduce share of fossil fuels in

heating, with substantial additional investment also in the tertiary sector for similar purposes. The

REG scenario requires a level of energy system investment in the residential sector of

EUR 213 billion annually in 2021-2030. This is 23% (EUR 40 billion) higher than under

CPRICE and 41% (EUR 61 billion) higher than in BSL. This reflects the high reliance of the

REG on renovations as an abatement option. The REG scenario also points to higher energy

system investment levels in the tertiary sector than the CPRICE scenario, though the difference is

significantly less pronounced.

It should be noted that CPRICE and MIX generate very similar levels and patterns of energy

system investment, though with a more noticeable difference in the residential sector. This

implies that in the modelling results, the extension of carbon pricing to new sectors is susceptible

of altering investment behaviour also at the lower levels of the MIX scenario - if combined with

regulatory measures. In general, modelling illustrates that carbon prices are an effective market-

based instrument to foster the deployment of least-cost mitigation options.

In MIX-50, the additional investment needs are smaller than under more ambitious scenarios but

the pattern is very similar. The additional effort would remain skewed towards the demand side,

dominated by residential investment with an extra EUR 15 billion per annum. Additional supply

side investment needs would be of smaller magnitude, with EUR 6 billion of incremental needs

per annum in power generation and EUR 2 billion in grids - compared to BSL.

Figure 88 and Table 46 show the investments needs projections across all energy system sectors,

for all scenarios.

Figure 88: Average annual energy system investment on the supply (patterned bars) and demand sides (full

bars), baseline, 55% scenarios and MIX-50, 2021-2030, 2031-2050 and 2021-2050 (billion euros 2015)

500

450

400

350

300

250

200

150

100

Billion EUR 2015

MIX

MIX-50

MIX

ALLBNK

MIX nonCO2

2021-2030

2031-2050

2021-2050

Source: PRIMES model

108

MIX nonCO2

ALLBNK

MIX-50

CPRICE

BSL

REG

BSL

REG

Table 46: Average annual investment for BSL, all policy scenarios and MIX-nonCO2 variant (2011-2015, 2016-2020, 2021-2030 and 2031-2050, billion euros 2015)

BSL

EU27

Investments in power grid

Investments in power plants

Investments in boilers

Investments in new fuels

production and distribution

Total supply side investments

Industrial sector investments

Residential sector investments

Tertiary sector investments

Transport sector investments

Total demand side investments

excl. transport

Total energy system investments

excl. transport

Memorandum:

Real GDP

MIX-50

REG

MIX

MIX-nonCO2

variant

CPRICE

ALLBNK

Average Average Average Average Average Average Average Average Average

Averag

2011-

2021-

2031-

2021-

2031-

2021-

2031-

2021-

2031-

e 2021-

2020

2030

2050

2030

2050

2030

2050

2030

2050

2030

24.0

30.9

1.8

56.7

9.0

83.7

41.7

492.2

626.6

134.4

683.3

191.1

50.5

42.1

2.0

0.2

94.7

16.9

151.2

73.2

610.5

851.8

241.3

946.5

336.0

50.7

26.4

2.0

0.6

79.7

10.0

137.2

56.9

697.0

901.1

204.1

980.8

283.8

52.7

48.1

3.4

1.0

105.2

19.4

166.6

83.4

620.8

890.1

269.3

995.3

374.5

84.1

94.4

1.6

27.7

207.7

14.7

156.7

81.4

726.4

979.3

252.9

1187.0

460.6

57.4

55.7

3.9

1.7

118.7

19.4

212.6

87.3

622.8

942.1

319.3

1060.8

438.0

83.0

85.4

1.2

24.7

194.2

16.0

192.3

77.4

735.8

1021.6

285.8

1215.8

480.0

58.2

56.5

3.8

1.4

119.9

20.3

190.0

87.7

621.8

919.8

298.0

1039.7

417.8

80.9

88.5

1.3

26.6

197.3

14.4

174.4

80.7

728.2

997.7

269.5

1195.0

466.8

57.0

54.0

3.6

1.4

115.9

20.2

189.3

87.3

622.1

918.8

296.8

1034.8

412.7

Averag

Average Average Average Average

e 2031-

2021-

2031-

2021-

2031-

2050

2030

2050

2030

2050

81.8

89.7

1.2

26.3

199.1

14.4

174.8

81.1

728.4

998.6

270.2

1197.7

469.3

58.3

55.5

4.1

1.3

119.2

20.5

172.4

89.3

608.0

890.2

282.2

1009.4

401.4

82.4

92.0

1.6

28.3

204.3

13.4

153.7

85.0

730.3

982.4

252.1

1186.7

456.4

60.1

59.6

4.6

2.2

126.4

21.9

193.1

92.9

620.3

928.2

307.9

1054.7

434.3

80.3

85.4

1.4

25.9

193.0

14.8

176.1

86.0

726.0

1003.0

277.0

1196.0

470.0

12848.1 14839.7 17851.4 14839.7 17851.4 14839.7 17851.4 14839.7 17851.4 14839.7 17851.4 14839.7 17851.4 14839.7 17851.4

Source: PRIMES model

109

9.5.3

Macro-economic impacts (GDP, employment, competitiveness)

The economic literature identifies a number of “megatrends” susceptible to generate major

implications on macro-economic aggregates over the next decades

162

. The climate and energy

transition is one such megatrend, which also include automation, artificial intelligence,

globalisation, demographic changes/ageing of populations, or resource scarcity.

The macro-economic impacts of the 50% and 55% levels of ambition for 2030 and associated

policies are assessed in isolation from these other trends. The baseline of likely long-term

developments is based upon short-, medium- and long-term real GDP projections from the

Directorate General Economic and Financial Affairs (DG ECFIN). Short-term projections (up to

2021) are from DG ECFIN’s autumn 2019 economic forecast. Medium-term

projections (up to

2024) are based on an estimate of potential output growth and a rule to close any gap in potential

output that may exist in 2021 within three years. Long-term projections (from 2025) are based on

potential output growth, i.e. based on a growth accounting methodology that uses the population

projections from Eurostat and builds upon assumptions regarding trends in the labour force and

the growth of total factor productivity, which is assumed to converge across Member States in the

long run. Projections are made subsequently regarding sectoral trends to define a macro-

economic baseline down to the level of sectoral value added, using a computable general

equilibrium model for the decomposition. Consistency between the macro-economic baseline and

the energy system baseline is ensured.

Three modelling tools sharing this common baseline are used to assess the macro-economic

impacts of the increased level of climate ambition for 2030: (1) JRC-GEM-E3, a computable

general equilibrium model; (2)

Cambridge Econometrics’ E3ME, a macro-econometric

model;

and (3)

DG ECFIN’s E-QUEST,

a New-Keynesian dynamic stochastic general equilibrium

model that has recently been enriched with a representation of the energy system.

In order to ensure consistency between the macro-economic modelling and the energy-system

modelling regarding the type and scale of decarbonisation technologies, some results from the

PRIMES model and POLES-JRC model are imposed on the macro-economic models as

exogenous assumptions for the EU and the rest of the world. The PRIMES MIX scenario is used

as the “central scenario” for this purpose at the EU level.

This section provides additional details on a number of matters discussed in section 6.4.2.

In terms of investment, JRC-GEM-E3 points to a positive impact of almost 1% by 2030 under the

55% fragmented action setups. The impact on investment is lower under the global action setups

because of a more significant drop in overall GDP. In both cases, there is a significant

reallocation in expenditure away from private consumption and towards investment. E3ME also

indicates a positive impact on investment but, in contrast to JRC-GEM-E3, the increase does not

come at the expense of a reduction in private consumption. This reflects the fundamental

difference in the economic assumptions underpinning the two models, with JRC-GEM-E3

assuming that the economy is at an equilibrium without spare capacity while E3ME assumes that

economy has some unused resources to begin with and that debt-finance can fund additional

investment without full crowding out. The aggregate positive impact on GDP under E3ME means

162

https://ec.europa.eu/knowledge4policy/foresight_en

110

that higher investment occurs alongside private consumption, and leading to overall increased

growth.

E-QUEST projects a positive impact on investment of 0.62% relative to the baseline under a 55%

level of ambition if revenues from carbon pricing are used to support green investment. Where

such revenues are transferred back to households, the impact on total investment is somewhat

negative (-0.55%), also because the impact on GDP is negative. As far as consumption is

concerned, E-QUEST points to a small positive impact relative to baseline when carbon revenues

are used either to support green investment or to reduce labour taxation on lower-skilled workers,

while lump-sum transfers generates a small negative impact as it is a generally less favourable

policy setting in terms of overall GDP effect.

As stressed in section 6.4.2, it is projected that the sectoral composition of investment will be

significantly affected by higher climate ambition. As expected, investment in fossil fuels would

drop sharply, even though the case of gas differs from other fossil fuels given its role as a

transition fuel.

Table 47: Impacts of 50% and 55% reduction on EU sectoral investment (deviation from baseline, percent)

Investment vs. baseline, 2030 (range of impacts due to increased EU GHG ambition across scenarios

with diversified policy setups).

50%

55%

Fragmented

Global action

Fragmented

Global action

action

Coal

-12.8 | -11.3

-10.8 | -9.6

-25.3 | -24.2

-24.1 | -23.0

Crude Oil

-9.0 | -4.4

-12.6 | -10.0

-9.9 | -4.9

-13.6 | -10.7

Oil

-4.7 | -3.2

-6.5 | -4.7

-5.3 | -3.6

-7.3 | -5.2

Gas

-2.8 | -0.1

3.1 | 4.8

12.2 | 15.9

19.2 | 21.5

Electricity supply

1.0 | 1.4

4.5 | 5.2

3.1 | 3.5

6.3 | 7.1

Ferrous metals

-3.8 | 0.1

3.1 | 7.6

-4.6 | -0.3

1.9 | 7.0

Non-ferrous metals

-1.5 | 0.3

4.3 | 6.7

-2.4 | -0.5

3.2 | 5.7

Chemical products

-0.6 | 0.0

1.1 | 1.7

-0.7 | -0.2

0.9 | 1.4

Paper products

-0.2 | -0.1

0.5 | 0.6

-0.5 | -0.3

0.2 | 0.3

Non-metallic minerals

-1.4 | 0.4

1.7 | 3.7

-1.9 | 0.1

1.0 | 3.3

Electric goods

0.5 | 1.1

3.4 | 4.2

-0.1 | 0.6

2.8 | 3.6

Transport (air)

-4.4 | 0.2

-4.4 | 1.3

-5.0 | 0.2

-5.3 | 1.3

Transport (land)

-0.2 | -0.1

-0.1 | 0.1

-0.4 | -0.3

-0.3 | -0.2

Transport (water)

-0.4 | -0.1

-3.5 | -3.0

-0.4 | -0.2

-3.6 | -3.2

Transport equipment

-0.2 | 0.2

1.0 | 1.5

-0.3 | 0.1

0.7 | 1.3

Construction

0.6 | 0.7

0.6 | 0.8

0.2 | 0.4

0.1 | 0.3

Market services

-0.2 | -0.1

-1.0 | -0.9

-0.3 | -0.2

-1.1 | -1.0

Source: JRC-GEM-E3 model

Section 6.4.2 highlighted the impact of higher climate ambition on relative prices in the economy

and indicated the fact that scope extension (MIX and CPRICE scenarios as compared to REG)

could have sizeable effects on the relative prices of fuels and powers for consumers. It also

stressed the impact that the REG scenario, with a higher reliance on regulations and standards,

could have on the relative price of housing. Using the MIX scenario as the central set up, it is

also evident from Table 48 that relative prices will be affected more under global action than

under fragmented action and more under a 55% level of ambition than under a 50% level of

111

ambition. This therefore implies contrasted impacts on households, as discussed in section Impact

on households.

Table 48: Impacts of 50% and 55% reduction on EU consumer prices (deviation from baseline, percent)

Consumer prices vs. baseline, 2030 (range of impacts due to increased EU GHG ambition across

scenarios with diversified policy setups).

50%

55%

Fragmented

Global action

Fragmented

Global action

action

Food beverages and

0.0 | 0.1

1.4 | 1.7

0.1 | 0.2

1.5 | 1.8

tobacco

Housing

and

water

0.2 | 0.4

1.5 | 1.8

1.6 | 1.9

2.9 | 3.2

charges

Fuels and power

3.2 | 4.3

5.9 | 7.3

3.4 | 4.6

6.5 | 8.2

Household

equipment

0.0 | 0.1

1.5 | 1.7

0.0 | 0.1

1.5 | 1.7

and

operation

excl.

heating and cooking

Heating and cooking

0.0 | 0.1

1.6 | 1.7

0.0 | 0.1

1.6 | 1.8

appliances

Purchase of vehicles

0.5 | 0.6

2.1 | 2.2

0.6 | 0.7

2.1 | 2.3

Operation of personal

1.4 | 2.0

3.6 | 4.4

1.4 | 2.2

3.8 | 4.8

transport equipment

Transport services

1.0 | 1.6

3.0 | 3.7

1.1 | 1.7

3.2 | 4.0

Miscellaneous goods and

-0.1 | 0.1

1.2 | 1.5

-0.1 | 0.1

1.2 | 1.5

services

Source: JRC-GEM-E3 model

Section 6.4.2 stresses the importance of the international context in terms of the impacts on EU

industry, including energy-intensive industries, and that industry could benefit from a first-mover

advantage. It also highlights that the importance of domestic factors and policies, in particular the

free allocation of ETS allowances and the use of carbon revenues. While world output under

JRC-GEM-E3 is negatively affected by an increase in global action, thereby reducing the size of

the export market, the increase in competitiveness outweighs that effect to result in higher export

market shares for energy intensive industries under the global action scenarios than under the

fragmented action scenarios, with the former exceeding baseline levels for some model setups.

Ferrous metals is most sensitive on account of its energy intensity and the high openness to trade.

The various model setups in JRC-GEM-E3 were used to assess three key issues: (1) the

behaviour of firms with respect to the value of free ETS allowances; (2) the effectiveness of free

ETS allowances in protecting EU-based companies; and (3) the use of carbon revenue by the

authorities.

Industrial firms exposed to international competition frequently indicate that they cannot include

the opportunity cost of free ETS allowances in their price setting behaviour, which thus implies

that they maximise volumes (market shares) rather than profit. Under such a market share

maximisation behaviour, the negative impact of the 55% fragmented scenario on gross value

added is indeed lower than under profit maximisation. The impact amounts to about 1 percentage

point (p.p.) for ferrous metals and is more limited for other sectors (Table 49).

The same market share maximisation setup (at 55% ambition and under fragmented action) also

indicates that free allocations can be effective in shielding energy intensive industries from losses

112

of competitiveness, at least according to these macro-economic modelling tools that take into

account historic trade statistics to assess their elasticities. The loss of output relative to baseline in

ferrous metals and non-metallic minerals is about 3 p.p. and 2 p.p. lower by 2030, respectively,

under free allocations than under full auctioning. Similarly, the use of carbon revenues to lower

labour taxation (when also factoring labour market imperfections in the model) generates a

positive effect on the output of energy intensive industries because the tax shift reduces

distortions in the economy. The net impact on gross value added in energy intensive industries by

2030 under such tax-shift policies is therefore significantly reduced.

Finally, the model was extended to apply carbon pricing across the economy. Under such a setup,

the significantly higher level of carbon revenue enables a bigger shift away from labour taxation,

which further reduces distortions and reduce labour costs. This largely mitigates the negative

impact on gross value added in 2030 of fragmented action in the EU at a 55% level of ambition.

Table 49: Impact of policies and company behaviour on output in ETS sectors (55% fragmented action,

deviation from baseline)

Output vs. baseline, 2030

Profit

maximisation

Market share maximisation

Imperfect labour

markets

Tax recycling to lower

labour tax

Free allocation

Yes

Perfect labour markets

Lump sum transfers to consumers

EII sectors (power sector

always auctioning)

Carbon pricing non-ETS

Ferrous metals

Non-ferrous metals

Chemical products

Non-metallic minerals

Free allocation

Auctioning

-1.3

-1.6

-0.6

-0.9

-1.4

-0.4

-0.3

-4.0

-2.7

-0.9

-2.1

-0.6

-1.0

-0.3

-0.1

-0.6

-0.8

-0.3

-0.1

Source: JRC-GEM-E3 model

The assessment of impacts on skills needs due employment shifts across sectors in section 6.5.1

builds on a linking results from the JRC-GEM-E3 model and the Skills Forecast 2020 of the

European Centre for the Development of Vocational Training

163

(CEDEFOP). The 66 sectors for

which CEDEFOP makes projections on occupation and skills are mapped to the more limited

number of sectors represented in JRC-GEM-E3, leaving a total of 20 sectors represented. It is

then possible to assess the impact of climate and energy policy on occupations and skills

requirements in the economy. Such a method enables to measure the impact of changes in

employment patterns across sectors, but it does not capture impacts related to changes in skills

and occupations needs due to climate and energy policy within a given sector and thus results

should be treated with care, likely not showing the full dynamics related to the transition to a

decarbonised economy.

From the PRIMES modelling results, it can be clearly seen that across all policy scenarios

households spend a slightly higher share of their income on energy related equipment

163

The CEDEFOP Skills Forecast provides comprehensive information on future labour market trends in Europe. It

forecast trends in skill supply and demand for Europe every two years, with a dataset that includes projections on

occupational and skill breakdowns (41 occupations and 3 skill levels) for 66 sectors out to 2030. The forecast acts as an

early warning mechanism to help alleviating potential labour market imbalances.

113

expenditures and renovations and (with exception of CPRICE and ALLBNK) a smaller share on

energy purchase expenditure compared to BSL. The strong emphasis on energy efficiency

policies in REG increases the spending on energy related equipment in 2030 compared to BSL by

about 45 € and in investments in house insulation by about 218 €, partly balanced by almost 76 €

reduced energy purchase expenditure.

Table 50: Energy Related Expenditure per Household (excluding transport) (€'15/household)

2015

Energy related expenditure

per household (excl

transport in €' 5

- energy equipment

- energy purchases

- direct efficiency

investments (renovations)

Share of energy purchase

expenditure in energy

expenditure

Energy related expenditure

(excl transport) as % of

household income

BSL

MIX-50

REG

MIX

MIX-

nonCO2

variant

3229

1201

1525

504

47%

CPRICE

ALLBNK

2575

725

1773

69%

3099

1168

1557

374

50%

3168

1209

1556

403

49%

3286

1213

1481

592

45%

3261

1202

1549

510

47%

3256

1240

1616

399

50%

3308

1214

1583

511

48%

7.0%

7.2%

7.5%

7.6%

7.7%

7.6%

7.8%

7.9%

Source: PRIMES model

These changes in relative costs affect households in contrasted manners that depend on their

expenditure structure, level and sources of incomes, wealth and the very composition of the

household. Given that macro-economic models typically represent one or a limited number of

representative households, detailed distributional impacts need to be assessed with the support of

micro-level data.

The JRC-GEM-E3 model includes a single representative household and as such cannot be used

directly to assess distributional impact. For the assessment of distributional impacts on

households in section 6.5.2, the JRC therefore linked its JRC-GEM-E3 model with the household

budget survey (HBS) of 2010, which contains detailed data on consumption expenditure.

Applying the estimated changes in the relative prices of 14 consumption categories

164

resulting

from higher climate ambition onto the micro-level data of the HBS therefore enables to assess

distributional impacts at a high level of disaggregation. Such an approach has a number of

limitations though. First, the application of changes in relative prices to the micro-data is an

“accounting” exercise in that there is no behavioural modelling involved at the micro level. This

implies that the analysis does not account for differences in behavioural responses across

households with varying socio-economic characteristics. The structure of household expenditure

is static by assumption and cannot adapt to the changes in relative prices. Second, the latest HBS

dates back to 2010, and data for Austria and the Netherlands is lacking, while data for Italy is

incomplete. The aggregate is nevertheless still representative of the EU population, and the

164

Food beverages and tobacco; clothing and footwear; housing and water charges; fuels and power; household

equipment and operation (excluding heating and cooking appliances); heating and cooking appliances; medical care

and health; purchase of vehicles; operation of personal transport equipment; transport services; communication;

recreational services; miscellaneous goods and services; and education.

114

analysis complements the results on distributional effects that occur via the labour market

(section 6.5.1), and concentrates here on the expenditure side only.

In terms of expenditure on energy-related goods, the HBS indicate that households spend a

decreasing share of their income (or consumption basket) on electricity as one moves from the

bottom to the top deciles. This is also broadly the case for oil, gas, solid fossil fuels and heat, but

an opposite trend (i.e. a rising share of income spent moving from lower to top deciles) is

observed for transport fuels, maintenance or air transport.

Figure 89: Expenditures for energy-related products by income decile in the EU*

Mean EU budget share (%)

cp0451

cp0452

cp0453

cp0454

cp0455

cp0722 cp0723 cp0724

Income decile

Heat Accessories Fuels Maintenance Other

cp0721

cp0731

cp0732

cp0733

cp0734

1st decile

2nd decile

3rd decile

4th decile

5th decile

6th decile

7th decile

8th decile

9th decile

10th decile

cp0735

cp0736

Electricity

Gas

Oil

Solids

Railway

Road

Air

Navigation Combi

Other

Mean EU budget share (%)

cp0451

cp0452

cp0453

cp0454

cp0455

cp0721

cp0722 cp0723 cp0724

Expenditure decile

cp0731

cp0732

cp0733

cp0734

cp0735

cp0736

Note: * Categories 45X represent residential energy use; categories 72X represent operation of personal

transport; categories 73X represent transport services

Source: JRC calculations based on HBS

A common measure of impact on household is the compensating variation, defined at the

monetary transfer that a household would need to receive in order to maintain the same level of

utility as under the previous set of relative prices. Abstracting from substitution effects, this can

be simplified to the monetary transfer necessary to keep the expenditure pattern unchanged. In

turn, households can be grouped in deciles either based on their level of expenditure or on their

level of income. Both benchmarks are useful as expenditure data in the HBS are more robust than

income data and are arguably a better proxy for lifetime consumption. In turn, income is more

commonly used and reflects the fact that higher-income households spend only part of their

budget on consumption. The monetary transfer can thus be expressed as a percentage of total

expenditure or consumption, or relative welfare losses.

Section 6.5.2 shows the distributional impact on households before and after transfer of carbon

revenues based on expenditure deciles. Similar results and conclusions can be drawn when

assessing distributional impacts based on income deciles (using the same methodology as the one

used for expenditure deciles), as shown in Figure 90.

115

Figure 90: Changes in relative welfare by income decile due to changes in relative prices (fragmented

action REG, MIX and CPRICE scenarios with 55% level of ambition)

Welfare impacts are measured in a static manner, assuming

the same broad consumption patterns as in 2010.

Welfare impact, % of income

-1

-2

-3

-4

-5

Before

transfer

REG

MIX

After

transfer

CPRICE

Source: JRC-GEM-E3 model

116

9.6 Future energy policy framework (including transport aspects)

While chapter 6.6 looks at the impacts of policy scenarios and derives on this basis conclusions

on future policy framework, this annex complements this assessment with indication of future

policy tools that could correspond to assumptions made in policy scenarios.

Importantly, the translation of the policy framework options into scenarios is stylised, as not all

policies described below can be or are sufficiently well developed to be represented in the energy

system model used for this exercise.

This exercise is without prejudging the IA for the revision of the EED that is scheduled for 2021.

Beyond the insights from modelling, it is important to assess the type of instruments that could be

used to achieve the overall objectives. Both for renewables and energy efficiency, the bulk of the

measures are designed and implemented at national level (with exception of eco-design standards

and labelling, CO

standards for vehicles and renewable fuel obligations) in line with the

subsidiarity principle. This enables better consistency with national circumstances and more

flexibility but it is also more difficult to monitor and can lead to different implementation across

MS and thus risk of cost inefficiencies at the EU scale

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It is not the purpose of this impact assessment to identify all specific EU measures for boosting

energy efficiency or renewables deployment in the context of an increased climate ambition.

These will be assessed in-depth in dedicated impact assessments accompanying the legislative

proposals in 2021. However, this analysis on policy architecture aims to identify possible level of

efforts in sectors where action is needed most, types of instruments that should be deployed to

meet the challenges identified and interactions between different policies. The current situation

indicates that the building sector, where the level and depth of renovations is well below what is

needed, would be an area where additional efforts and supportive measures should be aimed at.

While regulatory measures of the existing legal framework would need to be reinforced, the

financing and enabling conditions would be critical, especially for higher energy efficiency

ambition.

9.6.1

Energy efficiency policy framework

The current 2030 framework for energy efficiency

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introduces powers to the Commission to

verify Member States progress and envisages EU action in case of insufficient ambition and

progress, while still giving Member State a lot of freedom where to place their energy efficiency

efforts. The higher GHG ambition, however, will require an increased ambition of the energy-

efficiency framework both at EU and national level. At EU level, such increased ambition would

require more targeted EU measures in specific areas, in particular in the buildings and transport

sector, given that the efforts proposed so far by Member States seem to fall short of the ambition

of the EU target, as exemplified by the collective ambition gap of the NECPs energy efficiency

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The Governance Regulation, however, requires that the Commission proposes EU level measures in case of the

insufficient ambition or progress of Member States towards the 2030 EU targets in order to ensure that these targets

could be met.

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The energy efficiency framework has been adjusted, with the 2018 review of the EED and EPBD and the adoption

of the Governance regulation. For the period up to 2020 Member States had substantial autonomy in the way they set

their level of ambition and proposing measures to reach it.

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contributions. Still, it is important to keep in mind that the main barriers to energy efficiency are

linked to proper project implementation and financing, so the regulatory changes would need to

be coupled with better enabling conditions. These could cover various aspects, such as removing

barriers to the full functioning of

energy performance contracting, overcoming ‘split incentives’

barriers, scaling up one stop shops, ensuring that state aid rules support energy efficiency

solutions, developing necessary skills for buildings modernisation, enabling access to available

funds, raising awareness about the multiple, non-energy benefits of energy efficiency or

increasing data availability on products and system performance.

The level of granularity offered by the modelling tools used in this impact assessment to illustrate

Options EE_2 and EE_3 offers both insights on regulatory measures and on ones based on

economic incentives to energy end-users, with soft measures being the hardest to assess.

However, since such instruments often work in parallel, it is difficult to disentangle the effects of

one specific instrument. In that respect, MIX and REG approximate the stimuli and additional

rules and measures under the EU law needed for a higher GHG ambition, clearly showing that

the current set of EU energy efficiency policies (combining measures under EED, EPBD, and

Ecodesign/Energy Labelling) would not be sufficient. The policies and measures listed below

indicate where energy efficiency policy framework could be strengthened. Their modalities of

implementation are yet to be defined, so they were taken into account in a schematic manner by

the modelling used for this exercise and will be subject to dedicated impact assessments which

will look in more details at their impacts and exact shape.

Buildings

The intensification of efforts for the buildings sector under the MIX scenario (Option EE_2)

could lead to the reinforcement of several EPBD measures as compared to the BSL scenario.

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One such measure could be the energy performance certificates (EPCs) which inform building

owners and users about cost of heating and cooling, savings that investments would bring, are a

precondition to regulate the worst performing buildings out of the market and are needed to link

preferential financing conditions to quality renovations. Under the existing EU regulatory

framework, EPCs are compulsory for a large category of buildings

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but their implementation at

national level varies greatly. The role of EPCs could be further improved (e.g. as a verification

element of the energy performance gains achieved through renovation).

The take-up of technical building systems and further penetration of building automation and

control systems (BACS) and more generally of smart technologies in buildings could also be

accelerated thanks to strengthening of the EPBD measures to facilitate the diffusion of demand

response and energy storage, boost of technological innovation and the deployment of highly

efficient appliances and smart-ready building systems and digital solutions.

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The highest ranked options in the public consultation are encouraging better urban planning and construction of

sustainable buildings and green infrastructure, encouraging the construction sector to apply circular approaches, and

providing better education and training of architects, engineers, and workforce to provide quality renovation.

Respondents in professional capacity also viewed the removal of administrative barriers, raising awareness of the

benefits of sustainable building and financial mechanisms as important which were less important for respondents in

individual capacity. The public consultation also provides insights in the public’s view how renovation

could be

incentivised.

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Those being built, sold and rented and for buildings over 250 m

occupied by a public authority and frequently

visited by the public.

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The minimum energy performance requirements are gradually tightened

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. Both cost-optimal

minimum requirements and targets for Near Zero Energy Buildings (NZEBs) differ significantly

across Member States, with saving potential in at least some of them. This policy option explores

further reinforcement of minimum energy performance requirements, which could be achieved

through different regulatory measures

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Moreover, several EED measures supporting the renovation of buildings and closely interlinked

with the measures in the EPBD could also be reinforced:

increased scope and the level of renovation rate under Article 5 on exemplary role of

public bodies’ buildings,

strengthening of provisions under Article 6 on public procurement,

increasing the level of ambition of energy savings obligation under Article 7 on energy

savings obligation,

extension of the requirements under Article 16 on certification and qualification schemes,

further addressing barriers linked to energy performance contracting under Article 18 on

energy services,

stricter requirements under Article 19 on split incentives,

further changes in budgeting rules and more guidance on energy efficiency financing

under Article 20 on financing mechanisms,

specific policy options to increase the efficiency in heating and cooling consumption,

together with the use of renewable sources. As the current EED framework does not

sufficiently incentivise the uptake of efficient heating and cooling technologies,

including efficient district heating, nor the utilisation of waste heat, it could be

strengthened for instance by introducing a requirement to incentivise the development of

regional/municipal efficient heating and cooling plans.

Finally, as regards the intensification of products legislation measures (Energy Labelling

Regulation and Ecodesign Directive), given that the product groups with the highest energy

savings potential are already covered by existing regulations, following measures could be

explored:

increasing the ambition of the new Ecodesign working plan in 2020, including possible

extension to new product groups and tightening the requirements, where applicable;

improving compliance levels through better enforcement by Member States’ market

surveillance authorities (e.g. by improving coordination at EU level and financing joint

surveillance actions);

strengthening the systematic inclusion of circular economy aspects (e.g. reparability,

durability, upgradeability, recyclability);

The cost-optimal minimum requirements for new buildings and for existing buildings undergoing major renovations

are revised every five years by Member States in order to take into account technology and market uptake, cost

variation of different measures as well as national economic and climate conditions. As of 2021 all new buildings have

to be nearly zero-energy buildings (NZEB), meaning buildings with high energy performance (high performing

envelope and technical building systems, combined with RES solutions).

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E.g. through specific requirements for the energy performance of the insulation, windows, heating systems, etc. or a

minimum energy performance expressed in kWh/m2.y or a minimum energy performance class).

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extending the scope of products that can be regulated under the Ecodesign Directive, as

considered under the Sustainable Product Policy Initiative in follow-up to the Circular

Economy Action Plan.

Under the REG scenario (Option EE_3) the three legislative frameworks (EEPD, EED and the

products legislation) would be strengthened further than in the MIX. This could be done through

the reinforcement of the EPBD measures concerning mandatory renovation/minimum energy

performance requirements for the worst performing buildings from the market

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. Such policies

could improve the average quality of the national building stock given priority to buildings most

in need, or targeting specific segments as a priority. Owners and landlords would have to invest

in upgrading their properties e.g. before selling or renting out, or by a certain date. This could

have positive impact notably on low-income and energy poor households often inhabiting badly

performing buildings. This measure also addresses fundamental barriers to building renovation

like split incentives between owners and tenants, decision-making difficulties in multi-owner

buildings, building value not fully reflecting energy performance and low awareness of the

benefits of renovation.

The scope of Article 5 of the EED, which concerns the renovations of public buildings

obligation, could be extended to all public authorities and to all public buildings, or reinforced by

defining the scope of the obligation based on the “functions” or public use of the buildings in

such a way to include also e.g. museums, theatres.

Furthermore, products legislation measures could be reinforced by:

a more ambitious new Ecodesign working plan, including a larger set of new product groups

and further tightening the requirements, where applicable;

speeding up the regulatory process;

Further increased ambition of the revision in the Ecodesign Directive;

promoting higher minimum standards even if, for certain product categories, it implies

facto

phasing out certain fossil fuel options.

Finally, with the adoption of the Recovery Plan, the Renovation Wave initiative and its action

plan, accompanied by the rigorous enforcement of legislation on energy performance of buildings

and a targeted review of the regulatory framework, the EU will be well equipped to address the

main barriers to building renovation and deliver energy efficiency actions also in other sectors at

a much larger scale.

Industry

The reinforced policy architecture for energy efficiency for industry could be based on several

measures that are already covered by the EED. Further strengthening of the relevant eco-design

requirements, coupled with further prioritisation of energy efficiency, could also be explored.

The intensification of efforts under the MIX scenario (Option EE_2) could include:

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E.g. dwellings rented out having to meet a minimum energy performance class.

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cross-cutting policy measures, such as energy savings obligation schemes (Article 7 of

the EED),

strengthening and extending the energy audits requirement (Article 8 of the EED),

measures to promote the uptake audits recommendations (Article 8 of the EED),

introduction of measures to address waste heat reuse potential (Article 14 of the EED),

intensification of Ecodesign requirements for products applied in industry (e.g. motors,

fans),

application of the energy efficiency first principle in the energy infrastructure planning

and promotion of demand side solutions.

The REG scenario (Option EE_3) would build on the strengthened Article 8 EED concerning

energy audits for large companies under the MIX scenario. The provisions of this article could be

further reinforced

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through:

ICT

There have been some energy efficiency improvements of data centres in the past, but there is no

appropriate legislative framework and policies to limit the negative impact of data centres’

energy consumption to CO

emissions. While this assessment was being performed, in 2020, the

EU Digital Strategy announced a commitment to make data centres climate-neutral by 2030, with

actions to be put in place in 2021-22. For the time being only a voluntary Code of Conduct for

Energy Efficiency in Data Centres have been introduced since 2000. Intensification of policies in

this area under MIX and REG scenario would be based on strengthening the existing legal

framework and extending its scope to data centres. The areas to be explored when intensifying

efforts under the MIX and REG scenario could look at new actions under EED measures:

addressing the challenges (e.g. the ‘hidden’ energy consumption of datacentres) and

opportunities (e.g. self-reporting of product energy use) of product digitalisation,

ensuring energy performance standards by newly constructed data centres,

introducing provisions to address waste heat re-use in data centres (Art. 14),

strengthening the market for energy efficiency ICT products through targeted public

procurement measures (Art. 6 on Public Procurement).

an extension of scope of the mandatory requirement, covering more type of enterprises or

different economic actors,

financial and regulatory support to the implementation of energy efficiency measures

identified in the audit,

mandatory implementation of cost-effective energy efficiency measures.

On the top of all these measures, the energy efficiency targets for 2030 and the way they are

defined could also be adapted to reflect the new level of efforts needed, so that the targets provide

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It requires the Member States to ensure that large companies carry out an energy audit every four years, but it does

not require implementing energy efficiency improvement measures identified in the audits, and thus the impact of the

current measure is limited unless it is required by national law. In addition, Member States have high flexibility in

relation to the uptake of energy audits by small and medium-sized enterprises and households.

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a clear signal on the EU and Member States commitment in energy efficiency and push all parties

concerned to do more. To this end the ongoing evaluation of the EED should help identify the

elements in the existing policy framework that do not sufficiently address persisting barriers to

energy efficiency as well as policy design that could ensure scaling up the efforts.

9.6.2

emission standards for vehicles and other transport system efficiency related

policies

Looking at the entire transport sector, it is projected that energy demand will decrease in all

scenarios by 2030. The differences in terms of impact on final energy demand are not significant

between the REG, MIX and CPRICE scenario. The comprehensive policy mix of REG scenario

combing taxation, CO

standards, renewable fuels mandates and overall energy efficiency

improvements in the transport system leads to slightly bigger reduction in transport emissions

than in other scenarios. In all scenarios, intensification of CO

standards for vehicles is an

effective and important driver for higher efficiency and switch toward zero-emission vehicles and

in this way ultimately to deeper greenhouse gas emissions reductions, with benefits for

consumers in terms of lower fuels bills, contributing to energy security and stimulating

investments into the technologies needed for the transition towards zero-emission mobility.

Intensification of CO

standards has a key role in the longer term perspective, thanks to gradual

impact due to the pace of overall fleet renewal. In all the scenarios, stricter standards as compared

to the baseline in 2030 lead to significant environmental benefits in the period after 2030.

Strengthening of the CO

standards for vehicles is a critical instrument for road transport. In

addition there is a plethora of other policies that are in place and could be strengthened or

expanded in order to further reduce energy consumption and emissions. These have also been to

some degree reflected in the policy scenarios which intensify efforts in transport policies. The

possible actions to be explored in this context cover:

incentives for intermodal freight transport and further efforts to improve the functioning

of the transport system via support to multimodal mobility and intermodal freight

transport by rail, inland waterways and short sea shipping;

initiatives to increase and better manage the capacity of railways, inland waterways and

short sea shipping, supported by the TEN-T infrastructure and CEF funding;

gradual internalisation of external costs (“smart” pricing);

incentives to improve the performance of air navigation service providers in terms of

efficiency and to improve the utilisation of air traffic management capacity;

revision of roadworthiness checks;

deployment of the necessary recharging and refuelling infrastructure, smart traffic

management systems, transport digitalisation and fostering connected and automated

mobility;

further actions on clean airports and ports to drive reductions in energy use and

emissions;

additional measures to reduce GHG emissions and air pollution in urban areas;

pricing measures such as infrastructure charging;

other measures incentivising behavioural change;

further measures related to intelligent transport systems, digitalisation, connectivity and

automation of transport - supported by the TEN-T infrastructure;

additional measures to improve the efficiency of road freight transport;

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incentives for low and zero emissions vehicles in vehicle taxation;

increasing the accepted load/length for road in case of zero-emission High Capacity

Vehicles;

Finally, these policies would be combined with intensification of policies that impact the carbon

intensity of fuels (as discussed in the section on renewable policies below).

9.6.3

Renewable energy policy framework

Renewable energy is crucial to deliver on a climate-neutral economy. It is also a key component

of the EU long-term energy strategy and a core dimension in the NECPs regarding 2030. RED II

was recently reviewed and provides a stable platform to build a stronger and forward looking

regulatory framework for the development of the renewable energy in Europe in line with higher

GHG reductions in 2030. The aggregated Member States contributions show that renewable

energy will grow at a faster pace in the years up to 2030 and if the Member States’ fulfil and

exceed their renewable energy contributions the overall share of renewable energy in the EU27

would exceed the 32% target in 2030. In this regard, the comprehensive and updated regulatory

framework under the Clean Energy Package has already proved to be a key driver for renewable

energy deployment plans beyond the target that the EU has set itself in the context of the climate

and energy policy architecture at the time.

However, to reach an increased GHG target the measures contained in the Renewable Energy

Directive will require an increased ambition as carbon pricing alone would not overcome some

market barriers that still exist for the uptake and integration of renewable energy. As foreseen in

the European Green Deal, there is a need to review the existing framework to deliver on the

increased climate ambition, flanked with additional measures and related key actions foreseen on

the already adopted Energy System Integration and Hydrogen Strategies and future strategies

such as the one on Offshore Renewable Energy. The translation of these measures into legislation

would lead to a more integrated, resilient and renewables-based energy system paving the way

for a faster and more cost-effective transition of the energy system towards climate neutrality.

In all policy scenarios, electricity generated from renewable sources and its use increase across

all sectors when compared to the BSL scenario. In this light and building on the RED II, the

revised framework needs to assess how to increase coherence of energy infrastructure planning,

supportive licensing procedures while introducing options for green public procurement and

requirements across Member States. Specific analysis will be also needed to facilitate the roll out

of offshore renewable energy, foster regional cooperation in renewable electricity including

accelerating the opening of support schemes to cross-border participation and possible fast track

permitting process. Such policy options go beyond Option RES_1, and would enhance regional

cooperation, decrease the need for financial support and expedite the permitting process for

energy consumers that could lead to increased public acceptance.

For transport, scenarios show the predominant role of the fuel switch. In all scenarios it is visible

that electrification is a key avenue for decarbonisation in transport, however, it is challenging in

sectors, which heavily depend on high energy density fuels, such as the aviation and maritime

sectors and consequently renewable and low carbon fuels will have an important role to play to

decarbonise these sectors as acknowledged in the Energy System Integration and Hydrogen

Strategies. Current renewable fuels used in transport are predominantly biomass based, but the

feedstock base for the types of renewable fuels used today is limited. It is therefore paramount to

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develop new technologies, which are scalable and allow broadening the feedstock base such as

advanced biofuels as well as renewable and low-carbon fuels, including RFNBOs (such as

hydrogen-derived synthetic fuels). These fuels are currently not commercially competitive with

fossil fuels and mature types of biomass based fuels, and therefore could require more targeted

support. In this regard, policy options RES_2 and RES_3 from Section 5.2.2.4, could provide an

enhanced and stable policy framework that would ensure the development and commercial

deployment of renewable- and low-carbon fuels increasing investor certainty, scaling up

technologies and bringing costs down. All scenario results, including the BSL scenario, indicate

that based on the current RES-T

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methodology, the EU is set to overshoot the 14% target agreed

in REDII by at least 4.7 percentage points (p.p.). This could be partly due to the existing

incentives (multipliers) that might be higher in some transport sub sectors compared to others and

in this regard the revision of the Renewable Energy Directive will also explore options to

simplify and adjust as appropriate the methodology. Furthermore, the regulatory framework,

including the Renewable Energy Directive as well as other legal instruments, need to be adjusted

or defined as appropriate, for incentivising not only the production of these fuels but also their

consumption in the most appropriate transport sub sector, while limiting and developing

unnecessarily additional administrative costs.

The Renewable Energy Directive sets for the first time a coherent and dedicated EU legal

framework for the heating and cooling sector including a specific renewable heating and cooling

target

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and a renewable sub-target for district heating and cooling. This would allow raising the

share of renewables by 2030

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and further mainstreaming of local renewable energy solutions to

contribute for additional renewable energy deployment. Although in their NECPs over half of the

Member States provided an at least indicative 1.1 p.p. yearly increase, these targets are indicative

and Member States have a best endeavour obligation to reach them. Furthermore, MS trajectories

and the target level is close to business-as-usual and would be insufficient to deliver on the

ambition that is being showed in Section 6.2.1.3. More deployment of RES in H&C was analysed

in all scenarios. Re-enforcing the current framework and updating the accounting framework,

could stimulate further the integration of an EU market for renewables in heating and cooling.

Within this context, measures devoted to foster the electrification of the sector are especially

important to consider as a cost-effective vehicle to decarbonise the sector, as included in the

Energy System Integration Strategy. Assessment of these policy options would aim to remove

uncertainty while providing sufficient impetus for Member States to implement the required

annual increase to reach the 2030 target and future increases to pave the way for climate

neutrality by 2050.

Building on Policy options RES_2 and RES_3 from Section 5.2.2.2, a strengthened overall RES

heating and cooling target would require the strengthening of the target and other provisions for

district heating and cooling which would need much more granular assessment. For example, a

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The methodology is set out in Article 27 of recast Renewable Energy Directive (Directive (EU) 2018/2001)

1.3% point yearly increase requirement in the share of renewable heating and cooling in the period of 2021-2030.

The target can be fulfilled up to 40% with waste heat/cold sources. If a Member States chooses not to use waste

heat/cold, the target can be reduced to 1,1% point, can be averaged over two five-year periods of 2021-2025 and 2026-

2030 and to be fulfilled fully with renewables.

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1% point yearly increase in the period of 2021-2030. This target is also indicative and can be fulfil with the use of

waste heat/cold up to 100%.

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possible strengthening of the rules on third party access for renewable and waste heat/cold

suppliers could allow for more informed decisions about the performance and transformation of

district heating and cooling to support higher shares of renewable energy, making it an effective

instrument for faster and more cost-effectively delivery of renewable and low carbon

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. In

addition, the design of the reinforced targets, measures and flanking instruments would address

specific barriers and enable the use of sector integration solutions, such as the linking of heating

and cooling and district heating and cooling systems with the electricity grids and the use of

renewable gases and waste heat sources from industry and services. With regard to thermal and

other energy storage in buildings, district heating systems will need to be incentivised and co-

operation between electricity distribution network and district heating and cooling operators

intensified to better exploit demand response and flexibility solutions, including from building

renovation and energy network investment, in line with the Energy System Integration Strategy

and the Renovation Wave.

Furthermore, to decarbonise heating and cooling sector, it is paramount to replace fossil fuels in

buildings’ heating systems to a more efficient and renewable systems. However, consumers need

the know-how and find highly skilled installers to choose the best renewable and efficient heating

systems that would be appropriately sized for their needs, while significantly minimise the costs

if the right decision is taken. A coordination of heating system replacement with improvement of

the building envelope is paramount to reduce costs and ensure the most cost-effective and high

quality, optimised solutions. Building regulations and codes, urban and infrastructure planning

must be conducive to also integrate decentralised renewable energy solutions in buildings and

communities to supply their energy needs.

These improvements require amending the current relevant provisions; therefore, they go beyond

option RES_1, which focuses on implementation via non-legislative guidance and best practice

exchanges. Thus the RED II would help to design such regulatory framework and reduce the risk

of lock in at low RES H&C levels in buildings, industry and district heating for their heating and

cooling requirements.

9.6.4

Consistency between energy efficiency and renewables legislation

In the design and implementation of future energy policy, it is of utmost importance to exploit

synergies, seek consistency and the mutually supportive nature of the reviews of the Renewable

Energy Directive, the Energy Efficiency Directive, the Energy Performance of Buildings

Directive and the EU Ecodesign and Energy Labelling Framework. Such streamlining would

foster synergies between different energy carriers, such as between electricity and heating (direct

and indirect use of renewable electricity), that would be also more also in line with the vision

outlines in the Energy System Integration and Hydrogen Strategies, the Renovation Wave

communication together with other relevant policies pointing to the same directions, such as the

review of the TEN-E regulation, sustainable product policy, the Circular Economy Action Plan

and biodiversity strategies, etc.

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The capacity of district heating to supply renewable and low-carbon heat at high efficiency has been underpinned by

ENER/C1/2018-494 (on-going), which models technology specific heat of primary energy factors.

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9.7 Extended analysis of impacts of ETS extension and interaction with the

ESR

This section takes an increased ambition as starting point and extends the analysis of the impacts

on the current key cross-sectoral climate policy instruments, the EU Emissions Trading System

(ETS) and the Effort Sharing Regulation (ESR) summarised in section 6.7. The analysis focuses

on a GHG ambition level of -55% as this would have larger implications, but extends also to

relevant differences in case of a -50% ambition.

9.7.1

Environmental impacts of policy aspects: impact on ETS and ESR

The increase in climate ambition to -50 to -55% below 1990 would lead to significantly higher

GHG emission reductions both in the ETS and ESR sectors. Overall the ETS sectors, even with a

changed scope, are still projected to reduce emission more compared to 2005 than the ESR

sectors, in the current scope -63 to -64% for -55% and -58% for -50%. For the current ESR

sectors, the reductions would be -39 to -40% for -55% GHG and -36% for -50% GHG.

What is clear is that beside the higher reduction in the existing ETS and ESR scope, the ETS and

ESR would see different levels of projected emission reductions depending on which sectors are

included or not, driven by the difference in reductions achieved per sector (see Table 26 for the

full results). For instance if the scope of the ETS were to be extended with buildings only, the

projected emission decrease for this ETS scope (-65% in the -55% scenarios) would numerically

not significantly differ from the

current scope’s (-63

to -64% for -55% GHG). However, if the

scope of the ETS were to be extended with road transport only, the projected emission decrease

in the ETS is typically much lower (-53%) than the one reflecting the current ETS scope. The

opposite is of course the case for the ESR, which sees higher percentage reductions of -45 to -

47% compared to 2005 if one excludes road transport from its scope (-42% with -50% GHG

reduction), and lower percentage reductions of -34% to -36% if buildings and transport are

excluded (-30% with -50% GHG reduction) and -29 to -31% compared to 2005 if one excludes

buildings from its scope (-27% with -50% reduction). Similarly the extension of the ETS to

maritime navigation and return to full scope for aviation under the ETS would result in lower

projected emission reductions, with both international aviation and navigation making emissions

relatively higher, and the other sectors in the ETS having to reduce even more.

Impacts on the EU ETS for its current scope

The outcome of the ETS in terms of the emissions ambition level is determined by its cap on the

total number of allowances and the functioning of the MSR. In option ETS_1, the current ETS

scope, the BSL scenario would achieve a 2030 emission reduction of -54% compared to 2005

while the policy scenario with -55% GHG ambition reductions combined with an increased

ambition in EE and RES policies up to 2030 (REG) would achieve emission reductions in the

ETS of -63% by 2030 compared to 2005

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The ETS Directive (Article 9) determines that the ETS cap for stationary installations decreases

linearly, by an annual amount equal to a percentage of the average annual allocation during phase

2 (2008-2012, excluding aviation), referred to as the linear reduction factor (LRF). The LRF is

applied to the mid-point of the period from 2008 to 2012 and for phase 3 (2013-2020) was

1.74%, coherent with the then 2020 overall economy-wide GHG reduction target of 20%

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ETS ambition based on current ETS scope (including only intra-EU aviation).

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compared to 1990. For phase 4 (2021-2030), it was set at 2.2% coherent with the current 2030 -

40% GHG target.

Arriving at a cap in 2030 in line with the emission projections under option ETS_1 for 50% to

55% GHG reductions economy wide would require a change of the ETS linear reduction factor,

an update overall recognised as needed by stakeholders

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. A revised linear reduction factor is

dependent not only on the 2030 ETS ambition but also on other elements including:

Starting year: the year from which the cap is to be revised, i.e. the start year from when

the new LRF will apply

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. The later the LRF is revised the higher the LRF (steeper

curve) is needed to achieve the same 2030 ambition

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;

Rebasing: the baseline level from which the LRF is applied for stationary sources follows

a linear approach starting from a historical figure, the midpoint of the period from 2008

to 2012. To ensure an appropriate annual cap, the baseline starting reference level could

be adjusted downwards to better reflect the actual development of emissions

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;

Scope: depending on a possible ETS scope extension and how such an extension is

designed, elements such as cap stringency/ambition will impact the extended ETS LRF

See also section 6.7.1, Figure 17 for an example of how simply changing the LRF (in 2026 in this

example) compares to rebasing of the cap for stationary installations (using 2025 emission

projections as a starting point on which the LRF is applied from 2026 onwards), as well as the

impact of the scope, with ALLBNK resulting in the tightest cap for stationary installations.

Regarding scope, for policy purposes, the definition of the cap and LRF setting requires a robust

and verified emissions data reference point. For the current ETS scope, the ETS Monitoring,

Reporting and Verification (MRV) system ensures the data robustness for the covered sectors,

and for a possible scope extension a comparable system is required.

Therefore, for this exercise no representative LRF has been established for the ETS options with

extended scope. This impact and the consistency with the overall framework will have to be

assessed in the subsequent policy review. But overall it is clear that options that include

additional sectors that reduce less than the current ETS sectors and thus result in lower

percentage GHG reductions (see Table 26), may allow for a less stringent increase in the overall

LRF. The installations covered by the ETS today are emitting less than the total cap. This gap

between the cap and the actual emissions was estimated for 2018 equivalent for 134 million

allowances. This has significantly widened to around 250 million allowances in 2019 due to the

large reduction of emissions. However, the Market Stability Reserve, in operation since 2019 to

178

179

E.g. Eurelectric response to the consultation

Based on the current ETS framework with its two five-yearly allocation periods 2021-25 and 2026-30, for the

purpose of this analysis, all results are presented for a start in 2026. However, earlier start as of 2023 is also possible.

This envisaged start will be assessed in the possible review of the ETS.

180

As per the ETS Directive, the LRF does not have an end date and the current analysis focuses on reaching the

increased 2030 ambition level. A LRF beyond 2030 in line with the 2050 climate neutrality objective will be assessed

in the possible review of the ETS.

181

Further assessment of the LRF options and their interaction with the Market Stability Reserve will be performed in

the possible review of the ETS and the MSR review in 2021, this interaction and review is supported by both industry

and academic stakeholders.

182

Rebasing is a in Sitra’s consultation reply – 2019 study by the Oeko institute “The role of the EU ETS in increasing

EU climate ambition: Assessment of policy options”

127

tackle structural supply-demand imbalances, ensures that much fewer allowances than the annual

cap come to the market.

In the BSL scenario, this difference between the nominal cap and the annual emissions, is

projected to continue into the next decade (on average estimated to be 17% below the yearly

cap), despite a more ambitious 2.2% LRF. Accordingly, the surplus of allowances in the system

would not see sufficient reductions and continue, thereby potentially preventing the EU ETS

from delivering the necessary investment signal to reduce GHG emissions in a cost-efficient

manner and from being a driver of low-carbon innovation contributing to economic growth and

jobs. Hence, this may only be addressed, if the Market Stability Reserve is strengthened as part of

its first review in 2021.

Impacts on the ESR for its current scope

The ESR currently sets binding national minimum contributions for 2030 that for EU27 add up to

a 29% reduction compared to 2005. The BSL scenario as well as the EU-NECP variant achieves

a 2030 emission reduction of 32%. In line with the current ESR architecture and scope (option

ETS_1), the REG policy scenario sees emissions reduced mainly through increased EE, RES,

transport and some non-CO

policies, resulting for -55% GHG in an ESR reduction of 39%

compared to 2005 (-36% for -50% GHG). Ensuring achievement of this emission reduction in the

current policy architecture would imply translating this ambition level into more ambitious

national 2030 targets, requiring a step up on average of 10 to 11 percentage points (p.p.) for -

55%, 7 p.p. for -50% and 12 p.p. for ALLBNK.

Another impact would be a change of the target trajectories. Based on the current ESR

framework with its two five-yearly compliance cycles 2021-25 and 2026-30, this could be

implemented for the second cycle. The starting point of the target trajectories in the current ESR

has been set in a way avoiding a significant EU surplus at the start of the period. Therefore, this

was done based on most recent available emissions. For 2021 this has been 2016-18 emissions.

The implication of the continuation of this logic

183

for the average steepness of the trajectories

can be illustrated at EU level by using EU average emissions between 2020 and 2025 as proxy.

For -38% ESR to achieve -55% GHG, this would increase the steepness of the trajectory over the

five years 2026-30 from annually 1.8% compared to 2005 under the current ESR to 4.1%.

Starting the trajectory calculation for the 2026-30 change instead from 2025 ESR allocations

would lead to a steepness of -3.9%. If the 2026-30 trajectory calculation would start from 2021

ESR allocations, then the trajectory steepness would decrease to 3.1% compared to 2005.

Contrary to this balanced approach, some Member States and stakeholders have indicated that

they want a focus on higher emission reductions in the ETS sectors instead of tightening further

current ESR targets for increasing ambition. The realisation of some of the reduction potentials,

e.g. in existing buildings and agriculture, is seen as more uncertain due to specific barriers. In the

modelling results, the ETS sectors are already expected to reduce more, compared to 2005, than

the ESR sectors, with e.g. -63% vs. -39% reductions for -55% GHG and -58% vs. -36% for -50%

GHG (see Table 26). A 5 p.p. additional ambition in the ETS sectors alone would imply for the

55% ambition level, at current ETS scope, a further increase of the ETS target to 70% and in turn

a high linear reduction factor.

183

These illustrative calculations should not be read as prejudging the ESR revision. This issue will be dealt with as

part of the legal proposal planned for 2021.

128

If the binding minimum targets under the existing ESR were not to be changed at all, as some

Member States argue, but the overall GHG target is kept, the ETS target would need to cover for

all additional reductions or, alternatively, the LULUCF objectives would have to be raised. The

former would result in the current ETS scope in an ETS reduction target well above

–70%

compared to 2005 to achieve respectively an overall economy wide GHG target of -55% GHG

compared to 1990

184

Turning to the environmental impacts of the other policy options, with changed climate policy

architecture and different ETS and ESR scopes, Table 51 presents as an additional element an

overview of the respective relative sizes of the systems for relevant scenarios.

Table 51: Current and 2030 ETS and ESR shares for different scenarios and sectoral coverages

Current and 2030 ETS

and ESR shares in %

of total GHG

Current

emissions

ETS

(Options ETS)

(1) (4) No change

scope

185

(2.1) Buildings + road

transport in ETS

ESR

BSL

ETS

ESR

REG

ETS

ESR

MIX -

nonCO2

ETS

ESR

CPRICE

ETS

ESR

Fully separate ETS and ESR scopes

Increase scope ETS but maintain these sectors in ESR

(2.2) Buildings + road

transport in ETS

Create separate ETS for some sectors while maintaining them in ESR

(3) buildings + road

transport

(3) buildings

(3) road transport

(3) all remaining

energy

32�½58

12�½58

20�½58

39�½58

32�½63

9�½63

23�½63

37�½63

33�½66

8�½66

25�½66

39�½66

33�½66

8�½66

26�½66

39�½66

34�½67

8�½67

26�½67

39�½67

Source: own calculations, EU GHG inventory 2020, PRIMES model, GAINS model

Impacts of changes of sectoral ETS coverage illustrated for -55% GHG reduction

If additional sectors were to be covered by the ETS as in options ETS_2, ETS_3 and to a certain

extent ETS_4, this would increase the likelihood of achieving the emission reductions in these

sectors, and hence the EU’s GHG target for 2030. With the resulting carbon prices, firms and

households would have an additional economic incentive to reduce their emissions in the sectors

newly covered by an ETS, and this incentive would rise the lower the estimated achieved

emission reductions are in the current setup, even countering possible rebound effects from

184

185

For a 50% reduction, the corresponding value would be well above 60%.

The ETS scope starting point used in the calculations in this table corresponds to the current EU ETS scope, i.e.

covering stationary installations covered by the ETS directive and intra-EU aviation.

129

efficiency improvements and resulting cost reductions. It would also help in diffusing

decarbonisation technologies more quickly. With buildings and road transport CO

emissions

included in the ETS, around three quarters of the current total emissions (around two thirds in

2030) would be covered by an EU wide cap. This compares to one third in 2030 in the current

architecture.

Examples of building technologies, which could be implemented profitably at carbon prices in

the range of the modelling results (assuming the absence of the additional energy efficiency and

renewable policy intensification measures analysed in section 6.6), are early furnace

replacements, integrated heating and domestic hot water, certain elements of insulation, high

efficiency ventilators, water heater replacements, ground source heat pumps for the commercial

sector, biomass heating or electric heating. Examples of transport technologies are improved

aerodynamics, engine efficiency, tyre resistance, light-weighting of vehicles, more blending of

biofuels as well as to a certain extent the switch to electric vehicles.

186

ETS emissions in the main variants of options ETS_2 and ETS_3, that include the building and

road transport sectors into the ETS or create (at least temporarily) a separate trading system for

these sectors, reduce by 56% compared to 2005, which is less than in option ETS_1 without

buildings and the road transport sector in the ETS. The carbon pricing scenarios show clearly that

building emissions are expected to respond significantly stronger to carbon prices than transport

emissions, with additional reductions between 2015 and 2030 compared to the baseline of 14 to

15 p.p. for residential and 9 to 12 p.p. for services, compared to 3 p.p. for road transport. One

reason is that in the transport sector there are currently already often high explicit or implicit

carbon prices through national carbon or energy taxation, unlike in the buildings sector, and

therefore the additional incentive is smaller. For example for motor fuels, the EU27 unweighted

average of implicit carbon prices of current MS nominal energy and carbon tax rates reported in

the Taxes in Europe database amounts to around EUR 240 for petrol and around EUR 160 for

diesel.

If heating related emissions of buildings were fully included into the ETS, ETS emissions reduce

therefore stronger, by -65% compared to 2005. Most of the additional carbon price-induced

emission reductions would be realised through fuel switching and electrification. If only transport

were included in the ETS, the ETS emission reductions would be -53% compared to 2005, lower

than with buildings only.

If all energy-related CO

emissions were to be included, as it is proposed, for example, in the

German national ETS, ETS emissions would reduce by -55%. Then also abatement options in

non-road machinery and equipment, including in the agricultural sector, would be incentivised.

A strong point of options ETS_2 and ETS_3 is that the ETS has strong enforcement. It thus

scores high on certainty to deliver the environmental outcome. The enforcement mechanisms in

case of non-compliance with the obligations through the financial penalties under the EU ETS

apply directly to the emitting entity. In the ESR the compliance obligation is on each Member

State, through additional emission factors

187

and standard infringement procedures. The incentive

to comply for an emitting entity is therefore stronger under the EU ETS, although this also

depends what measures each Member State puts in place for the sectors covered by the ESR.

Results from bottom-up modelling by ICF et al. (forthcoming),

using carbon prices between €30 and €90.

If a Member State misses its ESR target in year x by 1 million tonnes, it would have to over-achieve its ESR target

in the subsequent year by 1.08 million tonnes.

186

187

130

The option ETS_2.1, which not only extends the scope of the EU ETS, but sees a commensurate

reduction of the ESR scope, has some significant implications for the ESR. It would require a

smaller numerical increase of Member State targets than in the current ESR scope, with

emissions having to decrease by 34 to 36%

188

instead of 39 to 40%. However, the ESR would

lose in this option around 55% of the current emission scope and the share of emissions covered

by the ESR would decrease in 2030 from 66 to 67% in option ETS_1 to 32 to 33%. This would

change the characteristics of the ESR very significantly.

This would leave agriculture as the main remaining sector (CO

and non-CO

together around

half of the remaining ESR scope), followed by industry with around 20% and waste and energy

with both around 10% of the remaining ESR emissions. Around 40% would stem from CH

around 30% from CO

, around 20% from N

O and around 5% from F-gases. This could further

strengthen the visibility of the need for emission reductions and ambitious policies in the

remaining ESR sectors. The major reduction in ESR scope could also lead to significant changes

in Member State specific cost-efficiency gaps to achieve national targets based on fairness (GDP

per capita) compared to the 2016 ESR impact assessment

189

. Hence if the current features of the

ESR are maintained in this reduced scope, the target adjustment rules might need to be

reconsidered. The increased role of agriculture in a reduced ESR would also invite to revisit the

role of the LULUCF flexibility, which has been designed to compensate for the comparatively

lower technical mitigation potential of agriculture.

If only buildings were to be shifted, the projected ESR emission reduction is only -29 to -31%,

i.e. similar as the current numerical ESR reduction of -30%, thus raising less the prospect of an

absolute need to review the ESR targets. If only transport were to be shifted, the opposite would

apply, as the remaining ESR would reduce in this variant emissions by -45 to -47%.

The main variant of option ETS_3, which puts the buildings and road transport sector at least

transitionally in a separate ETS, leads to two ETS systems of roughly similar size in 2030, each

close to 35% of total emissions. If only transport is covered, the separate system would still cover

around 25% of total emissions. A separate ETS covering only buildings would cover close to

10% of total emissions.

The environmental impacts would depend on the cap setting for the separate ETS. The presented

reductions would only materialise if the separate cap is set in line with cost effective emission

reductions. If initially set at a less ambitious level to test the impacts, the separate ETS would

have lower impacts on additional national policies and not allow the sectors as a whole to achieve

its cost-efficient GHG target ambition.

The reductions would also depend on the extent of flexibilities allowed between the existing EU

ETS and new separate ETS for buildings and transport (as well as the flexibility between existing

ETS and remaining ESR), and possibly with the LULUCF sector. Since one of the reasons for

going for separate systems would be to first ensure the robustness of the new systems, with

expected early challenges associated with lack of a robust and verified emissions data reference

for the cap setting in the new ETS, limited or no linking at all could be foreseen in the first years

of the system operating.

If all energy CO

is excluded from the ESR, the required reduction is with -29 to 32% still smaller, while the other

impacts are similar.

189

SWD(2016) 247 final

188

131

Maintaining ESR coverage in a transitional manner for some sectors newly covered by emissions

trading, as foreseen in options ETS_2.2 and ETS_3, can lead to a situation where sectors in the

ESR that are also in the ETS, reduce more than needed in the ESR as a whole, allowing sectors

not covered by the ETS in the ESR to do less than what would be cost-efficient. Potentially, and

with the assumption that the ESR target for these sectors is significantly lower than the ETS

target for these sectors and lower than the cost-efficient ESR reduction, this could lead to a

situation that both the ETS and ESR targets are met, but not the collective economy wide targets.

Such as situation could happen if carbon pricing in the sector with overlap between the ETS and

ESR, potentially in combination with other policies, is seen as strongly reducing emissions,

resulting in less pressure on the Member State to achieve the ESR targets in the remaining sectors

not covered by the ETS. This risk would be reduced in case the scope expansion covers a large

part of ESR emissions or if ESR targets are set higher. This risk could also be limited by specific

ambitious EU measures in these sectors, such as the F-gas regulation and EU circular economy

and waste legislation, or a further greening of the CAP. Of course if the ETS would cover the

whole of the ESR, the risk is reduced to zero assuming the ETS target is set at the corresponding

level needed to achieve 50% or 55% GHG reductions economy wide. In addition to the need for

mitigating such risks where relevant, maintaining ESR coverage with extended ETS (option

ETS_2.2) would lead to the need to review the current ETS flexibility in the ESR in view of

emerging interaction dynamics.

Impacts of additional national carbon pricing measures

In option ETS_4, the current ETS/ESR architecture continues, and related architectural impacts

described under option ETS_1 also apply. However, it is complemented by an additional carbon

price incentive to reduce emissions, in principle created by a national system. As currently and

under option ETS_1, national environmental considerations and ambition levels would take

precedent over EU internal market aspects in the covered sectors. An obligation to set up national

trading systems would prioritise the certainty of the environmental impacts and counter rebound

effects from cost reductions. National carbon taxation would have less certainty to achieve the

targeted emission reductions, but more certainty on the level of the price signal. Furthermore, it

might be a more practical alternative for MS with already existing carbon taxation or small MS.

The national emissions trading systems in option ETS_4 have the disadvantage that, if

collectively the national caps are set at a level below the EU ambition for the sectors covered by

these national systems, then this option will not achieve the required EU wide GHG reduction. If,

even with caps set below the EU ambition, the sectors covered achieve the EU wide GHG

ambition, then this means other policies or technology developments are driving this and the

carbon price would be in a number of Member States, those with overachievement of the target

under their trading system, weak and thus not serve as an incentive to take action to reduce

emissions and hence defeat its purpose.

Finally the creation of a national trading system for a sector presently in the ESR could also be

considered to facilitate convergence of carbon pricing systems and pave the way to an inclusion

of more sectors into the EU ETS at a later stage

190

Already the current ETS legislation allows a Member State to ask for switching sectors from the ESR to the EU

ETS, so called ETS opt-ins. Under option ETS_4, it could be considered to allow this possibility to comply with the

obligation to establish an effective carbon price.

132

An interesting example illustrating option ETS_4 is the newly created German ETS system for

energy-related CO

emissions not covered by the EU ETS, which combines a cap with a fixed

price in the first years and minimum (and maximum) carbon prices later.

Setting explicit minimum carbon price levels for these sectors by a revision of the EU energy

taxation could mitigate internal market challenges by ensuring the same minimum carbon prices

across all EU Member States, but in itself is no guarantee for delivery of the required emission

reduction. The extent of the incentive of a national taxation would depend on national choices

and would normally be influenced by the extent of national gaps regarding national effort sharing

targets. Member States would also have a direct national choice on the strength of the price

incentive compared to other means to achieve their ESR targets.

9.7.2

Economic impacts

The general economic impacts of an increased ETS and ESR ambition and various scenarios are

assessed in section 6.4. If the ESR and ETS targets are increased as in the current architecture

and scope (option ETS_1), the flexibility between the ETS and ESR could be enlarged to increase

cost-efficiency by allowing for more flexibility between the two systems reflecting Member State

circumstances.

Options with an emissions trading system at the EU level (ETS_2 and ETS_3) can assist in first

incentivising the cheapest reductions across Member States, improving cost-efficiency in the

sectors covered and deliver increased environmental certainty at the emission reductions to be

achieved. This is not the case with a variant of option ETS_4 with a national carbon tax, or where

national trading system do not add up to the required overall ambition level.

An extension of the EU ETS to new sectors such as in option ETS_2 would not only represent a

significant expansion in the availability of abatement options across the EU, but also sectors

compared to the current situation. It would create a more integrated carbon market with a single

carbon price, which could hence drive emission reductions where they are overall most cost-

efficient. Hence, it would ensure the maximum cost-efficiency and not distort the single market.

By contrast, options ETS_3 and ETS_4 could lead to different carbon prices for the buildings and

road transport sectors, the current EU ETS sectors, or across Member States, and could therefore

possibly be more adapted to diverse abatement potentials and ability to pay of different sectors

and Member States.

This needs to be weighed against the problems, which the different national prices or different

prices in different sectors, may create for the level playing field in the single market, in particular

but not only in road transport. Variants of emissions trading options (ETS_2, ETS_3 and to an

extent ETS_4) with inclusion of only one of the sectors would be comparatively less efficient

than variants with both sectors, or with all energy-related emissions covered.

Covering building emissions fully by the current ETS (options ETS_2.1 and ETS_2.2) would

provide a level playing field in terms of carbon pricing of domestic fossil-fuelled heating systems

with district heating and electric heating already now covered by the ETS. There is no clear

pattern regarding the relative size of attributable ETS and non-ETS emissions in the buildings

sector across Member States. In 11 Member States the ETS based building emissions are larger

than the ESR base, which can be explained by differences in the coverage of district heating

133

systems and in electric heating and cooking in the Member States

191

. As such there may be

suboptimal incentives presently, potentially creating an incentive of switching away from district

heating due to inclusion in the EU ETS. Similarly, covering road transport emissions fully by the

current ETS would provide a level playing field in terms of carbon pricing of fossil-fuelled road

transport and rail with electric vehicles and electrified rail.

In principle it is difficult to argue for double EU regulation from an economic perspective, as for

the same emissions two different parties would be obligated to reduce them, leading to potential

inefficiencies. However, there is ample evidence that at least the short term price sensitivity in

the buildings and transport sector is relatively low

192

, hence prices either cannot overcome all

barriers or might need to be very high to achieve the outcome, a risk which modelling and the

resulting carbon price of EUR 60 in CPRICE can only reflect to a certain extent.

In option ETS_2.2 the economic rationale for keeping the sectors newly covered in the EU ETS

also in the scope of the ESR is to limit the carbon price impact risks for the industry sector by

continuing to make sure that important non-price-sensitive abatement potentials would be

addressed by the Member States. To be efficient, Member States would need to take into account

the development of the EU ETS price and its impact on their domestic emissions in these sectors

when specifying their policies.

Option ETS_3 starts from the economic rationale to create an EU level carbon pricing instrument

(while option ETS_4 fosters such instruments at national level) to facilitate the cost-efficient

achievement of the ESR reductions, while acknowledging that there are externalities less

amenable to be addressed by prices, for which targeted national policies (and/or some targeted

intensification of EU wide energy efficiency and renewables policies) could be also economically

useful.

The ESR transfer flexibility between Member States may mitigate the economic impacts as it

could allow Member States to sell ESR surpluses achieved through the ETS to other Member

States. The opposite can also happen, with private entities under the ETS fully complying with

the ETS, if need be by buying allowances, and Member States still required to buy ESR

allocations from other Member States to comply with their ESR target. This could in itself be

driven by a continued national target setting in the ESR that is focussed on differentiation

between Member States based on per capita GDP, if cost-efficiency adjustments remain as

limited as in the current ESR.

To further mitigate the economic impacts of covering some sectors by ETS and transitionally

maintaining them in the ESR, the ex-ante limits for such transfers set in the ESR of up to 10% of

a seller’s annual emission allocation for a given year 2026 to 2030 as well as the limited

flexibility between ETS and ESR might need to be reviewed.

As mentioned above, as the shifting of new sectors from the ESR to the EU ETS under option

ETS_2.1 also shifts the responsibility for the reduction achievement from Member States to

economic actors, it reduces ceteris paribus the incentive for ambitious national policies which

address specific barriers. What the materialisation of this risk could mean is reflected in the

significant carbon price differences between the CPRICE and the MIX scenario (EUR 60 vs. 44

in 2030). The complementary policies introduced in a scenario like MIX would address barriers

191

192

ICF et al, forthcoming.

Ibid.

134

like imperfect information, slow responses to prices incentives due to the relative long time

horizon of individual investments in buildings and cars, split incentives between owners and

renters, which in itself allow to achieve more mitigation action at certain carbon prices, thus

lowering the required carbon price increases.

In option ETS_4, the variant with national carbon taxation has the economic advantage over

emissions trading (ETS_2, 3 and variant of 4 with national emissions trading systems) that prices

are more predictable (subject to political interventions). However, emissions trading enables

emission reductions to take place where least costly. To note, in the relatively few countries that

have an effective carbon taxation for buildings and transport, carbon tax levels are often higher

than current EU ETS prices.

Notably in the building sector the introduction of the carbon pricing will have a material impact

on the pricing of certain carbon intensive energy carriers and correspondingly increased end user

prices. While this would exactly provide for the economic incentive to reduce emissions, it can

also impact lower income households’ spending (see also section 6.5.2 on the impacts for

household spending).

Auctioning is the default method for allocating allowances in the EU ETS, because it is the most

economically efficient and simplest system and avoids windfall profits. Free allocation of

allowances is only continued as a safeguard for sectors at a significant risk of carbon leakage.

In the absence of an extension of the European Emissions Trading to the maritime sector, under

options ETS_2-4, a possible reduction of road transport competitiveness compared to the

maritime transport could result in an uneven playing field. In any case, it is expected that this

would be rather limited as it is only a small proportion of routes where maritime transport

competes with road transport.

193

Conversely, applying a carbon price to road transport could put

it on an equal footing in competitive terms with rail freight transport.

An increase of fuel prices in road transport could also decrease the competitiveness of filling

stations on the EU borders vis-à-vis filling stations just outside the EU borders, and thus

regarding the impacts on end consumers, may encourage tank tourism. However, cross-border

differences in fuel prices are already considerable and therefore the EU ETS is estimated to only

have a modest impact on the scale of this. Figure 18 shows the sensitivity analysis for the effect

of different carbon prices on fuel prices both in road transport and buildings in 2030.

The cost efficiency of the ETS at achieving additional emissions abatements might be limited by

the current heterogeneity of the national fuel tax landscape. Indeed, current tax rates applied by

Member States diverge quite widely, both in level and in structure. These differences distort the

market and would therefore prevent EU cost-efficient emissions reduction

194

. This market

distortion could be corrected by the integration of the transport sector in the ETS if the price

increase from ETS inclusion was significant in relation to the energy tax levels

195

. A related

dynamic that may impact is if Member States will leave their own taxation levels on transport

fuels, to the extent that they are higher than the minimum requirements of the Energy Tax

Directive, in place, or if they were tempted to lower any of these. This would of course distort the

overall impact and require other sectors, also in other to reduce more. This should be avoided to

193

194

CE Delft et al. (2014),

Analysis of the options to include transport and the built environment in the EU ETS

Öko-Institut,

Policy mix in the transport sector: What role can the EU ETS play for road transport

(2015).

Available at

https://www.oeko.de/oekodoc/2221/2015-006-en.pdf

195

Ibid.

135

not end up in a run to the bottom where inclusion in the ETS provides for incentives to reduce

energy taxation rather than maintain it.

Buildings do not meet the criteria that would deem them to be at a risk carbon leakage either.

Because both sectors have relatively small or non-existing competitive pressure from outside the

EU or even within the EU, free allocation risks resulting in windfall profits, with those receiving

the free allocation incorporating the opportunity cost in their own price setting. This was also

empirically noted in the beginning of the EU ETS for the electricity sector, where evidence

emerged that free allocation was not stopping the incorporation of the carbon price in the price of

electricity sold

196

. This was one of the principal reasons to make the shift to auctioning for that

sector.

As discussed in section 6.4.2 auctioning puts a price on an externality, and allows to recycle

revenues. If used to reduce distorting taxes it decreases the overall economic impacts and can

even spur growth. It can also be used to invest in exactly the low-carbon investment needed to

decarbonise.

Hence, auctioning is applied as the allocation method in all options with emissions trading to

eliminate the risk of windfall profits and improve overall economic performance.

9.7.3

Social and distributional impacts of policy aspects

Many of the policy aspects depend on the details of policy proposals, thus only a few policy

related considerations can be provided at this stage.

For the buildings sector, the abatement potential varies by Member State, with the amount

dependent on the building typology, the fuel mix, and the degree of market penetration of

applicable abatement measures, purchasing power, and the relative levels of retail fuel prices. In

the road transport sector, the abatement potential is related to the rate of vehicle fleet renewal in

each Member State, baseline vehicle energy consumption, the degree of expected market

penetration of applicable abatement measures and fuel prices. Hence the impacts of a uniform

carbon price for these sectors under options ETS_2 and ETS_3 are expected to vary across

Member States, depending also on the way ETS auctioning revenues are distributed.

The ESR has a relevant distributional impact on different Member States, mostly determined by

the extent of gaps between emissions and targets

197

. A key distinction for several ESR elements is

between higher income and lower income Member States. The scenarios indicate that additional

emission reductions compared to baseline under the current ESR scope (option ETS_1) are

roughly equally distributed between both groups.

Options ETS_2 and ETS_3 with ETS coverage of new sectors while maintaining them in the

ESR could lead to additional distributional impacts between Member States depending on

whether the national ESR targets would be significantly less or more stringent than ETS induced

reductions.

See e.g. Sijm, J., Neuhoff, K. and Chen, Y. (2006),

cost pass through and windfall profits in the power

sector,

Working Paper 0639 and EPRG Working Paper 0617.

197

See for details section 5.1 of the impact assessment of the Effort Sharing Regulation proposal, Commission

SWD/2016/0247 final.

196

136

9.7.4

Administrative impacts

This section goes into the administrative costs and feasibility of the different options considered.

If the current scope of ETS and ESR is maintained (option ETS_1), there would be no change of

administrative impacts compared to the current ETS and ESR. Under the ESR, the administrative

impact comprises annual emission reporting and five-yearly compliance checks, complemented

by national action plans in case a Member State makes insufficient progress towards its national

target including use of flexibilities. A higher ambition level could imply that such corrective

action under Art. 8 of the ESR would need to be invoked more frequently than with the current

targets. Considerations on stronger ESR enforcement mechanisms would be warranted, including

if flexibilities with EU ETS are increased.

Presently inventories of ESR emissions are based on the economy wide GHG reporting by the

EU and its Member States to the UNFCCC from which the verified ETS emissions data are

subtracted for each Member State. If emissions trading is extended to new sectors (options

ETS_2 and ETS_3), for such extension to be effective, it must be possible to measure and

monitor emissions with high certainty and at reasonable cost and be able to attribute it to

individual entities.

An extension will require a totally new monitoring, reporting and verification system for these

new additional sectors. An extension to new sectors will trigger costs related to the setting in

place and the operating of such a system, both for the regulated entities and public authorities,

including in terms of IT infrastructure and human resources. Regulated entities’ participation in

the system would imply obtaining a permit, a registry account, putting in place a monitoring,

reporting and verification system, obtaining and surrendering allowances. Public authorities

would need to ensure the running of the system and compliance by regulated entities with its

requirements.

Different competent authority structures in the EU ETS framework are encountered across

Member States (see Table 52). In most Member States more than one competent authority is

responsible for all activities of the ETS. Furthermore, in many Member States also involve

regional or local authorities in the administration for granting permission of installations,

inspection, monitoring, reporting and verification or other issues. For these reasons, and due to

possible coordination of monitoring and reporting with already existing requirements for the

purpose of excise duty, it is not possible to give quantitative figures on the administrative costs

incurred by regulators in the various Member States. Moreover, these costs could at least to some

extent be offset by the new auction revenues, depending on how they would be used.

Table 52: Competent authorities’ structures across Member States in 2018 in the current EU ETS

framework

Organi

ation

Number of

countries

Centralised system in which one

ompetent

uthority deals with all activities 6

related to EU ETS

Centralised system in which one

ompetent

uthority deals with all activities 7

related to EU ETS for aviation

Centralised system for MRV activities and inspection/enforcement while the 16

allocation and policy making, or auctioning are allocated to a different

authority.

137

Organi

ation

Number of

countries

Local or regional authorities responsible for permitting or inspection but one 5

entralised

ompetent

uthority for approving the monitoring plans, dealing

with changes to the monitoring plan, reviewing emission reports and

approving improvement reports.

Decentralised system where multiple local and regional authorities are 11

involved in inspection and MRV activities

Competent

uthorities that are responsible for

installation’s MRV activities

are organised differently than for aviation.

Source: ICF et al. assessment, European Commission, SQ Consult, UBA Vienna (2019), Application of the

European Union emissions trading directive - Analysis of national responses under Article 21 of the EU ETS

Directive in 2018

Looking at the setting in place of the system, the option whereby the existing ETS is extended

(option ETS_2) has the advantage that the use of the existing infrastructure such as registry,

auctioning arrangements

or competent authorities’ structures in the Member States for the new

sectors may be more obvious than if the new sectors are included into a new separate emissions

trading system (option ETS_3). Nevertheless, also for option ETS_3 it seems likely that existing

ETS infrastructure could to a certain degree be used. Whether emissions trading is extended to

only one or to two sectors would not affect the one-time costs for setting up the system

significantly.

Looking at the costs associated with the operating of the system, both options ETS_2 and ETS_3

would trigger recurring administrative cost and burden for regulated entities and public

authorities. The cost of monitoring, reporting and verification plays a crucial role in this respect:

for participants in the current EU ETS, the MRV cost has been estimated to represent about 70%

of the total transaction costs and average MRV costs per entity have been estimated at around

22,000 €/year and 0.07 €/tCO

2198

. Furthermore, administrative costs include fees for the use of

the registry

–

different across the Member States

199

Because of the large number of small emitters (many of which are private persons) and their

proportionally higher administrative burden and cost, a pure downstream approach such as in the

current ETS whereby the emitters themselves are regulated does not seem feasible when

extending emissions trading to the two sectors.

An upstream approach whereby not the emitters themselves but entities further up the supply

chain would be regulated, could to some extent remedy challenges stemming from the large

number of small emitters in the two sectors

200

. It must thereby be ensured that the chosen point of

regulation is technically feasible (volumes can be monitored and reported, and end use known),

198

Monitoring, reporting and verifying emissions in the climate economy, 25 March 2015, V.Bellassen, N.Stephan,

I.Cochran, J.-P.Chang, M.Deheza, G.Jacquier, M.Afriat, E.Alberola, C.Chiquet, R.Morel, C.Dimopoulos, I.Shishlov,

C.Foucherot, A.Barker, R.Robinson. Nature climate change, VOL 5, April 2015

199

https://ec.europa.eu/clima/policies/ets/registry_en#tab-0-1

200

For example, EDF have argued that a cost-efficient solution could be to place compliance obligations for small

emissions sources higher up in the supply chain, e.g. on fuel suppliers and distributors.

138

that incentives to reduce emissions can be passed on to consumers, and that the administrative

costs are proportional to the reduction effect.

An assessment against these elements shows that the regional distributors for gas

201

, tax

warehouses for oil

202

and distributors for coal could qualify for being upstream regulatory points.

Gas supplies (gas being the most important fuel in the building sector and playing a very small

role in transport) and oil supplies (oil being widely used in both transport and buildings) would

need to be regulated regardless of whether both sectors are submitted to emissions trading, or

only one of them. Coal supplies would only be relevant in case emissions trading is extended to

buildings (coal playing only a minor role in buildings at the EU level but with variation between

Member States).

While there are more than 2,300 regional distributors for gas, the cost of identifying supply

streams to buildings and filling stations is expected to be moderate: data on volumes and fuel

quality are already collected and since the delivery is done to end-customers, regional distributors

should be able to clearly separate fuel for use in road transport and the built environment from

fuel used for other purposes. On the basis of the individual consumption profile, gas distributers

should also be able to distinguish supplies to residential buildings from supplies to commercial

buildings. Though all of this will add additional transaction costs compared to a system that

would include all gas use in the ETS.

With respect to oil, the number of regulated entities would be high (there are approximately

7,000 tax warehouses) but the administrative costs for these entities would be moderate since

they are already heavily regulated and an administrative quantity metering system for monitoring

and reporting already exists for the purpose of excise duty. Not all tax warehouses know the final

user of their products and additional transaction costs will arise in the differentiation of fuels for

heating, fuels for road transport and fuels for other purposes

203

or in design variants when only

commercial buildings and freight transport are included.

With respect to coal there would be a relatively high number of regulated entities (there are about

3,000 coal distributors). In comparison to the markets for oil and gas, the administrative impacts

would be significantly higher since there would be many smaller regulated entities which have

hardly been regulated up to now and which would need to establish reliable monitoring and

reporting systems. Coal distributors would be able to identify the supply stream to buildings, as

they deliver to end customers but this clearly would increase transactional costs.

In principle also Transmission System Operators (TSO) could qualify as regulated entities, but given that TSOs are

not the legal owner of the gas, possible legal obstacles at this level would need to be considered.

202

Oil refineries could in principle also be chosen as point of regulation. In that case it would be necessary to also

regulate imported and exported oil, which is not the case for tax warehouses.

203

The CE Delft study noted with respect to transport fuels that “Currently,

not all tax warehouse keepers are able to

distinguish to which transport mode fuels are delivered. However, since many tax warehouse keepers act also as excise

duty points and since at these levels in many Member States different fuel tax rates are applied for road, rail and IWT

transport (and also for agricultural and construction vehicles), it should be technically feasible to made this distinction

at every tax warehouse. However, this may require an extension of the monitoring and reporting obligations set for

tax warehouse keepers.”

With respect to heating fuels, the CE Delft study noted that “Some

countries use the same

tariff for fuels used for heating purposes and fuels used in other sectors. In these countries the excise duty

administration might not be sufficient to distinguish between fuel use in the built environment and fuel use elsewhere

(…) and additional measures will have to be taken to include fuel use in the excise duty administration for the purpose

of the ETS.”

201

139

With more effort, it also seems possible to distinguish between the commercial and private

buildings. Nevertheless, the monitoring of coal supplies can be expected to be less accurate than

oil and gas supplies, with more room for error and fraud, because of the variation in coal quality,

difficulties to identify all regulated entities and all of their deliveries, and because of difficulties

to control import and export. Adequate measures would need to be put in place to mitigate this

risk

204

The above shows that as a result of the extension of emissions trading to the two sectors as

foreseen in options ETS_2 and ETS_3, the number of regulated entities would more than double

compared to the current number of regulated entities under the EU ETS. However, it can be

expected that the monitoring and reporting rules that would be adopted for the upstream regulated

entities would be not more complex as compared to the current EU ETS system. In the new

sectors, only sales of largely standardised fuels for combustion purposes would be monitored.

The calculation of emissions could continue to rely on emission factors, as in the current system.

While tax warehouses and gas distributors are already heavily regulated entities which facilitates

their identification and supervision, there would be more efforts for the regulators to identify and

supervise the coal distributors.

The above also shows that limiting the upstream regulation to certain sectors can only be done

with considerable effort, as from the upstream perspective, the tracking of fuels over the supply

chain would be cumbersome and would give rise to complexities. This would be in particular the

case for oil where tax warehouses often do not have a direct relationship with the end user of the

supplied oil. Adopting an upstream approach when extending emissions trading to the two sectors

as foreseen in options ETS_2 and ETS_3 would lead to a hybrid system whereby the sectors

currently already covered under the well-established and well-functioning EU ETS would

continue to be regulated downstream.

Any risk of double counting (e.g. upstream coverage of fuel being supplied to installations

already covered by the EU ETS) or risk of loopholes (e.g. larger non-ETS gas consumers that do

not purchase their gas from the distributors but have instead a direct connection to the gas TSO

network) would need to be assessed and addressed appropriately. While this could in theory be

done notably by providing for ex-ante exemptions when the regulated entity knows the status of

the end consumer, and where necessary, compensation regimes to avoid double coverage or

specific arrangements for firms that would otherwise not be captured by the regime, the practical

design of such mechanisms would undoubtedly pose very complex challenges.

205

These

challenges led Germany to include in its national ETS not only heating and transport fuels, but

also fuels for small industry emitters not covered by the EU ETS, while foreseeing at the same

time exemptions from the national ETS for EU ETS installations.

If all fossil fuels emissions were included into an emissions trading system, it would not be

necessary to differentiate between individual sectors. This would address to a certain extent

boundaries issues identified above and could reduce administrative impact. Still, the challenges

204

This could include for example requiring coal suppliers to monitor both coal they purchase and coal supplied to

end-users in a mass-balance approach, and an assumption that in principle all coal that passes through a supplier is

intended for end-users in the built environment, unless proven otherwise.

205

For a detailed analysis of the important practical challenges of an extension of emissions trading to sectors not

covered by the EU ETS, see

Felix Matthes, “Ein Emissionshandelssystem für die nicht vom EU ETS erfassten

Bereiche”, available at

https://www.oeko.de/fileadmin/oekodoc/Emissionshandelssystem-fuer-nicht-vom-EU-ETS_-

erfassten-Bereiche.pdf

140

coming from the combination of an upstream and downstream model (i.e. replacing the EU ETS

with a new EU-wide-all-fossil-fuels upstream emissions trading system) and the risk of double

counting would exist and need to be addressed. While a shift to a full upstream model may be

seen to solve MRV issues, it would mean an overhaul of the ETS, which has proven to work

well.

There may be also some administrative impacts resulting from the ETS coverage of certain

sectors while maintaining them (transitionally) in the ESR under options ETS_2.2 and ETS_3.

First, ESR administrative rules would continue to apply. However they are generic and the

administrative costs related to ESR implementation are limited and are independent from the

emission scope, as they always start from GHG inventory emissions deducting (or not) emissions

covered by the EU ETS

206

. Second, there may be complexities resulting from differences in

emission calculation methods under the EU ETS and under the GHG inventories. This would

need to be further analysed as part of any legal proposal, however, there is ample experience

from dealing with such issues and related risks for ESR compliance for the industry sector, where

such calculation methods differ more strongly.

The administrative impact under option ETS_4 would depend on the sub-option chosen. To the

extent that the sectors are included into an emissions trading system, similar considerations as

those formulated above regarding the level of regulation, the need to identify sector fuel use and

challenges coming from the combination of an upstream or downstream approach would apply. It

is moreover likely that precise coverage and regulation in the different MS would differ leading

to a heterogeneous design.

On the positive side, the systems could be more tailor-made in function of the existing situation

in the MS (and take into account for example the country’s existing excise duty regime). If an

obligation for a carbon tax is put on MS (several of which have already adopted such carbon tax),

the tax would most likely apply to the same entities as those that would be regulated under an

emissions trading system.

Where necessary, measures would need to be taken to distinguish, where this is not yet the case,

fuels covered by the carbon tax from those not covered (such as fuels supplied to current ETS

systems). A tax is expected to have an advantage that has lower start-up costs and subsequent

operation. The use of the existing tax infrastructure may be more obvious than with an emissions

trading system. A revision of the Energy Taxation Directive, which is a possibility for

implementation of this option, would require unanimity among MS. Future energy policy

framework (including transport aspects).

206

See for details section 5.6 of the impact assessment of the Effort Sharing Regulation proposal, Commission

SWD/2016/0247 final.

141

9.8 Sector specific analysis of climate and energy policy interactions

This annex complements the analysis in section 6.8 on the interactions of climate and energy

policy architecture and increased carbon pricing with sector specific considerations for the key

relevant sectors, buildings/ heating and transport sectors.

Specific considerations for the buildings/ residential and services/ heating sector

Increasing the synergies between energy efficiency policies for buildings and policies fostering

renewables deployment in heating & cooling and future more stringent energy efficiency

standards for buildings, heating and cooking appliances and other equipment would require

intensified policies to remove barriers and hassle related to renovations. Some previous EU

attempts to introduce mandatory measures in this area have incurred in the past subsidiarity

concerns. The EU financing has focused more on regions eligible under cohesion funding,

although the instruments foreseen within the framework of the Recovery Plan could change the

picture.

Only a limited number of Member States and countries in the world use the pricing of the carbon

content of heating fuels through taxation or emissions trading as significant policy leverage. In

the residential and commercial sector 78% of emissions of 42 OECD and G20 countries are not

subject to a carbon price. Sixteen percent are priced between EUR 0 and EUR 30/tCO

, and 6%

above EUR 30/tCO

2207

. Often there are economic and social reasons invoked for this, as the

demand for heating fuels is also dependent on weather conditions and very inelastic to price in

the short term. In the longer term household energy demand has been more price elastic, with

values ranging from 0.23 to 0.5 in the EU and its MS

208

. Sweden is an example of a Member

State which uses since long carbon taxation as key driver for reducing emissions and increasing

the use of renewable energy, with recent tax rates set at EUR 110. It has been a key driver for

large emission reductions in the building sector by reduced emissions from heating of homes and

premises

209

In the buildings sector, the interactions of carbon pricing instruments with the horizontal energy

efficiency instruments are more complex and require a careful design of the policy architecture.

One of the main instrument of the EED is set in Article 7 that requires achievement of a

cumulative energy savings target by 2030. This requirement drives to a large extent measures in

the buildings sector. According to the information submitted in the NECPs (Annex III), in the

period from 2021 to 2030 at least 52% of the energy savings will be realised on buildings (the

remaining 48% would come from cross-cutting measures which could also target buildings).

These are to be achieved either via energy savings obligations scheme, which are currently in

place in 15 EU MS, or alternative measures. Depending on the type of carbon pricing introduced,

the implications for the functioning of Article 7 would be very different.

207

OECD (2018): Effective Carbon Rates 2018: Pricing Carbon Emissions Through Taxes and Emissions Trading,

OECD Publishing, Paris.

208

ICF et al. forthcoming

209

E.g. Nilsson, Lars J. et al., In the Light of the Future

–

Steering towards Zero Emissions in 2050 (in Swedish),

Climate

Research

Programme

LETS

2050

Lund

University,

2013,

https://www.lth.se/fileadmin/lets2050/Rapporter_o_Abstracts/130522_I_Ljuset_av_LETS_2050_webb.pdf,

Ricardo

Energy and Environment, Sweden Energy and Carbon Tax Policy. 2018,

https://es.catapult.org.uk/wp-

content/uploads/2018/10/Sweden-Case-Study-FINAL.pdf

142

The introduction of a carbon taxation as in option ETS_4 would have direct impacts on the

alternative measures provisions. Given that the alternative measures have to be additional to

those set by the EU legislation, the introduction of EU (or EU mandated national) carbon pricing

taxation as analysed would not be accounted as an alternative measure under the EED.

Furthermore, given that minimum tax level would be set at the EU level, the existing national

taxation measures could not be accounted for under Article 7 if they are not above the EU

minimum. Assuming an unchanged EED this would limit the possibility for MS to use taxation as

a measure to comply with Article 7 and therefore Member States would have to seek new energy

efficiency measures to comply with Article 7 energy savings obligation, or the specifications

would need to be adapted.

The example of France shows that carbon taxation could complement the energy savings

obligation scheme (ESOS). The French carbon tax includes the building sector and co-exists with

a white certificate scheme that obliges energy suppliers to promote energy efficiency measures

among their customers through the trade of energy efficiency certificates. Both schemes create a

price signal aimed at reducing demand for energy. The carbon tax of EUR 45/tCO

currently

corresponds for natural gas used for heating purposes to EUR 8.45/MWh, while the ESOS price

incentive corresponded in February 2019 to EUR 4.00/MWh. The instruments were found to

complement each other, as they reinforce the incentives under each instrument. The energy

efficiency schemes also mitigate against disproportionate impacts on low-income households,

which may lack the capital to invest in energy efficiency in response to increased energy prices

resulting from the carbon tax

210

In case of an extension of the ETS system to buildings (therefore covering not only district

heating and electric heating/ heat pumps, but also gas, oil and coal consumption for heating

purposes) or of an equivalent carbon taxation instrument, a significant additional price incentive

for heating fuel savings and the switch to renewable heating could be provided. The energy

efficiency measures promoted by the EPBD and the EED would likely become more cost

effective, due to higher costs for building heating as a consequence of ETS implementation. This

could therefore accelerate progress towards achieving the targets in the EED and increasing

renovation rates, depending, however, significantly on the level of the carbon price or taxation.

However, the functioning and effectiveness of the energy savings obligation schemes as key

delivery instrument could be affected. The two instruments would most likely have to rely on the

same regulated entities, which could not always be easy to implement, because the obligated

parties under the Article 7 energy savings obligation schemes are defined differently depending

on the country. Usually these cover energy suppliers, but can also be energy (network)

distributors. This potential overlap is not for instance an issue in Germany, in which an ETS

targeting the residential sector is under development, because Germany does not rely on ESOS to

achieve the energy savings target but on alternative measures.

Furthermore, such extension of the ETS could limit the possibility to pass the extra costs to

consumers and would reduce the options and the capacity of the obligated parties to deliver

abatement measures, as a carbon price would incentivise end-users for the same actions as

typically pursued under the obligation schemes. The impact on administrative burden would also

need to be carefully considered.

210

ICF et al. forthcoming

143

Concerning the Energy Performance of Buildings Directive, a possible extension of ETS to

buildings will be confronted with existing market conditions as the majority of the barriers to

energy renovation of buildings are local and often non-economic, whilst the ETS is primarily a

tool to address economic barriers e.g. to fuel switching, even if it also makes energy services to

address other barriers more profitable. The coverage of buildings by emissions trading could also

influence the cost-optimal minimum requirements for new and existing buildings. Due to the

impact on the cost-optimal balance between the investments involved and the energy

performance improvements saved throughout the lifecycle of the building, Member States may

need to revise their minimum requirements accordingly. Normally, these standards need to be

revised every five years in any case under the EPBD to reflect market conditions and

technological developments. Finally, there is a question to be addressed about interaction of the

financial incentives that Member States are encouraged to put in place under Article 10 of the

EPBD and the ETS market.

Similar considerations apply on the likelihood of interactions with the heating and cooling

provisions under the Renewables Energy Directive, under an upstream approach in the ETS.

There are already measures in the RED and the ETS being used complementarily tools in the

electricity sector, so this administrative burden is likely to be manageable

211

. However an ETS

alone would not address completely long entrenched barriers that still exist across the whole

heating and cooling sector, such as the lack of information, lack of capacity to structure financing

and projects, lack of skilled installers, lack of institutional capacity of heat planning, perceived

risks and fragmented nature of renewable heating and cooling solutions. These barriers result in

more limited price elasticity leading to suboptimal outcomes if using price signals alone, such as

taxation or carbon pricing, but can benefit from specific measures and targets together with an

overall adapted regulatory framework, through which such carbon price signals can fully exercise

their impacts.

Specific considerations for the (road) transport sector

Already in the current EU policy set-up there are interactions between classic transport policies

(i.e. regarding infrastructure, pricing and increasingly also connectivity) and energy and climate

oriented transport policies, notably between the renewable fuel obligations under the recently

adopted Renewable Energy Directive, the Fuel Quality Directive, the CO

standards for vehicles,

Alternative Fuels Infrastructure Directive, Eurovignette Directive that aims at the gradual

internalisation of external costs (also beyond GHG emissions) and the minimum taxation for

motor fuels under the EU Energy Taxation Directive. In addition, the Alternative Fuels

Infrastructure Directive, Energy Performance of Buildings Directive and electricity market

legislation support the rollout of recharging and refuelling infrastructure for zero-emission

vehicles. Legislative and other instruments in the field of transport are numerous and policy

interactions are acknowledged.

Member States can, for example, express the renewable fuel obligation as a requirement to

reduce the GHG emission intensity of fuels, providing the RES-T share targets are met. The

recently adopted CO

standards for vehicles for 2025 and 2030, including further provisions

incentivising the deployment of zero- and low-emission vehicles, are expected to be an effective

driver for higher efficiency and switch toward zero-emission vehicles providing certainty for the

211

ICF et al. forthcoming

144

roll-out of the related alternative fuels infrastructure, with benefits for consumers in terms of

lower fuels bills, contributing to energy security and stimulating investments into the

technologies needed for the transition towards zero-emission mobility. Altogether, these policies

combined are projected to overachieve the minimum target set out for RES-T in 2030 in the

Renewable Energy Directive by nearly 4 p.p.

212

An intensification of these policies as indicated in section 5.2.2.2 and 5.2.2.4 and reflected in the

REG and MIX scenarios would increase these policy interactions. A further mainstreaming of

renewable and low carbon fuels, beyond the current obligation on Member States to set an

obligation on fuel suppliers to achieve a share of at least 14% renewable energy in the transport

sector in 2030, including at least 3.5% of advanced biofuels and biogases, would further decrease

the GHG intensity of fuels and facilitate the market diffusion of zero or low emission vehicles.

The changes are most pronounced in the road transport as here stricter vehicle CO

standards for

2030 further incentivising the deployment of zero- and low-emission vehicles would not only

foster further specific emission reductions but also energy efficiency. For a quicker market

uptake, a large-scale roll-out of recharging and refuelling infrastructure would be needed. A

strengthening of minimum energy taxation (e.g. alignment of minima on energy content for

diesel and petrol and mirroring the alignment in terms of energy content at MS level) could foster

the wider uptake of more energy efficient vehicles but would not necessarily incentivise further

emission reductions in the extent needed to achieve the GHG ambition. Here in addition

minimum incentives for low and zero emissions vehicles in vehicle taxation would be needed if

no carbon content element would be added.

This comprehensive policy mix, if highly intensified compared to current policies, which reduce

emissions in road transport with 16% compared to 2015 by 2030, could increase road transport

emission reductions by 5 p.p. to -21% (REG). It could lead to around 2 percentage points bigger

reductions in transport emissions than using carbon pricing as main additional policy tool

(CPRICE), to some extent also a result of a stronger reduction in transport energy demand, by 4%

in REG compared to baseline instead of 2% in CPRICE.

Looking at all transport modes, there are already currently interactions of the analysed specific

policies with carbon pricing instruments. Aviation emissions and emissions related to electrified

rail and electric vehicles are covered by the EU ETS, amounting to less than 10% of total

transport emissions. This share is expected to increase, notably through the increased use of

electric vehicles. Inclusion of domestic and intra-EU maritime emissions under ETS as proposed

by the European Green Deal is analysed in all policy scenarios.

Carbon pricing in road transport is also mentioned as an option to consider by the European

Green Deal and there is already some experience of such policy. Several Member States (i.e.

Denmark, Finland, France, Ireland, Luxembourg, Portugal, Slovenia and Sweden) apply specific

carbon taxes for road transport as part of the fuel excise duties and electricity taxes, albeit with

varying levels

213

. An OECD study on effective carbon pricing in 42 OECD and G20 countries

found that in the road transport sector 34 of the 42 countries covered have already an implicit

212

Based on the methodology set out in the Renewable Energy Directive, which applies multipliers for the calculation

of the RES-T share.

213

European Commission,

Transport taxes and charges in Europe

–

An overview study of economic internalization

measures applied in Europe

(2019), p.27

145

effective carbon rate above €60/tCO

, significantly stronger than in other sectors

214

. In the EU,

the implicit carbon prices implied by the current nominal minimum energy taxation rates are

around

€150/tCO

per for unleaded petrol and around €120 for diesel. Current unweighted EU27

averages of implicit carbon prices resulting from adding national energy and carbon taxation

rates are around €240/tCO

for petrol and €160/tCO

for diesel

215

An EU carbon

price of €60/tCO

in 2030 which adds to the national energy and carbon taxation,

combined with a low intensification of CO

emission standards for vehicles and of the policies to

improve the efficiency of the transport system and shift activity to more sustainable transport

mode (as in CPRICE scenario) increase emission reductions below 2015 levels compared to

baseline by 3 p.p. to 19%.

This policy combination with an EU carbon price would enhance electrification and create a

more level playing field with fossil transport fuels and thus improve energy efficiency, reducing

final energy demand in transport by 2% compared to baseline. It would incentivise an increase of

the renewable energy share in transport by 45 p.p. compared to baseline, to 22% in 2030. While

an additional €60 carbon price combined with CO

standards and other policies can deliver

emissions reduction, carbon pricing alone would be less effective. For example, it has been

estimated that for achieving a 2030 target of 60 g CO

/km (measures according to the NEDC)

without CO

standards and only via carbon pricing, the average EU ETS price would need to be

significantly higher (in that study €218/tCO

)

216

In general terms the estimated low short term price elasticities of road transport, which limit the

effectiveness of carbon pricing, are due to the long investment lead times of private car users.

The relatively low price elasticities in general are due to the fact that private consumers typically

severely discount future fuel savings, only taking these into account on average up to a time

horizon of a few years

217

. The long-term elasticity of freight transport is higher than for passenger

transport. For commercial users and freight companies, the barriers highlighted are information

asymmetries of SMEs compared to suppliers, limited access to finance and for lorries often also

split incentives as the drivers do not pay the full fuel costs

218

The implementation of emissions trading for road transport could build on synergies with the

Energy Taxation Directive. The transport fuels concerned are held in tax warehouses until they

are released for consumption, at which point the excise duty must be paid. The amount of these

fuels which is consumed for transport is therefore monitored and registered by tax warehouses.

An upstream ETS inclusion for transport could likely rely on these mechanisms.

These considerations lead to the conclusion that in the transport sector the question is not about a

regulation driven versus a carbon price driven policy mix, but about the extent and level where

these different elements already present in the current policy mix are provided. For example, ETS

OECD (2018): Effective Carbon Rates 2018: Pricing Carbon Emissions Through Taxes and Emissions Trading,

OECD Publishing, Paris

215

ICF et al. (forthcoming)

216

Cambridge Econometrics, The Impact of Including the Road Transport Sector in the EU ETS, 2014. Available at

https://www.ebb-eu.org/EBBpressreleases/Cambridge_ETS_transport_Study.pdf

217

See e.g. Greene, D. L., Evans, D. H., Hiestand, J.,

Survey evidence on the willingness of U.S. consumers to pay for

automotive fuel economy (2013).

In: Energy Policy. 61, pp. 1539–1550.

218

European Commission,

impact assessment Accompanying the document Proposal for a Regulation of the European

Parliament and of the Council setting CO2 emission performance standards for new heavy duty vehicles,

SWD(2018)

185 final, pages 12-16.

214

146

coverage together with existing tax levels and CO

standards for vehicles are complementary

instruments, acting as incentives on the fuels use and on the introduction of technologies

respectively. Just like higher carbon taxation or a revised Eurovignette along the lines of the

Commission proposal, it would increase the price of every additional kilometre driven and

increase the incorporation of externalities by the sector

219

There is possible overlap between REDII, the Fuel Quality Directive

220

and ETS coverage of road

transport, as both could incentivise the use of renewable and low carbon fuels. However, as the

abatement costs of renewable and low carbon fuels are relatively high, it is unlikely that ETS

inclusion would have a significant impact here

221

In case of a further strengthening of the carbon pricing element next to a targeted intensification

of specific regulatory energy and transport policies, it needs to be carefully weighed if this should

better occur at EU level by introducing emissions trading (options ETS_2 and ETS_3 in section

6.7) or at the currently dominating national level, leaving a choice between national emissions

trading and carbon taxation (or EU ETS opt-in, option ETS_ 4 analysed in section 6.7).

For an analysis to what extent transport has not yet incorporated all externalities, see also the Handbook on the

external costs of transport Version 2019

https://ec.europa.eu/transport/sites/transport/files/studies/internalisation-handbook-isbn-978-92-79-96917-1.pdf

220

“The Commission decided in 2016 to pursue renewable mainstreaming

measures in the transport sector through the

proposal recast of the Renewable Energy directive, finally adopted in 2018”.

221

CE Delft,

Analysis of the options to include transport and the built environment in the EU ETS

(2014), p. 60

219

147

9.9 Extended analysis on the role of the LULUCF policy architecture in

achieving increased ambition in GHG removals

Current policy (Baseline: Option LULUCF_1) is focussed on ensuring that Member States do not

backslide in the LULUCF sector compared to the evolution of the sink under ‘current practices’.

This approach, however, places the commitment against the counterfactual of a decreasing forest

sink, predicated on a reduced forest growth due to aging forests in the majority of zones in the

EU27. By relating only to national greenhouse gas inventory results, the legislation also does not

define any EU markets to internalise the positive impacts of carbon sequestration. It also still

relies partly on data on carbon sinks that is incomplete or collated at a coarse level.

The decrease in reported sink is largely due to a reduction in forest sink (on managed forest

lands) dominated by a handful of Member States with important divergence from historical

trends in their forestry sectors, as well as natural hazards such as fires and pests.

Projections from modelling show a limited impact in the medium term (2030)

–

a consideration

that remains one of the limiting factors in engaging in action with LULUCF. Conversely, the

Long Term Strategy

222

showed that an increase of the net reported sink for the EU28 in the range

of -300 to -500 MtCO

-eq

/year by 2050 should be favoured (Figure 91). Options to better

prepare for expanding the sink in the decades that follow in preparation of the shift to a climate

neutral bio-economy are therefore required.

Figure 91: Emissions profile by 2050 for selected climate-neutral scenarios of the in depth analysis

supporting the EU Long Term Strategy

2500.0

2000.0

1500.0

MtCO2eq

1000.0

500.0

0.0

-500.0

-1000.0

LULUCF

Power

Transport

1.5TECH

1.5LIFE

1.5LIFE-LB

Carbon Removal Technologies

Industry

Tertiary

Source: PRIMES and GLOBIOM models

What can be the LULUCF sector’s contribution to achieving the

-50% to -55% GHG

reductions?

The climate-neutral scenarios of the in-depth

analysis underpinning the communication “A clean

planet for all” are clear: to be climate neutral by 2050 and a net GHG remover thereafter, the EU

will have to rely on a substantial amount of carbon removals, going beyond the current 264

222

See In-depth analysis document:

https://ec.europa.eu/knowledge4policy/publication/depth-analysis-support-

com2018-773-clean-planet-all-european-strategic-long-term-vision_en

148

MtCO

-eq/year LULUCF sink reported today. Both nature-based and technological solutions are

required to offset around 500 MtCO

of residual fossil and non-biogenic emissions that are too

difficult or costly to abate.

However, the immediate contribution of LULUCF in the shorter term is more nuanced. Acting on

deforestation can have an immediate impact, whereas afforestation or fundamental adjustments to

forest structure (species, age class distributions) to generate more sink will take decades (section

6.2.3). A renewed focus towards natural restoration and “old growth” forests requires stands to

develop over centuries, so as to become “old” and develop substantive carbon stocks –

although

existing stocks are key factors in this equation, too. Soil carbon restoration may also take decades

to be significantly improved. The long-term transition needs to be planned urgently and

implementation started with a sense of urgency.

In the period up to 2030, therefore, the most promising mitigation measures relate to emission

avoidance from agricultural land (histosols), perennial cropping, changes in harvest intensity,

optimization of thinnings, and afforestation. Many of these actions are synergistic with action on

biodiversity, if handled in a manner appropriate for the local context. Annual mitigation of 50

MtCO

to 80 MtCO

annually is considered technically feasible across EU27. However, there is

an emerging mismatch between responsibility for action, incentives and governance, and actors

and financing sources.

Along the pathway to a climate neutral bio-economy, it is of key importance to properly assess

the interlinkages between the dynamic of the forest sink, the use of biomass in other sectors of

EU economy and any associated environmental impact, including indirectly the impact on carbon

stocks due to displacement of other land-based activities. Afforestation, reforestation

223

and

reduced deforestation are obvious options to increase the coverage of EU forests potential,

together with possible co-benefits of many other ecosystem services such as biodiversity and

reduced risks of soil erosion, floods, and air and water pollution. Land is a finite resource and

extending forest coverage may, if carried out over large scales

224

, intensify the competition for

land with other sectors of the economy. Afforestation for instance may displace agricultural

production of food, feed, fibre or energy, and subsequently increase GHG emissions in other

sectors.

Territorial imbalances

The current baseline deliberately restricts Member States from optimising LULUCF action (e.g.

afforestation or land use restoration) at the best location in the Union. Instead, it requires the

action to take place within a Member State’s territory. Consequently, the first

most significant

conclusion of the baseline policy approach is that not only would the incentive for action be

limited in geographic scope, but that also action in the sector would not be cost-efficient. This

also partly explains the relatively limited uptake of action so far in the sector.

Furthermore, according to the IPCC

225

, global land use will undergo very significant transitions

over the next three decades. These changes are caused by shifting weather and climate patterns,

as well as by increased demands on biomass, agricultural and forest feedstocks in general, and

competing demands for land to produce them. This dynamic also translates at the level of the EU,

and will have a significant impact on removals from forests, emissions from crop production,

223

224

i.e. the re-planting of harvested forest land with better adapted mix of species

IPCC Special report on Climate Change and Land

https://www.ipcc.ch/srccl/

225

Ibid.

149

livestock management etc. Long-term optimisation of sustainable land use will be a major

challenge that starts already this decade.

The increased action to redress the loss of biodiversity experienced over the past decades on the

EU’s territory will also

require substantial land management change. These can however become

positive actions for climate, for example where protected areas underpin nature-based carbon

storage and carbon sequestration. A similar response may be identified for climate adaptation

actions, where these lead to the reduction of natural hazard effects created by drought, fire and

pest.

What policy architecture could we use?

Based upon the Kyoto Protocol rules, the current regulation presents a potential mismatch

between actors (individuals) directly managing land on the one hand, and state-level

responsibility and interests on the other. For the latter, relatively weak definitions of global level

rules and governance provide only a limited mandate to act; and for the former, only

exceptionally direct incentives are tangible either via pricing or specific regulatory

–

and usually

nationally focussed

–

frameworks. The currently adopted EU legislative framework, while

respecting the EU’s international commitment under its NDC, only acts

as a floor against which

Member States risk being penalised.

Instead, a better match between the actors and the (financial, cost-driven) incentives needs to be

made to unlock the significant mitigation potential offered by land, thereby mobilising the

necessary financial means to reward action. Such an architecture could build on the current

LULUCF accounting framework, be it through eco-schemes or the Rural Development

Programme in the Common Agriculture Policy through direct rewards to farmers and foresters.

However, the CAP alone cannot be taken as sufficient to deliver the total carbon sequestration

needed; the distribution of CAP financing is not indexed on this priority alone, and will also not

relate to dynamic factors such as biomass pricing signals.

As a starting point, voluntary frameworks for trading additional action on land between private

actors should be fostered; even if this approach would need to be correctly integrated into the

national inventories reported at EU and MS level to be meaningful. The development, in due

course, of a comprehensive regulatory framework for certification of carbon removals based on

robust and transparent carbon accounting

–

as announced in the Circular Economy Action Plan

226

–

would provide certainty to all actors and enable a larger deployment of carbon removal

solutions. As set out in the Farm-to-Fork strategy

227

, the Commission is piloting

–

together with

local actors

– “carbon farming” initiatives to provide financial incentives to farmers and foresters,

financed by the means mentioned above or through EU programs such as LIFE

228

or in the

framework of the recovery package.

The LULUCF regulation and related framework should therefore be developed to better enable

such initiatives at the level of Member States or private market actors. This can be done through

strengthening of existing rules, introducing LULUCF targets set at national level; or increasing

existing flexibility for Member States to use their sink to compensate hard-to-abate emissions in

226

227

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2020:98:FIN

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020DC0381

228

https://ec.europa.eu/clima/policies/budget_en

150

other sectors of the economy; or through a combination of these approaches. The key issue is to

ensure that the relative pricing of action and carbon sequestered is optimised to the extent

possible, and to avoid that carbon is instead imported or emissions “leaked” through

land use

“displacement”.

Increasing the flexibility of LULUCF credits towards the ESR and/or ETS

With regard to the flexibility towards the ESR, Member States are today the sole actors in terms

of generating LULUCF credits and buying/selling LULUCF credit. This means every Member

State has the sole responsibility to design national incentive schemes to transmit a carbon price

signal to their farmers and foresters. However, few Member States have presented ambition to

exploit this path, and very few programmes are being developed with significant ambition.

Instead, Member States have preferred to remain cautious over the enhancement of removals in

the sector. Under this assessments baseline, removals slightly increase by 2030 and are in the

medium term (2030-40) likely to remain stable (see section 6.2.3). A key part of a revision of the

2030 framework needs therefore to be directed towards removing the existing barriers in the

current architecture, and increasing the incentives to take more action both at Member State level

and (in contrast with the current LULUCF Regulation) at the level of farmers and foresters.

Raising ambition through more stringent rules

A further option to increase sink is to place more stringency in the accounting system. Such an

approach may be justified in view of the risk of decreasing sink at EU level, and the competing

complex demands on land and biomass, and the complexities in the existing system concerning

the setting of the Forest Reference Level benchmarks for each Member State. Introducing a more

stringent sectoral LULUCF target would theoretically require Member States to introduce

incentives to generate more sink than under current policies and plans.

However, unless the existing flexibility from the ESR

–

which also serves as the last resort

compliance mechanism for the whole of the non-ETS including LULUCF

–

is closed, such extra

‘sink’ may be delivered by sectors other than

LULUCF, or by action outside the national

territory. The governance of the two sectors would therefore need to undergo revision, possibly

also including reciprocal adaptations of the current LULUCF flexibility under the ESR.

In the long-term, the optimal level of the forest benchmark would need to be determined, such

that the foresters have sufficient and adequate financial and regulatory incentives for additional

action. Land managers could be encouraged to engage in win-win actions for climate and

biodiversity, such as the rewetting of organic soils and peatlands as well as afforestation projects

in line with the Biodiversity Strategy (also including agroforestry). These areas offer good

opportunities to spearhead the development of carbon removal credits and to develop reliable

MRV rules.

On the one hand, a framework should emerge such that the other sectors do not transfer windfall

profits from decarbonisation (for example, through the low-cost access to biomass) to actors, for

forest growth and harvesting that would happen in any case. On the other hand, the framework

should also avoid an overloading of the use of imported biomass, for which the climate

mitigation credibility may be called into question. The necessary regulatory mechanisms to

achieve this balance should be examined in future impact assessment work, upon the selection of

the overall policy architecture, and be based upon a much more economically oriented discussion

on the optimal pricing incentives.

The pathway to a 2050 climate neutral bioeconomy

151

In the case that the sectors included in the ESR would be considerably changed, e.g. all energy

emissions would be included in the EU ETS and taken out of the scope of the ESR (see

section 6.7), or when they are reduced to marginal size, agricultural emissions would become

relatively isolated. These may become the dominant component of what is today the ESR, and

hence be assigned a

de facto

sectoral target in accordance with the legislative framework agreed

in 2018. The non-ETS sectors

–

including LULUCF

–

would in effect be an extended form of the

IPCC’s combined Agriculture, Forestry and Other Land Use (AFOLU) configuration

229 230

. Given

that biomass related emissions in other sectors are conceptually set to zero by the IPCC, the

removal and emissions scope of these sectors also corresponds to the biomass related emissions

of the bioeconomy.

Such a configuration would imply that flexibility to offset non-CO

emissions from agriculture

with LULUCF carbon removals is widely available. Member States’ sectoral targets would likely

be based on their (very heterogeneous) potential for carbon removals and emission reductions.

Thus, these targets differ widely: while in some Member States the combined sectors will have to

become a net sink, in others it may still remain a source.

The EU-wide market for carbon removals (discussed above) may again prove a useful instrument

to address this geographic heterogeneity. New digital technologies and governance models would

facilitate the individual certification of carbon removals, making them robust and trustworthy.

For instance, livestock farmers or biomass users could compensate their emissions by buying

carbon removals from forest or wetland owners geographically distant and within the EU. Again,

national accounting registries would be adjusted to cater for traded emissions and removals.

Finally, this provides scope for larger operators, for example dairy producers under the ETS, to

link with credits or specialised allowances under the EU ETS (of course, depending on the ETS

ambition and scope).

Overall, even if such LULUCF sectoral targets were achieved by Member States, the EU net sink

as reported in the inventory is not guaranteed to increase across the EU. In summary, the setting

of the Member State level target may require:



A detailed individual sub-sector analysis (cropland, managed forest land, etc.), to help

determine the fair and cost effective effort beyond the (accounting rule) baseline; or

The re-adjustment of the LULUCF Regulation accounting rules to a more stringent level:

most obviously the simplification of the forest related benchmark. The international risks

for the EU, should a move away from long established conventions be selected, must be

considered.

The redesign of the governance and target compliance framework, separate from the

ESR, that is currently absent in the LULUCF Regulation (and would also require

fundamental adjustments to the ESR legislation too)

The redesign of the internal LULUCF flexibility rules, to oblige sink increase (target

compliance) in each individual Member State before flexibility and trading of the benefit

of the sink elsewhere (geographically) or in other sectors.



229

See 2006 IPCC Guidelines for National Greenhouse Gas Inventories, Volume 4. Agriculture, Forestry, and Other

Land Use,

https://www.ipcc-nggip.iges.or.jp/public/2006gl/vol4.html

230

For reporting, Agriculture and LULUCF are still reported separately, consistently with the Paris Agreement

rulebook (decision 18/CMA 1).

152

153

Box: Incorporating LULUCF into the target metric

The current 2030 climate legislation uses a metric showing reductions of fossil emissions compared to a

base year, ignoring the reported information from LULUCF. However, the move to a future paradigm

under the Climate Law proposal -

where fossil emissions are marginal, and the key to “climate neutrality”

is the correct accounting of biogenic emissions and balancing of any residual non-biogenic emissions

–

means that at some point a move to a new metric to describe the advancement towards climate neutrality is

required.

A decision therefore needs to be taken as to when the accounting framework should move from

‘accounted’ LULUCF to ‘reported’ LULUCF metrics. The re-framing

of the EU baseline would place it in

line with the Paris Agreement and Climate Law proposals, where reported GHG anthropogenic emissions

and removals are aggregated each reporting year to determine the achievement of climate neutrality. In this

sense, the direction of assessing the achievement is clearly towards the reported (rather than accounted)

GHG inventories.

While attractively simplifying the EU target framework, the application of LULUCF reporting values in

the computation of a pathway/reduction compared to a base year (e.g. 1990) raises a number of

considerations:



Total GHG emissions including the full reported LULUCF sink (though excluding international

maritime and aviation emissions) have reduced by 1.3% more over the period 1990-2018 than the

conventional computation excluding LULUCF. Redefining the baseline by including the full

reported LULUCF sink may be perceived as a “windfall” use of the sector, even though

it would

also fully capture any potential negative impacts on the performance of the overall LULUCF sink,

including increased harvesting, forest stand ageing or natural hazards such as forest fires.

If LULUCF sink is assumed constant at 2018 levels - and other emissions decline

–

the difference

in relative achieved reduction with or without inclusion of the LULUCF grows. This is a crucial

feature of the transition to climate neutrality. If the EU manages to enhance its sink to around 500

MtCO

, the EU would achieve climate neutrality when non-LULUCF emissions are reduced by

90%, compared to 1990.

Reliability of LULUCF data

–

which have shown variability and uncertainty

–

from 1990 is

certainly questionable, especially if broken down to Member State level; indeed, such

uncertainties (particularly bias of estimates of significant carbon pools) has led to the development

of a complex set of accounting rules to minimise these effects. Agreeing which verified data

would be used may be difficult

231

. The current LULUCF regulation, for example, has selected a

period (2005-2009) as an average to help address such concerns.

Inter-member state variability: some of the 27 Member States will present already significant

LULUCF emission/removal profiles that lead to national climate neutrality (or even sinks), sooner

than others, whereas others will be sources (emissions).

The change may remove policy action incentive through the elimination of “mere presence” of

sinks due to legacy land use: for example, where forest land delivers a very significant reported

sink in the 1990 base year. The incentive for action in other sectors must be maintained, for

example by stepping up overall ambition of EU climate policy.



The application of a LULUCF report-based target frame, while being the intended destination of a climate

neutral bioeconomy assessed the balancing of greenhouse gases, needs careful application to the

231

However, this issue does not apply to the climate neutrality assessment, which is based upon reporting in the time

period around 2050.

154

determination of the trajectory milestones.

155

9.10 Context of the 2030 Climate Target Plan

9.10.1 Current policies and progress achieved

9.10.1.1 2020 targets: progress to date and trends for the European energy system

In 2007, the European Union proposed the first dedicated energy and climate policy package to

address at the same time emissions reduction and energy sector reform. The package set national

energy and climate targets for the year 2020; improvements and extension of the EU Emissions

Trading System (EU ETS)

232

; a legislative scheme for renewable energy (the Renewable Energy

Directive); energy efficiency (the Energy Efficiency Directive) as well as the 3

package of

energy market liberalisation. The implementation of the legislation that emerged clearly

facilitated a faster transition to a decarbonised energy sector.

The EU28 set for itself the target to reduce greenhouse gas emissions by 20% by 2020 compared

to 1990. In Europe, economic growth decoupled from GHG emissions several decades ago.

Between 1990 and 2018 total emissions

233

in the EU28 decreased by 22%, while

the EU’s

combined GDP grew by 58%. In the period from 2014 to 2018, emissions stagnated but

emissions fell again in 2019.

Higher carbon prices in the ETS, high generation from renewable producers and historically low

gas prices reduced generation from coal in 2019. Emission under the EU ETS decreased by 8.7%

year on year. Electricity generation from solid fossil fuels (coal and lignite) in the European

Union fell by 26% on a year-on-year basis in 2019

234

and was the single largest contributor to the

drop in emissions in EU. The power sector has made the most progress towards decarbonisation.

In 2018, nearly 59% of all EU electricity was generated from emissions free sources compared to

under half in 2010

235

This shift away from coal foretells deeper structural changes. As the aging fleet of European coal

fired power plants nears the end of economic lifetime, 14 Member States have announced a

phase-out of coal power generation.

In the short term, coal-to-gas switch in power generation can lead to significant year-to-year

emissions reduction. In the medium term, gas-fired power plants may provide the flexibility

needed to integrate increasing shares of variable renewables. However, unabated emissions from

natural gas are incompatible with the European decarbonisation ambition. Therefore, overall its

consumption needs to decrease in a transition to a climate neutral economy.

For sectors not covered by the EU Emissions Trading System (excluding LULUCF), the EU

2020 target is an 8% reduction compared to 2005

236

. The target is implemented through binding

Member State targets under the Effort Sharing Decision

237

. In 2018, EU emissions reached the

232

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 and amending Council Directive 96/61/EC

233

Including all outgoing international aviation and excluding emissions from LULUCF.

234

European Commission, Quarterly Report on the European Electricity Market, Q4 2019.

235

https://ec.europa.eu/energy/data-analysis/energy-statistical-pocketbook_en

236

For the EU28 the target was a 10% reduction compared to 2005.

237

Decision No 406/2009/EC of the European Parliament and of the Council of 23 April 2009 on the effort of Member

States to reduce their greenhouse gas emissions to meet the Community’s greenhouse

gas emission reduction

commitments up to 2020

156

reduction target, with the majority of Member States having emissions below their national

targets.

Since 1990, GHG emissions have decreased in all sectors of the European economy, except for

transport. Greenhouse gas emissions from transport saw a strong increase in the period 1990

–

2007. Emissions decreased between 2007 and 2014 but saw an increase again since 2014,

following the sharp drop on oil prices in 2014. In 2018 emissions of the transport sector in the

EU (excluding international aviation and maritime navigation) were 23% higher than in 1990.

Abating transport emissions remains challenging and, notably in urban environments, the impact

of air pollution from fuel combustion, from transport as well as other sectors, is often a major

concern. To reverse this trend, by 2021 new cars sold in the EU will have to emit, on average, no

more than 95 gCO

/km. The average CO

emissions of new cars sold in the EU28 in 2018 was

around 121 gCO

/km

238

. In 2018, transport emissions excluding international aviation and

maritime navigation represented 22% of the total EU emissions

239

. Adding international aviation

and international maritime navigation would increase these total emissions by 3.4% and 3.6%

respectively

240

In 2018, manufacturing activities and construction contributed to about 21% of total GHG

emissions. In the period between 1990 and 2018, the sector reduced emissions by 33%

241

. This is

the second largest contribution to the EU’s emissions reduction after the power sector.

The EU’s balance of emissions and removals for the land

242

sector results in net removals of CO

from the atmosphere. In 1990 the EU net sink resulted in 255 MtCO

net removals. This

increased in the period up to 2009 by over 70 MtCO

, but has since seen a reversal. In 2018 the

net removal by land (mostly forest) was 263 MtCO

-eq.

Overall, the EU is thus on track to overachieve its target under the UN Framework Convention

on Climate Change (UNFCCC) of reducing GHG emissions by 20% by 2020. In 2018 EU

greenhouse gas emissions, excluding the UK and including emissions of all outgoing aviation

were 20.7% below 1990 levels

243

. Including emissions and removals of the EU’s Land-Use,

Land-Use Change and Forestry sector, net emissions have reduced by around 24% compared to

1990.

The EU has also set a 20% energy efficiency target for 2020. Final energy consumption in the

EU28

244

fell by 5.8%, from 1194 Mtoe in 2005 to 1124 Mtoe in 2018. It decreased at an annual

average rate of 0.42% between 2005 and 2018. However, the trend reversed in recent years and

energy consumption kept rising since 2014 (which was an exceptionally warm winter with low

heating demand). Amid continued economic growth, energy consumption rose by 5.3% in the

period from 2014 to 2018. This is 3.5 percentage points (p.p.) above the 2020 final energy

consumption target of 1086 Mtoe. In 2018, energy consumption increased by only 0.1%

compared to the previous year.

238

239

https://www.eea.europa.eu/highlights/new-cars-and-vans-sold

Within this sector, road transport is by far the biggest emitter accounting for more than 70% of all GHG emissions.

240

EEA Greenhouse Data viewer, EU27 emissions (Convention basis),

https://www.eea.europa.eu/data-and-

maps/data/data-viewers/greenhouse-gases-viewer

241

A decreasing share of manufacturing in total GDP also contributed to this trend.

242

Refers to Land Use, Land Use Change & Forestry (LULUCF)

243

EEA Greenhouse Data viewer, EU27 emissions (Convention basis),

https://www.eea.europa.eu/data-and-

maps/data/data-viewers/greenhouse-gases-viewer

244

Energy efficiency target for 2020 are set for the EU28 using FEC2020-2030 and PEC2020-2030 indicators.

157

Primary energy consumption in the EU28 decreased from 1721 Mtoe in 2005 to 1552 Mtoe in

2018

–

a 9.8% drop. This is 4.65 p.p. above the 2020 target of 1483 Mtoe. Following three years

of increase, a 0.7 % drop in primary energy consumption was recorded in 2018.

Overall, without

taking into account the impact of the COVID-19 crisis, both primary and final energy

consumption were just above the trajectory towards the 2020 energy efficiency target. Clearly,

over the long term, decoupling of energy consumption from economic growth is evident. Energy

intensity of GDP decreased 38% between 1990 and 2018. Final energy consumption in 2018 is

3.3% higher than in 1990 while GDP grew by 61%.

The third target for 2020 aims at a 20% share of renewable energy in gross final energy

consumption. Renewable energy has been increasing continuously in the EU. Helped by Member

States support policies, the share of renewable energy in gross final energy consumption grew

from 9.6% to 18.9% in the period between 2004 and 2018. This result put the Union on track to

reach its target for 2020

245

. Over this period, direct and indirect employments in renewable

energy in the EU28 more than doubled, increasing from 660 000 to 1.51 million jobs

246

Policies implemented by both the European Union and Member States were instrumental in

bringing about the remarkable cost reduction experienced by renewable energy sources

–

particular solar PV and wind energy

–

in the past decade.

As a result, in a majority of Member States, new-built renewable power generation is now

cheaper than gas and coal power plants

247

. In the EU, electricity generated by wind energy

increased more than 3 times between 2010 and 2018 and electricity generated by solar PV

increased almost 5 times

248

. Cost reductions in offshore wind technology, pioneered by

developments in the North Sea, are opening vast additional renewable energy resources. Offshore

wind capacity in the European Union

249

increased from 1.6 GW in 2010 to 12.2 GW in 2019

250

Considering the magnitude and rate of the changes, the European power networks have coped

well with the rise of variable renewables. Policy and regulatory measures have been instrumental

in developing interconnected and integrated trans-European electricity markets. Forty projects

–

of which 30 related to power networks

–

have been implemented under the TEN-E policy

framework aimed at improving cross-border exchange.

Investments in renewable energy are increasingly driven by market decisions. Member States

increasingly grant support for renewable energy through competitive tenders and ensure that

renewable energy installations are integrated in the electricity market, as required by State aid

rules. Power markets in Europe are adapting to these changes. The volume of renewable

electricity sold with power purchase agreements (PPAs) is increasing rapidly. At the beginning of

2020, corporations worldwide signed contracts to purchase almost 60 GW of green power under

PPAs with renewable producers (6 GW of which were in the EU). The market tripled since

2017

251

. New business models are emerging for energy communities and demand response

schemes. A flexible, decentralised power market will have to be complemented by smart

245

246

With some Member States overachieving and some underachieving their national targets.

https://www.eurobserv-er.org/,

Data for the EU28. Excluding the UK 1,38 million jobs in 2018 in the renewables

sector.

247

Estimates from Bloomberg New Energy Finance.

248

IEA Data and Statistics.

249

Following the withdrawal of the UK from the European Union, Data related to the European Union exclude the UK.

250

Wind Europe, Offshore Wind in Europe, key Trends and Statistics 2019.

251

Bloomberg Corporate PPA Deal Tracker, March 2020.

158

distribution and transmission networks. To this aim, 29 interconnection projects have been

identified aimed at developing electricity and smart grids and are expected to be implemented by

2022.

Over the period from 2004 to 2018, the renewables share in the heating and cooling in the EU

almost doubled from 11.7% to 21.1%. Helped by increased penetration of renewables, CO

emissions in the EU residential sector in 2018 were almost 29% below 1990 levels. However,

increased energy use meant that emissions increased by 3% between 2014 and 2018.

The share of renewables in transport reached 8.3% in 2018 for the EU compared to only 2% in

2005. This provides a solid ground to reach the 10% target in the Renewable Energy Directive.

Battery electric vehicles and plug-in hybrids represent only 3.3% of the new vehicles sold in

2019, but new models are coming to the market.

252

9.10.1.2 Current 2030 climate and energy framework

In October 2014, the European Council concluded that the EU set a target of an at least -40%

reduction in domestic economy-wide emissions of greenhouse gases by 2030 compared to 1990.

The European Council also agreed on a target of at least 27% renewable energy consumption and

on a target of 27% for energy efficiency. The GHG target was incorporated in the EU Nationally

Determined Contribution (NDC) to the Paris Agreement. It was implemented in three main

pieces of legislation: The first legislative deliverable under the Energy Union to implement the

2030 targets was the revised ETS directive

253

, which regulates GHG emissions from large point

sources (mainly power sector and industry) and aviation. The annual ETS cap reduction was

increased with a view of achieving 43% reductions by 2030 compared to 2005, while the Market

Stability Reserve was strengthened to address the surplus of EU allowances that has built up

historically. A second set of legislation under the 2030 climate and energy framework, (the Effort

Sharing Regulation

254

and the LULUCF Regulation

255

on the inclusion land use, land use change

and forestry) regulates emissions and removals of the sectors outside the EU-ETS. It does so by

setting binding emission trajectories and reduction objectives per Member State, taking into

account their different capabilities to reduce GHG emissions, and including rules to ensure that

greenhouse gas emissions from the LULUCF sector are offset by at least an equivalent removal

of CO₂ from the atmosphere.

In 2018 and 2019, the EU adopted a comprehensive update of its energy policy framework to

facilitate the energy transition and to deliver on the EU’s commitments under

the Paris

Agreement. The Clean Energy for All Europeans consists of eight legislative acts setting the

European energy targets for 2030 and paving the way for their achievement. The new legal

framework set an EU binding target of at least 32% for renewable

energy sources in the EU’s

energy mix and of at least 32.5% energy efficiency by 2030. It also includes legislation to adapt

252

253

https://www.eafo.eu/vehicles-and-fleet/m1

Directive (EU) 2018/410 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-

carbon investments, and Decision (EU) 2015/1814

254

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 and amending Regulation (EU) No 525/2013

255

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, and amending Regulation (EU) No 525/2013 and Decision No 529/2013/EU

159

the electricity market design to increasing shares of decentralised and variable generation

assets.

256

The binding 32% renewable energy target to be achieved collectively by the EU in 2030 moved

away from national binding targets agreed for the 2020 framework as Member States have set

their contributions to the Union target in their National Energy and Climate Plans. In addition, a

renewable energy target for transport of 14% has been set with a sub-target to promote advanced

biofuels. A specific indicative target to increase the share of renewables by 1.3 p.p. a year has

been defined for the heating and cooling sector. Further, the agreement includes measures to

facilitate the participation of citizens in the energy transition through self-consumption and

energy communities and to enhance the sustainability of bioenergy.

The combined impact of these energy targets if fully implemented is a significant reduction in

energy related emissions, which taking into account expected development in non-energy related

GHG emissions is projected to lead to more than 40% GHG reductions in the EU by 2030

compared to 1990 levels. The results of the combined impacts of the greenhouse gas emissions,

renewable energy sources and energy efficiency, have been modelled for the purpose of this

impact assessment and confirm the findings of earlier simulations of the existing policy

framework, that combined, the existing 2030 targets would reduce emissions by more than 40%

in the EU. For more detail see annex 9.3.3.2.

In the transport area, the Commission adopted a European strategy for low-emission mobility in

2016.

257

It acknowledged that achieving deep emissions reductions will require an integrated

system approach that includes promoting (i) overall vehicle efficiency, low- and zero emission

vehicles and infrastructure; (ii) a long-term switch to alternative and net-zero carbon fuels for

transport; (iii) increased efficiency of the transport system

–

by making the most of digital

technologies and smart pricing and by further encouraging multi-modal integration and shifts

towards more sustainable transport modes such as inland waterways, short-sea shipping and rail.

Changes in behaviour and consumer choice to shift from private transportation to low-carbon

public transport, shared mobility and zero-carbon mobility (biking, walking) were also

acknowledged as key. The low-emission mobility strategy framed the policy initiatives that were

adopted by the Commission in the three 2017-2018 Mobility Packages.

258

In addition, the new Regulation of the Governance of the Energy Union and Climate Action has

established an integrated energy and climate planning, monitoring and reporting framework

259

. It

has created a unique system of energy and climate governance ensuring that the Union and its

Member States can plan together and fulfil collectively the 2030 targets. In 2018, all Member

States have, for the first time, prepared draft integrated National Energy and Climate Plans

(NECPs). The Commission published a Communication assessing the 28 draft NECPs in June

257

258

https://ec.europa.eu/transport/themes/strategies/news/2016-07-20-decarbonisation_en

https://ec.europa.eu/transport/modes/road/road-initiatives_en

259

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, amending Regulations (EC) No 663/2009 and (EC) No

715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC,

2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives

2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No 525/2013 of the European Parliament and of the

Council

160

2019 (COM/2019/285), together with specific recommendations and a detailed "Staff Working

Document" for each Member State. Member States were to submit final NECPs by 31 December

2019. All Member States have done so.

In the 2020 State of the Energy Union report, the Commission will assess the final plans against

current EU-level energy efficiency and renewable energy targets and identify policies and

measures to achieve the Union’s 2030 targets if there is a gap.

A similar process of preparing National Forestry Accounting Plans was also followed for the

establishment of key benchmarks for forestry accounting, under the LULUCF Regulation

260

. The

governance process also provides an opportunity to update the plans by 2024 to reflect

experience and to take advantage of new opportunities for the remainder of the decade. The EU

Forest Strategy to be adopted in 2021 will contribute to these goals.

9.10.1.3 The COVID-19 crisis

–

unfolding impact on the energy system and economy wide

GHG emissions

The COVID-19 pandemic has affected countries across the globe. No region has been spared and

the worldwide count of confirmed cases continued to rise rapidly through August, with around

21 million confirmed cases globally in the middle of the month

261

. Economies have been

particularly affected both from the health and economic perspectives. Lockdowns have been

enforced across the EU and in countries around the world. At their peak, emissions in individual

countries decreased by 26% on average, while for 2020 as a whole global CO

emissions are

expected to fall by 4-7%

262

The disruptions in economic value chains related to the lockdowns have triggered sharp declines

in economic activity across the globe, with a high degree of uncertainty regarding future

developments that are relevant for this impact assessment.

At the global level, the IMF’s June World Economic Outlook

263

projects world economic output

shrink by 4.9% in 2020 while the World Bank’s Global Economic Prospects

264

shows a similar

figure of -5.2%. Although both anticipate a rebound in 2021 (respectively +5.4% and +4.2%), the

global GDP level projected for 2021 is markedly below pre-COVID estimates. Advanced

economies are projected to be affected significantly more than emerging markets and developing

economies, whose output is projected to decline by 2-3% in 2020 before growing 4.9-5.9% in

2021. Both the IMF and the World Bank stress the extreme uncertainty surrounding these

projections and that risks remain on the downside, including a longer duration of the current

outbreak or its resurgence at a later stage.

The Commission’s Spring Economic Forecast

265

was the basis for the macro-economic

assumptions underpinning the COVID-BSL and COVID-MIX scenarios. It projects the EU

economy to contract by 7.4% in 2020, followed by a recovery of around 6% in 2021. While this

260

SWD(2019) 213 final, COMMISSION STAFF WORKING DOCUMENT, ASSESSMENT OF THE NATIONAL

FORESTRY ACCOUNTING PLANS

https://europa.eu/!yp46uj

261

Based on data from the Johns Hopkins University, Coronavirus Resource Center.

262

Le Quéré

et al.

(2020) Temporary reduction in daily global CO

emissions during the COVID-19 forced

confinement.

https://doi.org/10.1038/s41558-020-0797-x

263

World Economic Outlook Update, June 2020: A Crisis Like No Other, An Uncertain Recovery

264

World Bank, Global Economic Prospects, June 2020

265

European Commission, DG ECFIN, European Economic Forecast, Institutional Paper 125, May 2020

161

supposes a relatively quick rebound in economic activity and the absence of a second wave of the

pandemic, it would still leave real GDP in 2021 2.3% lower than would have been the case under

the autumn forecast 2019. The Commission also indicated at the time that risks were mainly on

the downside and highlighted the unprecedented level of uncertainty regarding the projections as

the full scale and duration of the pandemic remain uncertain.

266

Furthermore, Member States

themselves are projected to be affected to varying degrees by the crisis, with the Commission’s

spring forecast indicating contractions in real GDP in 2020 ranging from -4.3% to -9.7%.

The European Central Bank’s June macro-economic

projections are along the same lines, with

euro-area GDP expected to shrink by 8.7% in 2020 before growing 5.2% and 3.3% in 2021 and

2022, respectively

267

. This would still leave euro-area real GDP 4.2% below its previously

projected level in 2022.

The slump in economic activity has also triggered sharp increases in temporary lay-offs and

unemployment and to massive cuts in hours worked across the EU. The

Commission’s Spring

Economic Forecast projects that 5 million jobs would be lost in 2020 compared to a year earlier

(a 2.4% drop) and that employment would remain 2.1 million under that level in 2021. Similarly,

the ECB projects a 2.8% fall in employment in 2020, followed by a modest 0.4% increase in

2021.

Workers in certain services sectors, including retail, hospitality, tourism or leisure have been

particularly hit. The rise in unemployment and the differentiated distribution of impacts across

sectors and skills levels therefore could potentially exacerbate existing social inequality within

Member States. It could also generate lasting effects on private consumption as households

increase precautionary saving.

The lockdowns have affected sectoral activity to very different degrees. Passenger air travel has

been cut down to a fraction of normal activity rates, with the IATA reporting 4.5 million flight

cancellations worldwide until June 2020. Revenue passenger kilometres fell 94.3% year-on-year

in April 2020

268

, while cargo tonne kilometres declined 27.7%

269

. At the European level,

Eurocontrol indicates that airline traffic fell to nearly 90% below the previous year’s level in

April before recovering slowly

270

Road transport has also been significantly affected, both in terms of passengers and freight. This

is evidenced by sharp declines in congestion indices in major cities and by lower levels of NO

concentrations

271

. Road freight was significantly disrupted within the EU at the onset of the

DG ECFIN’s Summer Economic Forecast 2020, which came out too late to be used in this impact assessment,

projects EU GDP to contract by 8.3% in 2020 and grow by 5.8% in 2021. The t+10 projections were also not updated

as part of this forecast.

267

https://www.ecb.europa.eu/pub/projections/html/index.en.html

268

https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-monthly-analysis---apr-20202/

269

https://www.iata.org/en/iata-repository/publications/economic-reports/air-cargo-market-analysis---march-2020/

270

https://www.eurocontrol.int/covid19

271

For example, the Tomtom congestion index in Madrid fell from a typical weekday morning peak of around 60% in

late April 2019 to around 5% in April 2020. Under the lockdown, the congestion index has remained relatively stable

throughout the day, with much less significant morning and evening peaks. The same phenomenon is observed in

London, Milan, Paris or Rome. (https://www.tomtom.com/covid-19/ ). The European Environment Agency similarly

reports significantly lower levels of NO

concentrations in major cities across the EU.

(https://www.eea.europa.eu/themes/air/air-quality-and-covid19/air-quality-and-covid19).

266

162

pandemic, which created issues in terms of border crossings

272

. Rail passenger traffic has been

heavily disrupted, by the significant reduction in domestic services offered and in many cases the

stop of international connections.

The reduction of economic activity has sharply decreased energy demand since the onset of the

crisis. Electricity demand in the EU decreased between 10% and 33% from March 9 to May 25,

depending on Member State

273

. This has translated into much lower electricity day-ahead prices

(up to -70%

274

). In the context of a robust contribution of renewables

275

, which reached 49% of

the EU power production, this situation put pressure on other generators

276

, notably coal (which

reduced by 30% year-on-year in the first quarter of 2020

277

), gas in Southern Europe and nuclear

that reached record lows in France (300 TWh expected in 2020, versus 413 TWh produced in

2018

278

). The EU energy sector had to implement exceptional arrangements to ensure continuity

of operations of critical infrastructure.

In the context of a rift among oil producing countries, lower transport activity has led to a rapid

contraction of oil demand and consequently to a sharp decline in international fuel prices. In

response, oil producers have cut output, bringing crude oil spot prices to US$35-US$40 per barrel

in June, after having reached in April a record low of US$20 per barrel

279

. This is still markedly

lower than the US$50-65 of 2019

280 281

. Natural gas prices fell significantly as well, in the first

quarter about 40-50% year-on-year on European hub prices

282

. Energy prices are expected to

bounce back progressively with the recovery of the global economic activity, although the pace,

the degree and the level of stabilisation of international energy markets are still uncertain.

Low energy demand and prices combined with the supply chain disruptions (EU and

international) have created turmoil with energy industry investment and growth plans. Global

investment in the energy sector is expected to fall 20% compared to 2019, mostly driven by a

reduction in the oil and gas industry (-32%), followed by coal (-15%), energy efficiency (-12%),

the power system (-10%) and renewables (-10%)

283

Merchant renewable electricity projects and corporate PPAs, dependent on the wholesale prices,

have also been affected. Auctions to subsidise new projects have been cancelled or delayed

284

The European Commission’s Green Lanes initiative helped improved the situation and road freight appears to have

stabilised after the initial sharp decline.

273

Sources: ENTSO-E; Power in Europe, Issue 823, May 18, 2020 and European Power Daily, May 22, 2020 as

analysed in JRC120950 - Impact of COVID-19 on European energy value chains and the operation of our energy

system: Bulletin No. 5: 2 June 2020.

274

Sources: ENTSO-E and Power in Europe, Issue 823, May 18, 2020 as analysed in JRC120950 - Impact of

COVID-19 on European energy value chains and the operation of our energy system: Bulletin No. 5: 2 June 2020.

275

The contribution of renewables can be explained, in a context of lower demand, by lower short run marginal costs

of production than other generators, notably solar and wind, as well as by the priority rule dispatch under Regulation

(EU) 2019/943 of 5 June 2019 on the internal market for electricity (Article 12).

276

Sources: Power in Europe, issue 821, April 20, 2020 and issue 822, May 4, 2020 as analysed in JRC120807 -

Impact of COVID-19 on European energy value chains and the operation of our energy system: Bulletin No. 4: 15 May

2020.

277

European Commission, Quarterly Report on European Electricity Markets, July 2020

278

https://ec.europa.eu/energy/data-analysis/energy-statistical-pocketbook_en

279

The Brent crude oil price had not been as low as US$20/bl (nominal price) since February 2002.

280

https://www.eia.gov/dnav/pet/PET_PRI_SPT_S1_D.htm

281

West Texas Intermediate crude oil even briefly traded Futures contracts at negative prices at the end of April.

282

European Commission, Quarterly Report on European Gas Markets, July 2020

283

IEA, World Energy Investment 2020

284

For instance in Portugal, France, Italy

272

163

Beyond renewables, the crisis has weakened the financial solidity and capacity to invest for the

whole energy sector, including for the electricity sector where the logistical and supply chains for

grid technologies, storage and nuclear technologies have also been disrupted. Overall, the clean

energy transition industries are facing a significant slowdown, even if to a lesser extent than

fossil fuel ones. One of

Europe’s fastest growing sectors, necessary for reaching climate

neutrality as well as contributing to our energy security of supply, risks stagnation and the loss of

its leading international position.

The European Union and Member States, similarly to other major economies, rapidly put in place

emergency measures in order to address the socio-economic impact of the pandemic. In part, this

has taken the form of income support to households. In part, this has also involved the provision

of State aid to avoid a wave of bankruptcies, as facilitated by the Temporary Framework for State

Aid Measures to Support the Economy in the Current COVID-19 Outbreak

285

. Based on policy

measures adopted up to late-April

2020, the Commission’s Economic Spring 2020 Forecast

projected all Member States to run general government deficits ranging from 2.8% to 11.1% of

GDP in 2020, with an average of 8.3% for the EU. Facing an unstable context and highly

uncertain prospects, gross fixed capital formation is expected to fall 13.2% in 2020. Compared to

the levels projected in the autumn 2019 forecast, the cumulated shortfall in investment in the EU

is expected to amount to 6% of EU GDP.

Beyond the need for emergency measures, the EU needs to invest in sectors and activities that

will make its economy more resilient and sustainable over time. It has also become evident that

ensuring a strong and sustained recovery will require additional support from public finances as

well as securing productive private investments aligned with the Green Deal objectives. A

significant part of the long-term recovery measures will be implemented at the national level and

will be shaped by policy choices by Member States. At the EU level, the Commission has

proposed a Recovery plan in order to address the recession (annex 9.11.1).

Overall, major uncertainties remain about the evolution of the pandemic itself and economic

developments in the short and medium term. First, the sharp downturn in economic activity may

result in a temporary increase in bankruptcies and accelerate structural change. More vulnerable

and less productive firms would likely be more affected and this could free up resources (labour

and capital) and redirect them towards firms operating with improved technologies and

production processes. The pandemic could also potentially lead to structural social and economic

shifts, including as a result of behavioural changes by consumers and new business strategies by

producers. The following broad trends could emerge, in part reinforced by policy developments:



A global trend towards somewhat less globalised value chains, which would affect

international trade flows and demand for international air and maritime transport, driven

by:

enterprises, particularly in industrial sectors viewed as strategic, in the EU and

elsewhere, seeking to address the potential vulnerabilities that the pandemic has

evidenced;

policy measures as governments aim at reducing reliance on imports in certain

sectors;

increased consumer preferences for locally produced goods.

Changed mobility patterns:



285

https://ec.europa.eu/commission/presscorner/detail/en/ip_20_496

164



increased recourse to teleworking practices, with associated impacts on

commuting needs and urban congestion;

increased recourse to tele-conferencing in services sectors, with reduced demand

for international business travel;

increased substitution of long-distance tourism with shorter-distance tourism.

A faster development of digitalisation of the economy, including e-services (e.g. tele-

medicine or other services), e-commerce and teleworking, and the related productivity

changes (gains in a number of sectors, but also possible losses associated to teleworking).

A higher awareness of both businesses and consumers of the positive environmental impacts of

lower pollution, especially in cities as experienced during the lock down, leading to higher

willingness to change habits.

The assessment of the impact of the COVID crisis in this document builds upon the BSL and

MIX scenarios on which a sensitivity analysis was conducted to assess the potential impacts of

the current COVID-19 crisis. Using the E3Modelling GEM-E3 computable general equilibrium

model

286

, the associated downward revision in real GDP growth was disaggregated to sectoral

impacts, including resulting impacts on transport, energy and industrial demand between 2020

and 2030. This resulted in projections with significant negative impacts first and foremost in

transport, including road and air. Construction is also expected to suffer from a double-digit fall

in gross value added in 2020, which has repercussions on providers of inputs to the sector,

including cement and other non-metallic minerals. Other energy intensive industries are expected

to be somewhat less negatively affected, even though they are likely to also take a significant hit

in 2020. Market services, in turn, are expected to contract more than overall GDP, while output in

agriculture is unlikely to be fall to any major extent.

It is projected that the share in total gross value added of transport, industry and to some extent

construction would decline somewhat by 2030 compared to the pre-COVID projections, due to

structural shifts as well as reduced investments due to lower economic growth. This would be

compensated by a moderate increase in the share of less energy intensive market and non-market

services. The share of the energy sector in total gross value added is expected to remain broadly

unchanged as the substitution from imported fossil-fuels to higher-valued added domestic

electricity production is expected to continue regardless.

These post-COVID macro-economic projections have been used to conduct a sensitivity analysis

(COVID-BSL and COVID-MIX) with the PRIMES energy system model applied on the MIX

scenario achieving 55% GHG reductions. As for the BSL and other policy scenarios developed

for this impact assessment, the sensitivity analysis therefore relies on a fully coherent system and

set of assumptions.

In 2020, gross inland energy consumption and final energy consumption

287

in the COVID-MIX

scenario are estimated respectively at 7.7% and 6.2% below the MIX scenario. By 2025, this gap

is projected to decrease to 1.9% and 0.4% for GIC and FEC respectively. The gap in energy

demand between the COVID-MIX and MIX scenarios in 2030 decreases further to 1.5% for GIC

and 0.3% for FEC.

286

287

https://e3modelling.com/modelling-tools/gem-e3/

Final energy consumption does not include international aviation. If the latter is included, FEC under COVID-MIX

is 9.1% below MIX in 2020 and 1.5% lower in 2025 and 2030.

165

Compared to MIX, FEC in COVID-MIX in 2030 is projected to be lower in services (-3.7%) and

nearly unchanged in industry (-0.3%) and transport (+0.8%), but higher in the residential sector

(+1.6%) because of lower renovation rates following the economic crisis. Demand for electricity

is also lower by 2.1%.

In 2030 the cost of ETS allowances is €35/tCO

-eq in the COVID-MIX scenario compared to

€44/tCO

-eq in MIX. Over the period 2021-2030, the sensitivity analysis shows that annual

energy system investment needs (excluding transport) would be affected only marginally, at

EUR 409.8 billion (constant prices of 2015) under COVID-MIX and EUR 417.8 billion under

MIX. While the fall could be somewhat larger on the demand side than on the supply side, the

differences are small in both instances.

The modelling confirms that even with COVID, investment in the energy system would need to

increase at rates almost identical to a situation without the COVID-crisis. This while presently

the economy is rather confronted with an investment drop. This contributes to the investment

gap, as identified in the analysis accompanying the Communication ‘Europe's moment: Repair

and Prepare for the Next Generation’.

9.10.1.4 The priorities of the current Commission and the European Green Deal

The President of the European Commission has made the European Green Deal

288

a priority for

her mandate from the start. It strengthens and consolidates the Commission’s commitment to

tackling climate and environmental-related challenges. It is a new growth strategy that aims to

transform the EU into a sustainable, fair and prosperous society, with a modern, resource-

efficient and competitive economy where there are no net emissions of greenhouse gases in 2050

and where economic growth is decoupled from resource use. This strategy also aims to protect,

conserve and enhance the EU's natural capital, and protect the health and well-being of citizens

from environment-related risks and impacts, and includes the green

oath to “not do harm”. The

European Green Deal includes a dedicated roadmap

289

with key policies and measures to further

this transformation. The main building blocks of the European Green Deal are illustrated in

Figure 92.

288

289

COM(2019) 640 final

166

Figure 92: Representation of the main building blocks of the European Green Deal

Source: European Commission

The European Green Deal brings together an important set of policy initiatives, such as:



European Green Deal Investment Plan (Sustainable Europe Investment Plan) that will

mobilise

at least €1 trillion of investment over the next decade;

290

Just Transition Mechanism including a Just Transition Fund to ensure a fair transition

and leaving no one behind;

291

European Climate Law to enshrine climate neutrality of the EU by 2050;

292

European Climate Pact bringing together regions, communities, and businesses

293

;

European Industrial Strategy to jump-start the green and digital transition while setting

global standards;

294

Circular Economy Action Plan to decouple economic growth from resource use;

295

Farm to Fork Strategy to make food systems more sustainable;

296

EU Biodiversity Strategy for 2030 to bring nature back on a path to recovery;

297

Strategy for sustainable and smart mobility planned by the end of 2020,

Proposal for a Revision of the Energy Taxation Directive planned in 2021

Proposal for a Carbon Border Adjustment mechanism for specific sectors planned in

2021

290

291

COM(2020) 21 final

COM(2020) 22 final

292

COM(2020) 80 final

293

https://ec.europa.eu/clima/policies/eu-climate-action/pact_en

294

COM(2020) 102 final

295

COM(2020) 98 final

296

COM(2020) 381 final

297

COM(2020) 380 final

167



Zero Pollution Action Plan due in 2021.

Proposal for extending the EU ETS to the Maritime sector, due in 2021

New EU Strategy on Adaptation to climate change in 2021

These initiatives all matter to achieve the transition towards climate neutrality.

298

They will be

reinforced and accelerated by the massive investment towards a green recovery from the COVID-

19 crisis that the EU is putting forward (see annex 9.11.1)

9.10.2 Key elements to improve the further coherence when developing energy, climate and

transport policies

Renewable energy policy and offshore renewable energy strategy

Having in mind EU’s climate neutrality objective, there is currently an unused potential

contrasted with a need for further very significant deployment of renewable energy across all

sectors: electricity (centralised and decentralised), heating & cooling as well as transport.

Renewable electricity can also serve to produce renewable and low-carbon fuels such as

hydrogen or biomethane from waste and residues. The role

policy initiatives which aim at

facilitating deployment and more Europeanised approach

299

in development of renewable power

is not sufficiently scaled up.

More specifically, relatively new renewable energy such as offshore wind will be playing an

increasingly important role in the European electricity system. The already strong growth is set to

accelerate and NECPs envisage a strong increase of capacity by 2030. Offshore wind projects

and accompanying infrastructure have been developed in the context of the Member States’

policies. However, this national approach will not suffice to foster the scale-up in a coherent

manner and further measures, as proposed by the offshore renewable energy strategy

300

will be

needed

301

Heating and cooling is key to Europe’s energy sector decarbonisation

302

. Due to its fragmented

nature, however, renewable heat solutions face challenges in their competition with gas.

Renewable heat is addressed in several EU legal and policy instruments in a fragmented

manner

303

. Without more effective policies in support of renewables in this sector, its full

decarbonisation potential will not be exploited.

Given that the transport sector is a major emitter, the RED II aims to promote the use of

renewable and low-carbon fuels (e.g. advanced biofuels, e-fuels and hydrogen) by obliging each

EU Member State to set out a supply obligation promoting the use of renewable fuels, designed

to ensure the achievement of the 14% renewable energy target as well as a 3.5% sub-target for

298

Research and innovation are also part of the Green Deal with, e.g. Horizon Europe strictly linking its missions to the

European Green Deal objectives.

299

Notably via different regional cooperation groups.

300

Announced in the European Green Deal and scheduled for adoption in 2020 according to the Commission Work

programme for 2020.

301

The massive deployment of offshore wind requires a sound and prudent planning. While offshore wind parks can be

beneficial for biodiversity (e.g. construction of artificial reefs), planning needs to address environmental problems and

ensure that different uses and biodiversity can co-exist.

302

As a sector contributes to 50% of EU energy consumption.

303

The measures for increasing the share of renewable energy in heating and cooling in a sustainable and coherent

manner have been included for the first time in the Renewable Energy Directive (RED II) recast.

168

advanced biofuels

304

. While RED II already includes special incentives for the deployment of

such fuels in the aviation and maritime sector, the efficiency of these measures needs to be

reviewed. Additional measures for uptake of renewable and other sustainable alternative fuels in

these modes will be assessed in ReFuelEU Aviation

305

and FuelEU Maritime

306

initiatives. In

addition, the FQD sets an obligation to reduce the greenhouse gas intensity of transport fuel by

6% at the latest by 2020 compared to 2010, expected to be fulfilled mostly with renewable fuels.

Given increased climate ambition, further acceleration and deployment of renewable and low-

carbon fuels (e.g. advanced biofuels, e-fuels and hydrogen), in particular in those transport modes

that are hard to decarbonise with other technologies, at Member State and EU level is necessary

in the context of the climate neutrality objective. It is notably clear that the increased use of

renewable energy in transport, for those part of the sector that have limited other mitigation

options, will rely in the medium and long term on a significant uptake of renewable and low-

carbon fuels, which will require significant increase in the generation of renewable electricity.

Similarly, better waste treatment and valorisation will need to mobilise sufficient amount of

feedstock for the production of advanced biofuels

307

. Still, any fuel policy must be accompanied

by measures to improve efficiency. Deployment of renewable and low-carbon fuels therefore

needs to be combined with efficiency measures that also comprise modal shift towards more

sustainable transport modes.

Finally, re-enforcing measures such as streamlined permitting and administrative arrangements

would encourage local and regional administrative bodies to include heating and cooling from

renewable sources in the planning of city infrastructure as well as uptake for renewables self-

consumption and renewable energy communities.

Energy efficiency legislation and the ‘Renovation Wave’ initiative

The EU policies have led to substantial energy savings and GHG emission reductions. However,

market failures and barriers persist and prevent us from tapping the full potential of energy

efficiency. In some sectors, notably ICT, emerging trends of increase in energy consumption

would require to be addressed rapidly. Current barriers and market failures prevent investments,

lead to high perceived risks, inefficient use of public funding, and lack of mobilisation of private

financial resources.

The overall 2030 ambition for energy efficiency, the measures to achieve it and the scope of

action might not be sufficient in the light of an increased 2030 climate target. In this context, the

energy efficiency legislation, including the EED, EPBD, Ecodesign and energy labelling

legislation targeting the energy efficiency of products, equipment and appliances should be more

effectively implemented and can play a stronger role. The EED has an unused potential to

provide for enhanced and expanded measures that could deliver higher savings contributing to

climate ambition, especially that several articles have not been revised in 2018 and could offer a

significant contribution to reducing GHG and air pollutant emissions. The energy efficiency first

principle, recently included in the energy legislation, would need to be full exploited too. Beyond

EED, the full energy efficiency legislation, including the EPBD, Ecodesign and energy labelling

304

305

Replacing the current 10% renewable energy target in transport to be achieved by 2020.

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12303-ReFuelEU-Aviation-Sustainable-

Aviation-Fuels

306

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12312-FuelEU-Maritime-

307

The Commission will regularly assess whether the positive list of feedstock that can be used for the production of

advanced biofuels can be extended in line with the RED.

169

legislation targeting the energy efficiency of products, equipment and appliances should be more

effectively implemented and can play a stronger role.

75% share of building stock has a poor energy performance and thus contributes significantly to

emissions. The current renovation rates are not sufficient even to meet the current targets and

should be scaled up

308

. This problem will be addressed by the upcoming Renovation wave

initiative. Particularly, deep renovations

–

achieving significant energy savings

–

need to increase

in number, floor area and depth. Cost-effective approaches with the right financing and

investment tools as well as green criteria

309

applied to procurement policy in the public sector

will be necessary.

Energy system integration and hydrogen strategy

Today’s energy system is built on parallel vertical energy value chains, which rigidly link

specific energy resources with specific end-use sectors

310

. Market rules largely follow this setup.

This separation is technically and economically inefficient and produces substantial losses in the

form of waste heat and low energy efficiency, which in turn affect GHG emissions and pollution

levels.

Scarce integration of the energy system hinders decarbonisation of electricity. Insufficient

coordination and synchronisation across Member States does not ensure proper functioning of the

internal market. Storage capabilities are not adequate to support a larger, more renewables-based

power system. The network infrastructure

311

requires development enabling efficient low and

zero carbon solutions at both the supply and demand side (higher RES, GHG neutral hydrogen,

heat pumps, demand response, e-mobility etc.) and hence lower cost of decarbonisation.

In order to meet increased climate ambition, further deployment of renewable gaseous fuels

312

and, more broadly low-carbon gases will be needed which will be hindered without a suitable

policy framework for their market uptake increasing tradability of renewable gases and allowing

decentralised renewable gas producers to play an adequate role in the energy system.

308

The circularity principle should be fundamental for buildings and smart technologies (using full potential of

digitalisation) can help achieving it. Nature-based solutions like green walls and green roofs can also help making

buildings more sustainable.

309

For instance related to energy and materials efficiency,

310

For instance, petroleum products are predominant in the transport sector and as feedstock for industry. In turn, coal

and natural gas are mainly used to produce electricity and heating. Electricity and gas networks are planned and

managed independently from each other.

311

Including smart grids, hydrogen infrastructure, CCS infrastructure and charging & hydrogen fuelling stations for

transport.

312

The most significant renewable gases in the EU are biogas and biomethane producing today some 17 bcm annually.

There were more than 17000 biogas installations and around 450 biomethane installations in the EU in 2015

312

. Biogas

is mainly used for producing electricity and heat supported by subsidy schemes. Once support schemes end, existing

biogas plants may decide to invest into upgrading biogas to biomethane to inject it into the gas grid. Investments in

new plants are expected to increase biogas and biomethane production.

The study “Optimal

use of biogas from waste streams”

(CE Deflt, 2016) performed for the European Commission

found that until 2030 the production of renewable gases could be doubled. One of the main recommendations of this

study for EU regulation was to ensure EU-wide harmonisation and enable biomethane cross-border trade.

170

While GHG neutral hydrogen is generally envisaged

313

as a promising energy carrier and

feedstock to support the EU’s climate neutrality objective, no supply and no market for clean

hydrogen exist in Europe, due to high uncertainties.

The EU strategies on Energy System Integration and on hydrogen shed light on how to efficiently

integrate decarbonised supply of electricity and hydrogen with transport, heating and cooling for

buildings or industrial processes in order to maximise the synergies between the sectors. This

integration could be facilitated by increasing consistency between the sectoral policies.

Sustainable and smart mobility strategy and transport investments

Transport (excluding international aviation and maritime navigation) accounts for around 22% of

the EU27’s greenhouse gas emissions (in 2018

emissions from transport were still 23% higher

than in 1990). Meanwhile, international aviation emissions have grown by 140% since 1990 and

international navigation emissions by 38%. Transport is also a major contributor to air pollution

and noise. Road, rail, aviation and waterborne transport are making efforts to decarbonise but

these efforts must be increased and sustained. The European Green Deal has set the key objective

to deliver a 90% reduction in transport-related greenhouse gas emissions by 2050 to support the

EU’s aim to become the first climate neutral economy.

To accelerate the shift to sustainable and smart mobility, the transport sector will require

important investments in the coming decade as regards the networks use, the infrastructure and

the fleets.

For passenger transport, the completion of the TEN-T Core Network is needed by 2030 to

radically change the transport offer in Europe with new high-speed rail links, good connections to

all major airports allowing to offer alternatives to short-haul flights, the development of

multimodal passenger hubs in urban nodes and accessibility to all users.

For freight transport, the completion of key cross-border sections and missing links, the upgrade

of major interoperable freight routes fit for 740m trains, the upgrade of connections to ports and

logistics centres, the massive increase of capacity in terminals and rolling motorways is necessary

for the rail sector to attract significantly larger volumes of freight. Investments in inland

waterways and short-sea-shipping, notably serving the hinterland of maritime ports, need to

accompany this change. The smart component of the TEN-T related to traffic data and traffic

management

314

should be boosted, to get more out of the existing capacity, fast

315

The deployment of alternative fuels and smart European-wide systems is necessary for

environmental improvements and efficiency gains. This will require the deployment of

recharging/refuelling infrastructure for cars and light-duty vehicles, the deployment of recharging

and refuelling for long distance / heavy duty vehicles, further electrification of rail tracks,

modernisation and (renewable) electrification of rail fleet as well as enhanced clean public

transport in urban areas. It will also require investments to accelerate the development and roll-

out of renewable and low carbon technological solutions and fuels for the maritime and inland

All Long Term Strategy decarbonisation scenarios show that clean hydrogen will play an important role in reaching

climate neutrality by 2050

–

it is thus not a question of whether but a question on when precisely this will happen.

314

European Rail Traffic Management System, Intelligent Transport Systems, Air Traffic Management Systems,

Vessel Traffic Monitoring and Information Systems, e-Maritime services, River Information Service.

315

In the light of long duration of work related projects, this is the fastest way of enhancing the quality of transport and

making a visible difference.

313

171

waterways sector and to support the production and use of advanced biofuels and e-fuels for the

aviation sector, as well as the greening of ports and airports.

Digitalisation, automation, the emergence of shared, collaborative economy, and innovative

mobility platforms are all disruptive trends challenging the current mobility and transport

landscape, while also offering great possibilities for its enhancement. Investments in 5G, artificial

intelligence, block-chain and common databases can also benefit the transport sector.

To boost the resilience of the transport system to future pandemic and other crises, it must also

secure under all circumstances the smooth cross-border flow of citizens and goods. A fair and

functioning internal market for transport is still not a reality. Obstacles remain to free mobility of

persons, goods and services, including their accessibility, and to competition that is needed to

boost innovation, service quality and ensure affordable mobility for all.

The price of transport must reflect the impact it has on the environment and on health, requiring a

look at current tax exemptions and subsidies and extension of ETS to maritime navigation.

The comprehensive strategy on

‘Sustainable and Smart Mobility’ will build on the other Green

Deal initiatives and actions that the Commission already deployed for the recovery of the sector,

with a view to contributing to the increased EU 2030 climate target, clean energy transition and

climate neutrality by 2050.

9.10.3 Climate change and its impact, how to increase resilience and adaptation

Climate change is already occurring and its impacts felt across the world. Europe has warmed

faster than any other continent over recent decades with European temperature almost 2°C above

temperatures of the latter half of the 19th century

316

, with impacts and adaptation needs that we

are feeling already now and that are expected to grow.

The past five years were the warmest on record

317

, with global average temperature reaching

1.1°C above pre-industrial levels in 2019. Human-induced global warming is presently increasing

at a rate of 0.2°C per decade

318

. However, temperature increase is not the same everywhere.

Regions for example the Arctic regions are warming faster and if current trends continue, there is

a risk for cascading tipping points.

The effects of rising temperatures and greenhouse gas emissions are being felt in Europe and

around the world. Heatwaves were the deadliest meteorological hazard in the 2015–2019

period

319

and are becoming more intense in Europe. In summer 2019 they led to more deaths than

the seasonal average in parts of Europe as temperatures broke records in several countries,

including a new record of over 34°C above the Arctic Circle. In Europe almost all years since

2000 show above-average fire danger, with a number of associated disastrous events in the recent

past, such as Pedrógão Grande wildfires (Portugal) in 2017 and the Scandinavian fire season in

2018.

316

Copernicus Climate Change Service (2019). European State of the Climate, 2019.

https://climate.copernicus.eu/ESOTC/2019/surface-temperature

Note that land has warmed more rapidly than the ocean. Therefore, most populated regions of the world have

experienced warming above the global average. However, Europe has warmed more than other regions.

317

WMO Statement on the State of the Climate in 2019

318

IPCC Special Report on Global Warming of 1.5°C (2018). Section 1.1

319

United in Science (2019), High-level synthesis report of latest climate science information convened by the Science

Advisory Group of the UN Climate Action Summit 2019.

https://public.wmo.int/en/resources/united_in_science

172

There is a strong possibility that global warming will reach and overshoot 1.5°C, at least

temporarily, before temperatures can be reduced again, raising the question of what it means for

warming to cross the global 1.5°C threshold, and how impacts and the adaptation challenge in

Europe will evolve. In examining these issues, this section builds upon section 5.9 of the in-depth

analysis in support of the Commission Communication on the EU long term strategy

320

and

updates findings since 2018.

The Commission announced in the

Communication on the European Green Deal,

COM(2019) 640 final, that the Commission will adopt a new, more ambitious EU strategy on

adaptation to climate change. This is essential, as climate change will continue to create

significant stress in Europe in spite of the mitigation efforts. Strengthening the efforts on climate-

proofing, resilience building, prevention and preparedness is crucial. Work on climate adaptation

should continue to influence public and private investments, including on nature-based solutions.

It will be important to ensure that across the EU, investors, insurers, businesses, cities and

citizens are able to access data and to develop instruments to integrate climate change into their

risk management practices. The

Adjusted Commission Work Programme 2020,

COM(2020) 440 final, Annex I, includes the New EU Strategy on Adaptation to Climate Change

for adoption in Q1 2021.

9.10.3.1 Global impacts due to climate change

The recent reports of the IPCC

321

find that robust differences in climate characteristics are

projected between the present-day and global warming of 1.5°C, and between 1.5°C and 2°C.

The main differences in impacts between these warming levels are examined systematically in

SR1.5. These are summarised in Table 53 and Table 54. Further detail is provided in the

subsequent IPCC reports on climate change and land (SRCCL) and on ocean and cryosphere in a

changing climate (SROCC). SRCCL finds that risks associated with permafrost degradation,

wildfire, coastal degradation and stability of food systems are high at 1.5°C, while risks

associated with soil erosion, vegetation loss, and change in nutrition become high at higher

temperature thresholds due to increased possibility for adaptation. SROCC focuses largely on

differences in impacts between a below 2°C scenario and a high emissions scenario

322

and shows

that keeping warming below 2°C will lead to multi-metre differences in sea-level rise beyond

2100. Limiting warming will also slow ice loss and reduce impacts on the ocean (such as marine

heatwaves and acidification due to the ocean’s absorption of CO

) which in turn harm marine life

and fisheries. Limiting warming to 1.5°C therefore increases the chances of ecosystem-based

adaptation measures (such as wetland preservation and restoration) proving effective.

On the issue of Earth system tipping points, such as slowdown of the Atlantic Meridional

Overturning Circulation (Gulf Stream) or instability of the Greenland and West Antarctic ice

sheets, SR1.5 finds greater risks at lower temperatures compared to the previous (fifth)

assessment report of IPCC, with moderate risk at 1°C of warming and high risk at 2.5°C of

warming. While the IPCC does not explicitly label global warming of 1.5°C as an Earth system

tipping point, there appears to be abundant evidence that impacts and risks are greater at higher

320

321

https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_analysis_in_support_en_0.pdf

Special Report on Global Warming of 1.5°C

–

SR15 (2018), Special Report on Climate Change and Land

–

SRCCL

(2019) and Special Report on Ocean and Cryosphere in a Changing Climate

–

SROCC (2019)

322

These are scenarios RCP2.6 and RCP8.5 respectively. Warming under RCP8.5 is widely considered to be greater

than current business-as-usual scenarios.

173

temperatures (every tenth of a degree matters). Articles such as Lenton et al. (2019)

323

make a

precautionary case for keeping global warming as low as possible on the basis that while low

probability, high impact events are little understood, science has progressively assessed them as

being more likely at lower temperatures as knowledge has improved.

The Council conclusions on Climate Diplomacy

324

underlines that climate change multiplies

threats to international stability and security in particular affecting those in most fragile and

vulnerable situations, reinforcing environmental pressures and disaster risk, contributing to the

loss of livelihoods and forcing the displacement of people.

Lenton, M., et al. (2019). Climate tipping points

—

too risky to bet against. Nature | Vol 575 | 28 November 2019.

Council conclusions on Climate Diplomacy, ST-5033-2020 of 20 January 2020,

https://data.consilium.europa.eu/doc/document/ST-5033-2020-INIT/en/pdf

323

324

174

Table 53: Selected Climate Change Impacts to Natural Systems at 1.5°C & 2°C

At 2°C

Extreme hot days

Sea level rise by 2100

4°C hotter

around 0.1m more than at 1.5°C

(less time to adapt)

13% of global land area changes

from one ecosystem type to

another

18% of insects, 16% of plants and

8% of vertebrates lose over half

their climatically determined

geographic range

1.5

–

2.5 million km

greater than

at 1.5°C

At least one sea ice-free summer

per decade

largely disappear (>99% loss)

over 3 million tonnes lower

At 1.5°C

3°C hotter

0.26-0.77m

area at risk ~50% lower than at

2°C

6% of insects, 8% of plants and

4% of vertebrates lose over half

their climatically determined

geographic range

Woody shrubs encroaching into

the tundra already at 1°C

One sea ice-free summer per

century

decline by 70-90%

1.5 million tonnes lower

Ecosystems

Habitat Loss

Permafrost thawing

Arctic Ocean

Coral reefs

Fisheries

Global annual marine catch

(one model)

Greater risk at 2°C than 1.5°C is specified but not quantified

325



Droughts and precipitation deficits;

Heavy precipitation events;

Heavy precipitation associated with tropical cyclones;

Larger area affected by flood hazards due to precipitation;

Spread of invasive species

Forest fires

Marine ice sheet instability in Antarctica and/or irreversible loss of the Greenland ice sheet could be

triggered around 1.5°C to 2°C of global warming

Oceans (greater risk at 2°C spanning several impacts including species range shift and impacts of

ocean acidification on marine species)

Note: I pa ts a ove are attri uted a o fide e level of at least ediu i the IPCC report’s Su

ary for

Policymakers

Source: IPCC Special Report on global warming of 1.5°C

325

Some of these impacts are regional rather than global, though regions in this context are large. E.g. heavy

precipitation events are projected to be higher in northern hemisphere high latitude/high elevation regions, eastern Asia

and eastern North America. More specific phenomena within these categories may be quantified in the underlying

IPCC report.

175

Table 54: Selected Climate Change Impacts to Human Systems at 1.5°C & 2°C

At 2°C

Populations exposed to

climate-related risks and

susceptible to poverty

Water stress

Numbers affected expected to

increase

Additional 8% of

world’s

population affected (based on

year 2000 population)

At 1.5°C

Several hundred million fewer

people affected than at 2°C by

2050.

Affects up to 50% less of the

world’s population compared to

2°C

Greater risk at 2°C than 1.5°C is specified but not quantified



Human health: heat-related morbidity & mortality, ozone-related mortality

Vector-borne diseases (e.g. malaria, dengue): increased risk, shifting geographic range

Crops (cereals, rice): reductions in yields and/or nutritional quality

Reductions in projected food availability

Risks to global aggregated economic growth

Exposure to multiple, compound climate-related risks

Greater adaptation needs

Note: I pa ts a ove are attri uted a o fide e level of at least ediu i the IPCC report’s Su

ary for

Policymakers

Source: IPCC Special Report on global warming of 1.5°C

9.10.3.2 The need to adapt in the EU

Successful mitigation action is the first necessary step to reduce the risk of climate change.

However, in parallel, the EU economy as a whole must adapt to the risks that will result from

already committed emissions. These risks grow as we lag behind schedule in stabilising global

temperatures. Limiting global warming to 1.5°C, compared with 2°C, could reduce the number of

people susceptible to poverty globally

326

by up to several hundred million by 2050. Each 0.5ºC of

warming avoided can be significant, increasing the chances of achieving SDGs related to

poverty, hunger, health, water, cities and ecosystems. Among others, EU agricultural, Arctic and

coastal dependent communities would benefit significantly; adaptation of fragile ecosystems and

the services they provide (e.g. coral reefs, wetlands, and mangrove forests) would be more

effective. In general, overshooting the 1.5ºC limit will make climate-resilient development

pathways (CRDPs) more elusive and impacts on water-energy-food-biodiversity links more

difficult to manage.

Conventional and incremental approaches to adaptation that do not consider long-term

sustainable development or consider adaptation and mitigation separately will not deliver the

Paris Agreement. More emphasis

on ‘transformational’ adaptation measures as a complement to

‘incremental’ adaptation may be required

327

. These adaptation measures and options may include

not only “hard” structural and physical measures (e.g. coastal protection, infrastructure) but also

326

327

Summary for Policymakers, IPCC Special Report, Global Warming of 1.5°C, B.5.1

Transformational

adaptation,

according

the

IPCC

(2014

AR5,

Chapter

14:

https://www.ipcc.ch/site/assets/uploads/2018/02/WGIIAR5-Chap14_FINAL.pdf

) "seeks to change the fundamental

attributes of systems in response to actual or expected climate and its effects, often at a scale and ambition greater than

incremental activities. It includes changes in activities, such as changing livelihoods from cropping to livestock or by

migrating to take up a livelihood elsewhere, and also changes in our perceptions and paradigms about the nature of

climate change, adaptation, and their relationship to other natural and human systems". See also EEA 2017 climate,

impacts and vulnerability report and 2016 EEA report on Urban adaptation to CC in Europe.

176

“soft” social policies (e.g. awareness, health services) and governance improvements (e.g.

implementation, cross-sector

coordination, mainstreaming). A combination of both “hard” and

“soft” adaptation may produce best results

328

, and joining efforts from several EU Member States

may also improve protection, e.g. monitoring and mapping jointly coastal areas for a more

reliable early warning of extreme weather

329

It is necessary to better integrate long-term planning of emissions reduction and adaptation

because:

Adaptation provides opportunities and economic and social stability

–

climate

change will interact with other socio-economic developments

330

. It can be expected that

climate change adaptation projects or the impact of climate extremes will involve a

higher level of public intervention than today

331

, which calls for effective and efficient

adaptation strategies, particularly at local scale. Public resources may be severely drained

if the climate reaches certain tipping points

332

. On the other hand, both public and private

investments in adaptation provide opportunities and risk management opportunities that

can spur the creation of market niches: e.g. for climate services or green infrastructure. In

addition, supporting adaptation in developing countries may also bring stability and

security within the EU's borders. The New EU Strategy on Adaptation to Climate Change

will have a prominent international dimension.

There are co-benefits and, if done incorrectly, trade-offs between mitigation and

adaptation

–

so both policies must be developed together as components of any credible

long-term climate action. Early integration of both adaptation and mitigation in coherent

climate-resilient development pathways entails that specific vulnerabilities are factored in

when a given economic sectors starts implementing a decarbonisation strategy. For

instance, adaptation must ensure that low-emission agricultural techniques withstand

higher temperatures, it must lead to renewable electricity networks that are climate-

resilient and protect forests so that they keep functioning as carbon sinks. Transformative

climate action in cities, in particular, depends on the right mix of mitigation and

adaptation actions to both protect citizens against climate impacts and enable emissions

reduction within stringent legal and budgetary boundaries.

(c)

Adaptation improves the functionality and resilience of human and natural systems.

Effective adaptation action reduces both the vulnerability and exposure of natural ecosystems and

communities to the risks associated with climate extreme events (floods, wildfires, hurricanes,

etc.), and improves their capacity to recover and re-establish after a climate-related perturbation.

These aspects ensure that the functionality of ecosystems (e.g. absorption of CO

) is maintained

over the long-term, or at least that such functionality is recovered shortly after an extreme event.

328

OECD (2015), Climate Change Risk and Adaptation - Linking Policy and Economics,

http://dx.doi.org/10.1787/9789264234611-en

329

For example, a new European seabed map stitched together from surveys originally made for navigation has

improved storm surge forecasts in the North Sea. See:

http://www.emodnet.eu/improving-storm-surge-modelling-

north-sea

330

EEA (2017), Climate change, impacts and vulnerabilities in Europe 2016,

https://www.eea.europa.eu/publications/climate-change-impacts-and-vulnerability-2016

331

Daniel Bailey (2015), The Environmental Paradox of the Welfare State: The Dynamics of Sustainability, New

Political Economy, 20:6, 793-811, DOI: 10.1080/13563467.2015.1079169

332

Steffen et al. (2018), Trajectories of the Earth System in the Anthropocene, Proceedings of the National Academy

of Sciences Aug 2018, 115 (33) 8252-8259; DOI: 10.1073/pnas.1810141115

177

In 2013, the European Commission adopted an EU Adaptation Strategy to tackle climate change

risks to the EU economy and society. The 2013 Adaptation Strategy

–

which will be updated with

the New EU Strategy on Adaptation to Climate Change in Q1 2021

–

focuses on developing

better knowledge and understanding of climate impacts, climate proofing of specific sectoral

policies and the promotion of action by Member States and cities through non-legislative means.

The recent evaluation of the Strategy highlighted the urgency for action because of the important

risks facing the EU in certain economic areas

333

. For instance:



By the end of the century, under a high emissions scenario

334

and without specific adaptation

measures undertaken, the EU could experience a welfare loss of around 2% of GDP per year

by 2100, i.e. EUR 240 billion per year from only six impact sectors assessed

335

Weather-related disasters could affect about two-thirds of the European population

annually (351 million people per year)

336

, compared with 5% of the population

between 1981-2010. This would increase the related fatalities per year by fifty times

by the year 2100 (from 3 000 deaths per year presently, to 152 000 deaths per year

by 2100)

337

;

Flooding alone may cost EU countries up to EUR 1 trillion per year in damages by

the end of the century. Most of this would be due to coastal flooding (up to EUR 961

billion). Damages from river flooding could also rise to up to EUR 112 billion

compared to EUR 5 billion today, and there is considerable increase in river flood

risk for Europe even under a 1.5º C warming scenario

338

. This could also affect

transport infrastructure. By the end of the century, under a high warming scenario,

about 200 airports and 850 seaports of different size across the EU could face the risk

of inundation due to higher sea levels and extreme weather events.



Climate change is already affecting agriculture production both in direct and indirect ways:

through temperature and precipitation changes, increasing variability, and extremes. It is also

affecting the long-term perspective of agriculture through slow on-setting events such as soil

salinization, land degradation and desertification, and sea-level rise. This has a direct impact

on production and yields, income and livelihoods, as well as the processing industry

altogether accounting for high economic impacts. In a 2°C scenario before 2100, irrigated

crop yields are projected to decline in most regions of Europe, with rain-fed yields depending

on changes in water availability

339

. At EU level, the prolonged drought of 2018 has triggered

333

Report from the Commission to the European Parliament and the Council on the implementation of the EU Strategy

on adaptation to climate change.

334

In this section, the term "high emissions scenario", unless specified otherwise, refers to the IPCC's Representative

Concentration Pathway (RCP) 8.5. In the RCP 8.5 scenario, greenhouse gas emissions continue to rise throughout the

21st century.

335

JRC (2018), Climate Impacts in Europe, Final report of the JRC PESETA III project. doi:10.2760/93257.

https://ec.europa.eu/jrc/en/publication/eur-scientific-and-technical-research-reports/climate-impacts-europe

336

Forzieri et al. (2017), Increasing risk over time of weather-related hazards to the European population: a data-driven

prognostic study,

https://doi.org/10.1016/S2542-5196(17)30082-7

337

High emissions scenario, in this particular case, means scenario SRES A1B.

338

Alfieri et al. (2018). Multi-Model Projections of River Flood Risk in Europe under Global Warming. Climate, 2018

6, 16; doi:10.3390/cli6010016:

https://www.mdpi.com/2225-1154/6/1/6/pdf

339

Commission Staff Working Document: Evaluation of the EU Strategy on Adaptation to Climate Change

SWD(2018)461final.

178

higher CAP advanced payments and derogations from greening requirements.

340

Repeated

droughts in Europe will have repercussions for climate mitigation policies: the water and

carbon cycles are interlinked because CO

rates in the atmosphere increase when terrestrial

water storage diminishes: major droughts may cause drastic regional reductions in land

carbon sinks

341

. Drought is already ravaging Europe's soils, whose moisture shows a marked

decreasing trend over the 1979-2017 period

342

. Furthermore, moisture decrease is a crucial

factor in the ferocity and expanded reach of recent forest fires (that would jeopardise viability

of forests as carbon sink).



As regards the building sector, new and renovated buildings need to prepare for climate

change impacts as they, together with most of the remaining built environment, are

particularly vulnerable to: (1) Extreme temperatures affect the comfort of the occupants and

building energy efficiency; (2) Climatic conditions (humidity, temperatures) can affect the

structural integrity of the constructions; (3) More frequent and intense flooding events can do

more harm to more buildings; and (4) Water scarcity could in the future make domestic water

supply more expensive. Adaptation may for instance include: (i) Green roofs and walls

contribute to reducing the heat island effect and enhance water retention in towns; and

(ii) Domestic rain water cisterns contribute to urban water retention.

The PESETA

343

project analysed climate change projections for 2050 considering the

Representative Concentration Pathway (RCP) of 8.5 W/m2 (with corresponding global warming

levels ranging between 1.6°C and 2.7°C compared to pre-industrial levels), as well as for 1.5°C

and 2°C warming conditions. Results show that climate change will pose a threat to global food

production in the medium to long term, and that Europe will also be affected. Forced by the

projected changes in daily temperature, precipitation, wind, relative humidity, and global

radiation, grain maize yields in the EU will decline between 1% and 22%. In addition, wheat

yields in Southern Europe are expected to decrease by up to 49%.

The vulnerability of forests and ecosystems to climate change has been highlighted in a number

of studies and reports from the European Environmental Agency (EEA)

344

and the Joint Research

Centre (JRC)

345

In addition, climate-change related risks can also have implications on the assessment of

medium-term inflation outlook by central banks. Recently, the European Central Bank (ECB)

stated that catastrophic climate change could force the ECB to rethink its current monetary policy

framework

346

. The EIB will end financing for fossil fuel energy projects from the end of 2021

347

Commission Press release

– “Commission offers further support to European farmers dealing with droughts”,

Brussels, 2 August 2018.

http://europa.eu/rapid/press-release_IP-18-4801_en.htm

341

Humphrey et al. (2018), Sensitivity of atmospheric CO

growth rate to observed changes in terrestrial water storage,

https://doi.org/10.1038/s41586-018-0424-4

342

Copernicus Climate Services (C3S): European State of the Climate 2017:

https://climate.copernicus.eu/climate-

2017-european-wet-and-dry-indicators

343

PESETA:

https://ec.europa.eu/jrc/en/peseta-iv

344

https://www.eea.europa.eu/publications/climate-change-impacts-and-vulnerability-2016

345

https://ec.europa.eu/jrc/en/peseta-iii

;

https://ec.europa.eu/jrc/en/peseta-iv

346

Speech by Benoît Cœuré, Member of the Executive Board of the ECB, at a conference on “Scaling up Green

Finance: The Role of Central Banks”, organised by the Network for Greening the Financial System, the Deutsche

Bundesbank and the Council on Economic Policies, Berlin, 8 November 2018

340

179

Looking at risks from a more territorial angle, evidence is mounting on the distributional effects

of climate impacts across Europe. Impacts and opportunities will not be equally spread across the

EU territory, as shown in the map below:

Figure 93: Risk of climate change impacts across Europe

Source: European Environmental Agency

There are specific climate risks that are of major concern to some EU regions and communities.

In the absence of adaptation, for instance

348



While Europe as a whole will be more prone to flood risk (with mean annual river flow set to

increase), water stress will be more pronounced in Southern European regions

534

, and may

well cause tensions between different users of dwindling reservoirs and aquifers. Under 2°C

warming, median river flows in Mediterranean regions are expected to fall in all four

seasons.

347

https://www.eib.org/en/press/all/2019-313-eu-bank-launches-ambitious-new-climate-strategy-and-energy-lending-

policy.htm#

348

Where not otherwise specified, information provided comes from Commission Staff Working Document:

Evaluation of the EU Strategy on Adaptation to Climate Change SWD(2018)461final.

180



Higher temperatures by the end of the century are expected to have various impacts such as a

10-15% loss in outdoor labour productivity in several Southern European countries as well as

increases in heat-related mortality.

Habitat loss and forest fires are also serious risks. 16% of the present Mediterranean climate

zone (an area half the size of Italy) could become arid by the end of the century. Drier soils in

the Mediterranean also increase the area prone to forest fires.

Loss of Alpine tundra, even at 2°C could have important impacts on water regulation

(including for human consumption), as well as economic impacts including in the tourism

sector.

Specific risks (e.g. hurricanes, sea level rise, extreme heat) threaten to unravel EU efforts to

support its nine Outermost Regions, most of them small and isolated islands. The impacts of

hurricanes Irma and Maria on the Caribbean in 2017, and notably on St-Martin, Guadeloupe

and Martinique (three of the EU's outermost regions) came as a stark warning of the potential

impacts such regions face.

Transport: From road and rail networks to ports, airports and inland waterways, critical

transport resources are facing unprecedented threats from a climate, which is already

changing. Spain, for example, has just suffered the most powerful storms experienced in

decades, destroying bridges, cutting off roads and railway lines and submerging entire towns

in coastal areas. Flooding from high precipitation and extreme storms, in possible association

with related impacts including landslides and slope failures, will bring major risks across the

region for all modes of transport (road - and airport - infrastructure, railway and inland

waterways). Rising sea levels and greater wave activity causing erosion put vital coastal

transport infrastructure (i.e. coastal roads, railways, seaports and airports) at risk. Over 60%

of EU seaports

349

may be under high inundation risk by 2100, causing disruptions to

operations and damages to port infrastructure and vessels, especially along the North Sea

coast, where the traffic of over 500 ports accounts for up to 15% of the world’s cargo

transport. Rising temperatures linked to increased heat waves and drier and hotter summers

will affect roads, where pavement damages, damages to bridges and increased landslides in

mountainous areas are among key risks. Areas considered particularly worthy of more

detailed analysis include E-Roads in Southern Europe (South-Eastern France, Italy, Western

Balkans, Portugal, Spain, Greece, and Turkey) as well as in Nordic countries (Norway,

Sweden and Finland). Climate proofing not only individual infrastructure investment

projects, but also existing transport corridors, networks and systems will be increasingly

relevant, as the majority of the existing infrastructure is built for the past climatic conditions.

On major rail networks

–

where potential impacts include buckling of tracks, slope failures

and speed restrictions

–

infrastructure in the Mediterranean (Spain, Italy, France), northern

Europe, and Croatia are among those that could warrant more in-depth review.

Warming is also associated with increased navigational risks on inland waterways, with

significant implications for the transport of goods and people, which is already problematic

in parts of central Europe.



349

UNECE:

https://www.unece.org/info/media/presscurrent-press-h/transport/2020/unece-study-maps-transport-

infrastructure-at-high-risk-due-to-climate-change-in-pan-european-region-and-canada/doc.html

181



Cities as well as rural areas are directly and indirectly impacted by the impacts of climate

change. As the level of governance closest to citizens, they are often at the forefront of

responding to natural disasters and taking action on mitigate emissions and adapt to climate

change. Through their concentration of people and assets, cities are the major consumers of

energy and emitters of greenhouse gas emissions, but have also pioneered actions to reduce

emissions and adapt to climate. Including through initiatives such as the EU and Global

Covenant of Mayors, committing to reduce emissions by at least 40% by 2030, and taking

action to adapt to climate change".

The EU Taxonomy on sustainable finance will also address climate related risks.

9.10.3.3 Mitigation and adaptation: co-benefits and trade-offs

Measures to cut emissions can undermine resilience to climate change in certain contexts, and

vice versa. On the other hand, there are adaptation measures that are also beneficial for

decarbonisation (e.g. protection of certain coastal ecosystems that both tackle sea level rise and

remove CO

). A recent OECD report

350

highlights that climate investments and projects must

consider the links between adaptation and mitigation to minimise climate risk: the greater the

perceived risks of a project, the higher the returns investors will demand, and the higher the costs

passed onto end users and government sources of funding. The report provides a summary of

potential synergies and trade-offs between adaptation and mitigation measures:

350

OECD (2017), Investing in Climate, Investing in Growth, OECD Publishing, Paris.

http://dx.doi.org/10.1787/9789264273528-en

182

Table 55: Co-benefits and trade-offs between adaptation and mitigation

Positive for mitigation

Reduced deforestation: sequesters

carbon and provides ecosystems

services

Agricultural practices (e.g. no till) that

can sequester carbon while boosting

farmers income

Positive for

adaptation

Wetland restoration: carbon

sequestration and reduced flood risk

Renewable energy

–

wind and solar:

lower water use than thermal

generation

Potential trade-off with mitigation

Desalination: addresses water shortage

but is energy intensive

Increased irrigation: helps farmers

manage variable precipitation but can

be energy intensive

Construction of hard defences: reduces

the risk of extreme events, but the

construction may in some cases lead to

substantial greenhouse gas emissions

Air-conditioning: reduces the impact

of high temperatures, but is energy

intensive. However, redesign of

buildings to enable passive cooling

and natural ventilation in buildings is a

better and more sustainable solution.

N/A

Potential trade-

off with

adaptation

Inappropriate expansion of biofuels:

could exacerbate food price shocks if

biofuels displace crops

Hydropower: could increase the

complexity of managing water

resources

In some areas, the potential to maximise the mutual reinforcement between adaptation and

mitigation should guide long-term EU efforts to decarbonise and climate-proof the economy.

Examples for ecosystems, energy and cities are mentioned below.

Land and coastal ecosystems

Terrestrial and marine ecosystems globally absorb around 50% of anthropogenic emissions

351

The rest remains for prolonged times in the atmosphere, increasing greenhouse gas

concentrations and causing climate change.

Climate change is affecting ecosystems, modifying species range and prompting natural

vegetation changes. Global warming has led to shifts of climate zones in many world regions,

including expansion of arid climate zones and contraction of polar climate zones. As a

consequence, many plant and animal species have experienced changes in their ranges,

abundances, and shifts in their seasonal activities. 7.5% of global land area will change from one

ecosystem type to another at 1.5°C, and 13% at 2°C.

351

Around 50% globally, according to A. P. Ballantyne, C. B. Alden, J. B. Miller, P. P. Tans, J. W. C. White. Increase

in observed net carbon dioxide uptake by land and oceans during the past 50 years. Nature, 2012; 488 (7409): 70 DOI:

10.1038/nature11299

183

This absorption capacity has its own limits. In case of oceans this uptake is associated with

increased acidification, having negative impacts on marine biodiversity. In case of terrestrial

ecosystems, ecosystem degradation and deforestation actually result in significant greenhouse gas

emissions, while being detrimental for biodiversity. Preserving and restoring terrestrial and

marine ecosystems contribute both to mitigation and adaptation (for example, they contribute to

water retention, control floods and protect against erosion or air quality).

In general, the joint implementation of adaptation and mitigation strategies contribute to the

health, functionality and resilience of ecosystems, and therefore improve the availability and

delivering of goods and services to EU citizens. Many environmental, welfare and climate

objectives may be reached simultaneously through ecosystem-based initiatives

352

. For example,

marine vegetated habitats (seagrasses, salt-marshes, mangroves and others) contribute 50% of

carbon storage in marine sediments despite occupying only 0.2% of the ocean surface globally.

They reduce wave energy and raise the seafloor, and as such moderate the impacts of sea level

rise and contribute to safeguard people, infrastructure, and property along coastlines

353

Land restoration, reforestation and reduced and avoided degradation in forests, as well as

rehabilitation of wetlands, contributes to and increased land use sink. Forests offer a good

example of the co-benefits that can arise from coordinated adaptation and mitigation. Indeed, EU

forests absorb the equivalent of just over 400 MtCO

, or almost 10% of total EU greenhouse gas

emissions each year. At the same time, they lower temperatures, act as a buffer for hydrological

extremes and purify water, which means they are also crucial in adapting to climate change.

Recent case-studies in Ireland, Spain and the Czech Republic have shown that adaptation

measures and good forestry practices enhance the role of forests as carbon sinks

354

. It is important

to act with a long-term perspective because aging and degraded forests, agro-forestry systems and

more recent forest plantations all require adaptation planning today in order to withstand a

changing climate.

Energy

Due to climate change alone, and in the absence of adaptation,

annual damage to Europe’s

critical infrastructure could increase ten-fold by the end of the century under business-and-usual

scenarios

355

, from the current EUR 3.4 billion to EUR 34 billion. Losses would be highest for the

industry, transport, and energy. One of the greatest challenges is how to assess impacts on energy

production which may occur as a consequence of the projected increase in the intensity of

extreme weather events, as research gaps include economic modelling of extreme events and

vulnerabilities of transmission infrastructure

356

Impacts on renewable energy sources are of specific concern, given their critical contribution to

emissions reduction. There is some evidence on impacts on hydropower production due to water

352

353

Faivre et al. 2018; https://doi.org/10.1016/j.ijdrr.2017.12.015

Duarte, C.M., Losada, I.J., Hendriks, I.E., Mazarrasa, I., Marbà, N. The role of coastal plant communities for

climate change mitigation and adaptation. Nature Climate Change, 3 (11), pp. 961-968 (2013).

354

European Forest Institute

–

2018

https://www.efi.int/publications-bank/climate-smart-forestry-mitigation-impacts-three-european-regions

355

Forzieri et al. (2018), Escalating impacts of climate extremes on critical infrastructures in Europe, Global

Environmental Change 48, 97–107,

356

Chandramowli et Felder (2014), Impact of climate change on electricity systems and markets

–

A review of models

and forecasts,

https://doi.org/10.1016/j.seta.2013.11.003

184

scarcity, but also on wind, solar, biomass

357

. As regards hydropower in particular, the main

mechanisms through which climate change can affect hydropower production are changes in

river ﬂow, evaporation, and dam safety

358

. For Europe, most studies show a positive effect of

climate change impacts on hydropower for Northern Europe and a negative effect for South and

Eastern Europe

557 359 360 361 362

. The extent to which climate change affects hydropower in Europe

as a whole differs among the studies from almost no effect

558

to decreases of 5-10% by the end of

the century or even before

559 363

. Adaptation measures in hydropower production could offset

these impacts in Europe on a yearly average (not for all months of the year): e.g. by increasing

efficiency

560

or water storage

364

. As regards solar and wind energy, there are studies that indicate

that production might be negatively affected on some regions in the EU

365 366 367

Thermoelectric generation will be under more pressure in Southern European regions where their

water cooling needs may no longer be met: they may generate up to 20% less under a 3ºC

scenario; 15% less in a 2ºC world.

555

Thermal electricity generation may suffer most from water

stress in the near term in the Mediterranean, France, Germany and Poland

368

While the magnitude of these impacts is not expected to jeopardise Europe's long-term

decarbonisation path, it may entail higher costs and different regional energy mixes, unless

adaptive measures are deployed such as increased plant efficiencies, replacement of cooling

systems and fuel switches

560

. Private stakeholders in the energy system and EU and national

policies should reinforce the right market framework to ensure that the climate impacts do not

jeopardise the EU’s stability and security of energy supply. Transitions in the electricity

sector

should encompass both mitigation and adaptation planning, if they are to sustain and secure a

sustainable water–energy nexus in the next few decades.

357

See COACCH 1

synthesis report.

358

Mideksa and Kalbekken (2010), The impact of climate change on the electricity market: A review,

https://doi.org/10.1016/j.enpol.2010.02.035

359

Hamududu and Killingtveit (2012), Assessing Climate Change Impacts on Global Hydropower,

doi:10.3390/en5020305

360

Lehner et al.,(2005), The impact of global change on the hydropower potential of Europe: a model-based analysis,

https://doi.org/10.1016/j.enpol.2003.10.018

361

Van Vliet et al,(2016), Power-generation system vulnerability and adaptation to changes in climate and

water resources,

https://doi.org/10.1038/nclimate2903

362

Teotónio et al.(2017), Assessing the impacts of climate change on hydropower generation and the power sector in

Portugal: A partial equilibrium approach,

https://doi.org/10.1016/j.rser.2017.03.002

363

Chandramowli et Felder (2014), Impact of climate change on electricity systems and markets

–

A review of models

and forecasts,

https://doi.org/10.1016/j.seta.2013.11.003

364

Berga (2016), The Role of Hydropower in Climate Change Mitigation and Adaptation: A Review,

https://doi.org/10.1016/J.ENG.2016.03.004

365

Karnauskaset al. (2018), Southward shift of the global wind energy resource under high carbon dioxide emissions,

https://doi.org/10.1038/s41561-017-0029-9

366

Tobin et al. (2018), Vulnerabilities and resilience of European power generation to 1.5 °C, 2 °C and 3 °C warming,

https://doi.org/10.1088/1748-9326/aab211

367

Jerez et al. (2015), The impact of climate change on photovoltaic power generation in Europe,

https://doi.org/10.1038/ncomms10014

368

Behrens et al. (2017): Climate change and the vulnerability of electricity generation to water stress in the European

Union,

https://doi.org/10.1038/nenergy.2017.114

185

The illustration

369

below indicates a range of selected climate change impacts on the energy

system across Europe:

The 2019 JRC report

370

provides further reading on the water-energy nexus. Water availability is

among the key constraints affecting the European energy sector, which currently requires 74

billion m3/year of freshwater, similar to the water needs of agriculture. The decarbonisation of

the energy system could reduce its water needs by 38% by 2050, yet water availability will play

an essential role on the way to climate neutrality by 2050. At the same time, projections indicate

that water resources are expected to be under major stress, primarily due to climate change.

Higher water stress is expected in Mediterranean regions and extreme weather variability is also

EEA Report No 01/2019 “Adaptation

challenges and opportunities for the European energy system - Building a

climate‐ resilient low‐

carbon energy system”, ISSN 1977‐

8449,

https://www.eea.europa.eu/publications/adaptation-

in-energy-system

370

https://ec.europa.eu/jrc/en/publication/eur-scientific-and-technical-research-reports/water-energy-nexus-europe

369

186

expected in north-west Europe. That may lead to increased strain in regions where freshwater is

key for cooling thermal power plants or where hydropower capacity plays a significant role in the

power system.

Cities

The need to integrate adaptation and mitigation pathways is most apparent in the transformation

of European cities.

They are home to 360 million people, i.e. 73% of Europe’s population, and

account for 80% of the continent’s energy consumption and for 85% of Europe’s GDP

371

. Yet,

only around 40% of EU cities with more than 150.000 inhabitants have adopted adaptation plans

to protect citizens from climate impacts. Globally, a 2015 OECD report recognises that, in spite

of the important role local authorities have to deliver climate resilience through regulatory

frameworks and incentives, “support for urban adaptation remains uneven”

527

Trade-offs between mitigation and adaptation goals must be avoided in cities. In general, for

example, densification may benefit emissions reduction (e.g. less transport needs), but can also

increase vulnerability to regional climate impacts (e.g. more people and assets in less space when

a flood occurs). Cities also suffer from higher temperatures than the surrounding areas, due to the

concentration of built environment (“heat island effect”).

There are opportunities to optimise climate action when developing joint mitigation and

adaptation in urban planning. For example, urban green spaces and green infrastructure can

deliver adaptation benefits and absorb emissions and pollution, and permeable surfaces to address

floods in urban areas. Cities will also be major clients for climate services and emerging

businesses may provide solutions to city planners that combine optimal mitigation and adaptation

ideas. Cities that prioritise resilient and low-emission urban development at once will enjoy a

competitive advantage and attract investments

372

9.10.4 Progress globally on the fight against climate change

For 2030, over 180 countries have made pledges to reduce emissions under the UNFCCC Paris

Agreement, called nationally determined contributions (NDCs)

373

. The EU has put in place the

policies to meet its existing NDC target, which is a domestic reduction in greenhouse gas

emissions of at least 40% by 2030 compared to 1990. However, few other major emitting

economies are on track to meet their NDC commitments

374

and the world is not doing enough

collectively to stop global warming, let alone limit it to 1.5°C or well below 2°C. Meanwhile

emissions have risen up to 2019 with a temporary slowdown in the middle of the decade, which

indicated that dedicated policies can slow and reverse emission growth.

In this context, it is important to recall that the fall in CO

emissions seen in 2020 due to the

COVID-19 crisis, estimated at 4-7% in 2020

375

is the result of an extraordinary shock and not the

371

372

HELIX -

https://www.helixclimate.eu/

E3G (2014), “Underfunded, underprepared, underwater? Cities at risk”.

373

While most countries’ 1

NDCs have time frames up to 2030, some have time frames up to 2025.

374

See for example the UN Environment

Emissions Gap Report 2019,

which estimates that apart from EU, five G20

countries are on track to achieve their 2030 targets. Some are on track to overachieve by more than 15%, indicating

that these countries have room for raising their ambition levels.

375

Le Quéré et al. (2020) Temporary reduction in daily global CO

emissions during the COVID-19 forced

confinement.

Nature Climate Change.

https://doi.org/10.1038/s41558-020-0797-x

. See also IEA Global Energy

Review 2020.

https://www.iea.org/reports/global-energy-review-2020

187

start of a sustainable transition towards climate neutrality, and will most likely be temporary in

the absence of climate-friendly recovery options and upscaling of climate policies.

Figure 94: Global Greenhouse Gas Emissions in Reference and NDC scenarios with below 2°C and 1.5°C

pathways

Note: estimated impact of COVID-19 is based on IMF short-term GDP estimates from April 2020, assuming

the same annual GHG/GDP intensity as the GECO 2019 Reference scenario

Source: JRC Global Energy and Climate Outlook (GECO), 2019. https://ec.europa.eu/jrc/en/geco

9.10.5 Central role of the global energy transition

The energy use for power generation, transportation and heating, together with the emissions

from industry, is responsible for 73% of the global GHG emissions

376

. Carbon dioxide produced

mainly by the combustion of fossil fuels

377

and industrial processes is by far the largest cause of

climate change accounting for almost 65% of total global GHG emissions

378

. For this reason,

fighting climate change depends on a radical transformation of the energy system and energy use

in all sectors of the economy (industry, transport, buildings and agriculture), which can also bring

co-benefits for health and other environmental issues.

The global energy system has evolved over the past decades. CO

intensity of energy supply

decreased relatively little over the last half century, having been reduced only by 7.3% in 2018

from its maximum in 1973. After an intermediate increase of the CO

intensity between 2000 and

80% when excluding LULUCF, source: IEA (2020), "Emissions of CO

, CH

, N

O, HFCs, PFCs and SF

", IEA

Emissions from Fuel Combustion Statistics (database),

https://doi.org/10.1787/data-00431-en

(accessed on 26

June 2020).

377

In 2017, CO

emissions from fuel combustion alone amounted to almost 33 GtCO

–

source: IEA CO

emissions

statistics.

378

IPCC, 2015, 5

Assessment Report, Synthesis Report, SPM.2.

376

188

2010, the trend has been changing with the rapid introduction of renewable energy reducing the

intensity by 2.1% between 2010 and 2018.

The long lasting economic recovery of the last decade was characterised by rapidly increasing

primary energy demand, which grew by 11% over the 2010-2018 period, while energy intensity

of GDP decreased

379

. Total energy supply (approximately 14 Gtoe in 2018) is still dominated by

fossil fuels

380

, which represented 81% of the total global energy in 2018 (almost the same share

as in 2010

381

). This trend conceals contrasted dynamics: natural gas consumption increased 19%

over the 2010-2018 period; oil increased by 9% and coal by 5%. In contrast, renewables have

grown by 25% in the same period.

Figure 95: Global total primary energy supply

Note: * IEA WEO estimations for 2018, except coal and natural gas

Source: IEA World Energy Statistics and IEA WEO 2019

In 2018, solid fossil fuels

382

accounted for 27% of the world total energy supply. This is slightly

lower than the maximum value reached in 2015. Coal still generated 36% of the world electricity

in 2019

–

corresponding to about 9800 TWh, 2.6% lower than the all-time-high of about 10100

TWh in 2018. At the same time, final investment decision for coal fired power plants decreased

by more than 80% between 2015 and 2019

383

. Coal is also playing a smaller role in final energy

demand, with a 6% decrease between 2010 and 2018. In the EU, the share of coal in electricity

generation was 21% in 2018 or 45% lower than the global share in the same year.

Liquid and gaseous fossil fuels still play a major role in the energy use, notably in transportation

(which is still overwhelmingly dominated by oil), heating (natural gas represent around 23% of

energy consumed in industry and in buildings) and power generation (23% from natural gas). The

most striking recent development is a large-scale development of shale gas and tight oil

resources. Moreover, this expansion has not been without negative environmental impacts,

beyond GHG emissions.

379

380

Primary energy demand, source: estimate of IEA World Energy Outlook 2019

Coal and lignite, oil, natural gas

381

IEA World energy balances and statistics.

382

Coal and lignite

383

From 95 GW in 2015 to 17 GW in 2019; source: IEA World Energy Investment 2020

189

Nuclear energy is contributing to the total energy demand with 5%, a level comparable to

2010

384

. Anticipating a significant increase in electricity demand, some countries are planning to

make increased use of nuclear energy

385

Figure 96: Global gross electricity production

Note: * including geothermal, ** no growth due to statistical differences

Source: BP Statistical Review of World Energy June 2020

The most rapidly changing element of the global energy system is the acceleration of the

electrification of energy demand. Globally, final consumption of electricity increased by almost

20% between 2010 and 2017, twice as much as the increase in final energy consumption

overall

386

. Final consumption of electricity increased in all sectors. In the same period,

approximately 1.2 billion people gained access to grid electricity, however around 800 million

people still lack access to it

387

Another major trend of the energy system is the rise of renewable energy. Renewables saw their

share of total supply increasing to 14% (vs. 12.5% in 2010). While bioenergy is still the largest

energy source (9.5% of total energy supply), the growth of renewable energy was the largest in

the power generation, reaching a share of 27% of the total electricity production in 2019. Wind

and solar increased by nearly a factor 6 compared to 2010 and by a factor 2 compared to 2015.

The average yearly growth between 2015 and 2019 was 15% for wind and 30% for solar. The

wind capacity installed worldwide in 2019 increased by 19% compared to 2018, raising the

global wind capacity to 620 GW

388

. Meanwhile, solar capacity increased by 21% to reach 586

587

. Globally, the increase of electricity from non-fossil origin (around +3000 TWh) did not

outpace the increase of total electricity production (around +5500 TWh) between 2010 and 2019.

In the EU, the increase of electricity from non-fossil origin (+200 TWh) clearly outpaced the

increase of total electricity production which was practically zero in the last decade. In 2019, this

384

The reduction of nuclear power production in Japan following the Fukushima accident has been compensated by the

commissioning of new capacities, notably in China.

385

There are currently 55 nuclear reactors under construction worldwide (against 440 in operation), including 12 in

China and 7 in India.

386

IEA World energy balances and statistics.

387

IEA SDG7, Data and Projections and IRENA’s

Tracking SDG 7: The Energy Progress Report (2020).

The report

also shows that affordability and utility of off-grid solutions (especially solar) has increased, allowing a growing

number of people to access (off-grid) electricity services.

388

IRENA, Renewable capacity statistics 2020

190

also happened at the global level: around 450 TWh of additional electricity from non-fossil origin

versus only 350 TWh of additional total electricity production.

Increased replacement of fossil fuels by electricity from emissions-free sources like wind and

solar will be an important measure to reduce emissions and to tackle air pollution. In the road

transport sector, due to improvement in battery technology, the share of electric vehicles is

rapidly growing. Heat pumps and other forms of electrical heating also have a large potential for

reducing emissions from heating and cooling in buildings and to decarbonise low temperature

processes in industry.

The growth of renewable energy was made possible by a sharp decline of the cost of electricity

renewable technologies and battery storage. Since 2010, the cost of electricity from wind has

fallen 49%. PV costs have dropped 85%

389

with a similar drop in battery prices

390

. These trends

are expected to continue in the future.

Figure 97: Global weighted average total installed costs, capacity factors and LCOE for onshore wind

power, 2010-2019

Source: IRENA, Renewable power generation costs in 2019

389

390

BloombergNEF, New Energy Outlook 2019

According to BloombergNEF, battery prices, which were above $1,100 per kilowatt-hour in 2010, have fallen 87%

in real terms to $156/kWh in 2019:

https://about.bnef.com/blog/battery-pack-prices-fall-as-market-ramps-up-with-

market-average-at-156-kwh-in-2019/

191

Figure 98: Global weighted average total installed costs, capacity factors and LCOE for solar PV, 2010-

2019

Source: IRENA, Renewable power generation costs in 2019

The changes had deep consequences for energy investments worldwide. Annual global

investment in renewable power has increased 55% since 2010

391

and renewable sources

accounted for two thirds of global investments in the power sector in 2017

392

. At the same time,

investments in conventional, non-renewable, sources have diminished significantly since 2014,

although upstream investments in oil and gas projects increased modestly in recent years, mostly

driven by spending in the shale sector

590

There is a consensus that the transformation of the energy system will continue. The energy and

GHG intensity of the global economy should decrease further. Pressure on natural resources will

promote the uptake of technologies aimed at improving energy and resource efficiency. Given

that costs are expected to fall further, renewables should continue to expand at the expense of the

most carbon-intensive sources of energy: coal used in power generation and oil used in transport.

However, the emergence of a global consumer class

393

–

and the associated increase in energy

demand

–

slows down improvements in energy intensity.

394

9.10.6 EU action in a global context to limit temperature increase to well below 2



C and pursue

efforts to limit it to 1.5



9.10.6.1 Temperature thresholds and carbon budgets

The latest IPCC Special Report on 1.5°C (SR1.5)

395

estimates that at the current rate of

temperature increase, global warming (defined as in the 30-year average of global temperature) is

likely

to reach 1.5°C above pre-industrial levels at some point between 2030 & 2052

396

391

392

IEA, World Energy Investment 2019.

Adjusting for cost reductions, see IEA World Energy Investment 2018.

393

By 2030, the consumer class is expected to reach 5 billion people. This means 2 billion more people with increased

purchasing power than today (estimates from the JRC “Megatrends

Hub”).

394

In 2018, energy intensity decreased by only 1.2%, the slowest rate since the start of the decade. This marked the

third consecutive year of weakening energy intensity improvements.

395

https://www.ipcc.ch/sr15/

192

In SR1.5, all pathways consistent with limiting warming to 1.5°C foresee the use of carbon

dioxide removal (CDR) technologies and actions, and most of them require net negative

emissions to return global warming to this level following a peak in temperature above 1.5C.

Chapter 2 of SR1.5 considered 54 emissions reduction pathways consistent with limiting global

warming to 1.5°C by 2100, with a greater than 50% chance, and with no or limited temperature

overshoot

397

. Of these, 19 were assessed as having a

likely

(>66%) chance of limiting warming to

1.5°C by 2100, and 9 were assessed as avoiding any overshoot of 1.5°C during the 21

century.

However, none of the assessed pathways both limit global warming to 1.5°C by 2100 with a

likely

chance and avoid overshoot entirely. Therefore even with strong global action to limit

greenhouse gas emissions, there is a strong possibility that global warming will reach and

overshoot 1.5°C, at least temporarily, before temperatures can be reduced again.

Stopping global warming continuing requires net CO

emissions to fall to zero or below, as well

as achieving a decline in the overall warming (net radiative forcing) from other greenhouse gases

and forcers

596

. The term carbon budget is used to quantify the cumulative level of remaining CO

emissions associated with keeping global warming below a temperature threshold, such as 2°C or

1.5°C. Budgets are quantified in CO

since this is the most abundant

long-lived forcer

in the

atmosphere. Once emitted, it accumulates in the atmosphere over decades to centuries, meaning

that there is a close relationship between cumulative emissions and global temperature increase.

The level at which global temperature will peak is strongly determined by the level of cumulative

emissions

398

. In the long-term, limiting warming to below 2°C or 1.5°C requires either

reducing net emissions to zero before these limits are reached, or by achieving net negative

global emissions (through use of natural carbon sinks or carbon dioxide removal technologies)

after the limits are exceeded.

The latest IPCC carbon budget estimates come from the Special Report on 1.5°C (SR1.5)

399

. For

limiting warming to 2°C, SR1.5 gives central estimates starting in 2018 of around 1500 and 1170

GtCO

for a 50% and 66% chance respectively. For 1.5°C, the 50% and 66% chance estimates

are 580 and 420 GtCO

respectively. These budgets represent the most authoritative assessment

available since they are based on multiple lines of evidence following comprehensive review of

the scientific literature. However, they are subject to considerable uncertainty ranges due to the

inherent complexity of the interactions in the climate system. The main sources of uncertainty

See IPCC Special Report on Global Warming of 1.5°C Section 1.2. Global warming is defined in this case as the

30-year average of Global Mean Surface Temperature (GMST), which is a blend of sea surface temperature and air

temperature over land. Note that the IPCC use two different measures of global temperature. For discussion of carbon

budgets and emissions reduction pathways, this section follows the convention of the IPCC in using Global Surface Air

Temperature (GSAT

–

average near-surface air temperature over both land and sea) which gives somewhat more

restrictive carbon budgets than GMST. Both measures are equally valid scientifically. However, GMST is typically

used in observations, while GSAT is used for models and projections. Warming since pre-industrial times, is

approximately 0.2°C higher when measured by GSAT due to different warming rates of air and water, and the effect of

melting sea ice.

397

Limited overshoot is defined overshooting 1.5°C temporarily by no more than 0.1°C

398

Maximum temperature is determined by cumulative emissions of long-lived forcers, and by the emissions from

short-lived forcers around the time of CO

emissions reaching net zero. CO

is the most abundant long-lived forcer, but

others such as N

O are also significant. Some short-lived forcers such as methane are more powerful than CO

on per

kilogramme basis and must therefore be regulated as part of climate policy. However, since short-lived forcers have a

shorter lifetime in the atmosphere, they do not accumulate

over time to form a cumulative ‘budget’ in the same way as

399

https://www.ipcc.ch/sr15/

396

193

around the central estimates are related to the temperature response to CO

and non-CO

emissions (+/- 400 GtCO

), and the level of historic warming

400

(+/- 250 GtCO

). Furthermore,

Earth System feedbacks (such as release of CO

and methane from permafrost thawing) could

reduce this budget further, out to 2100 (-100 GtCO

best estimate). Since SR1.5 gives remaining

budgets from the start of 2018, it is also important to recall that they are being depleted by

around 42 GtCO

annually due to continued emissions from fossil fuels, industry and land use

change. The next comprehensive assessment of carbon budgets will be included in the Sixth

Assessment Report of the IPCC which is expected to be available in 2021-2022.

Taken by themselves, carbon budgets do not tell us

how

to reduce GHG emissions in a manner

consistent with limiting global warming to well below 2°C or 1.5°C. For this, it is necessary to

consider emissions reduction pathways that combine the atmospheric science for all greenhouse

gases, not just CO

as summarised by the carbon budgets, as well as the technological and

socioeconomic possibilities for reducing emissions of CO

and other greenhouse gases, including

the extent to which net negative emissions will be needed.

9.10.6.2 Emissions reduction pathways and scenarios (EU and global)

The pathways and scenarios typically considered by Integrated Assessment Models look at all

sources of emissions human activity and can in an integrated manner assess feasible socio

economic and technology emission pathways at a global scale. The SR1.5 database

401

of such

scenarios constitutes the most authoritative source on the assessment of pathways compatible

with the Paris Agreement objective of keeping average global temperature rise well below 2°C

and pursuing efforts to achieve 1.5°C compared to pre-industrial levels.

The more recent UNEP Emissions Gap Report (UNEP GAP 2019)

402

bases its analysis on the

SR1.5 database and gives a median estimate of around 25 GtCO

e in 2030 (with a range of 22-31

GtCO

e) for a least-cost pathway with a 66% of limiting warming to 1.5°C by 2100. This

represents a 50% reduction compared to 2010 global GHG emissions. The 1.5°C scenarios of

UNEP GAP 2019 allow maximum emissions of 600 GtCO

from 2018 up to the point of reaching

net zero CO

emissions, and cumulative 2018-2100 emissions of at most 380 GtCO

(implying

that after reaching zero, CO

emissions become net negative). This is consistent with the

no or

limited overshoot

scenarios of SR1.5

403

Neither report provides information on regional pathways consistent with the Paris goals.

However, 1.5°C scenarios including EU28-level reductions are provided by for instance the

ADVANCE

404

project (a multi-model scenario assessment project that is one of the contributors

to the SR1.5 database). ADVANCE includes a set of 25 runs from 4 different scenarios and 8

different models aiming at limiting global warming to 1.5°C within a stricter budget than UNEP

400

SR1.5 estimates warming in the period 2006-15 to be 0.87°C above the level of 1850-1900 but with a likely range

of +/- 0.12°C.

401

Huppmann, D., Kriegler, E., Krey, V., Riahi, K., Rogelj, J., Rose, S.K. et al. (2018a). IAMC 1.5°C Scenario

Explorer and Data Hosted by IIASA.

https://data.ene.iiasa.ac.at/iamc-1.5c-explorer

402

United Nations Environment Programme (2019). Emissions Gap Report 2019. UNEP, Nairobi.

http://www.unenvironment.org/emissionsgap

403

Chapter 3 of UNEP GAP 2019 explains how its pathways relate to those of SR1.5.

404

ADVANCE synthesis scenario database:

https://db1.ene.iiasa.ac.at/ADVANCEDB/dsd?Action=htmlpage&page=welcome

194

GAP 2019

405

. When compared to the ADVANCE results, the MIX and ALLBNK scenarios

(including the emissions and removals of the LULUCF sector) appears in line with EU results for

global 1.5°C scenarios (Figure 99)

406

Figure 99: 50-55% reduction pathways and ADVANCE 1.5°C scenario

EU emission pathways in ADVANCE 1.5°C scenarios

-20%

-40%

-60%

-80%

-100%

-120%

2010

2020

EU ADVANCE Median

MIX-COVID

2030

ALLBNK

2040

MIX-50

MIX

2050

Source: IAMC 1.5°C Scenario Explorer

Figure 100 places this EU effort in historical context and compares this to 1.5°C consistent

pathways for other regions taken from the SR1.5 database. Historical data show that the EU

began reducing emissions earlier than the OECD as a whole. While the EU28 has reduced

emissions by more than 20% below 1990 levels by 2017, emissions in the rest of the OECD

increased

by almost 20% (the 2000-2010 OECD reduction shown in Figure 100 is due to the EU

emission reductions). Emissions in the rest of the world have grown by even more, especially

since 2000.

405

The ADVANCE scenarios (from 2016-16) have a 2011-2100 budget of 400 GtCO

. This is stricter than the UNEP

GAP 2019 and SR1.5 budgets which only begin in 2018.

406

Note that this includes the UK, which typically reduces GHG by 2030 in such projections more compared to 1990

than the remaining EU27.

195

Figure 100: Emissions reductions compared to 1990, EU, OECD and Global 1.5°C pathways and EU

objective of 50-55% reduction by 2030 leading climate neutrality by 2050

GHG emission reduction pathways (% 1990 level)

180

160

140

Global

OECD

100

120

RoW

EU ADVANCE Median

MIX-COVID

ALLBNK

MIX-50

MIX

1990

2000

2010

2020

2030

2040

2050

Note: EU emissions (incl. LULUCF) is based on EEA for 1990-2010

407

, and ADVANCE for 2020-2050 (same

pathway as EU ADVANCE Median pathway Figure 99). Other regions are based on EDGAR + Global Carbon

Project for 1990-2010, and IAMC 1.5°C Scenario Explorer median 1.5°C projections with no or limited

overshoot for 2020-2050. Data is shown in 10-year steps with straight line in between. Series are

harmonised by applying uniform scaling factor based on 2010 data.

In the projections by the ADVANCE project, with cost-efficient global scenarios, achieving

climate neutrality by 2050 is not a pre-requisite for the EU, nor for OECD countries or the world

in general, with projections requiring net negative emissions later in the second half of the

century. Also SR1.5 concludes that global climate neutrality is achieved before around 2070 and

negative emissions thereafter to achieve 1.5°C by the end of the century

408

The EU objective of climate neutrality by 2050, defined as achieving net zero GHG emissions by

2050, combined with the 50-55% milestone in 2030, gives a strong signal that the EU is

assuming its leading role on climate action in line with these scientific projections.

The EU has been reducing emissions since 40 years, with our emissions having peaked just

before 1980. According to the EDGAR database, the EU share of global emissions (excluding

LULUCF) has continued to fall from 15.7% in 1990 to 8% in 2015. This reduction has occurred

in large part due to reductions in the energy intensity of the economy and carbon intensity of the

EU energy supply, outweighing the effects of growth in GDP and population. Today the EU is

one of the most efficient, if not the most efficient, major economy in term of GHG emitted by

unit of production.

407

408

https://www.eea.europa.eu/data-and-maps/data/data-viewers/greenhouse-gases-viewer

See Table 2.4 of the IPCC Special Report on Global Warming of 1.5°C, Chapter 2

196

Figure 101: Decomposition of historic and projected drivers in EU emissions (EU28)

Note: emissions refer to EU28

Source: European Environment Agency (2018)

409

Looking beyond a least-cost approaches, SR1.5 notes that different principles and methodologies

generate different calculated contributions, responsibilities and capacities

410

. Höhne et al.

(2018)

411

distinguish for instance between approaches based on

technical necessity

(including

cost optimisation and use of indicators such as emissions per capita, or per unit of GDP), and

approaches based on

moral obligation

(such

as measures that takes countries’ income levels or

historical emissions into account). Furthermore, questions of moral obligation related to climate

change are broader than the setting of emissions reductions targets, encompassing efforts to raise

ambition in other countries, as well as provision of climate finance and other assistance

412

Estimates of EU effort for 2030 in a 1.5°C scenario included Robiou du Pont et al. (2017)

413

, that

look at a number of different metrics to divide efforts, give a central value of 68% below 1990

levels, with extremes of -43% to -87%, excluding LULUCF

414

. However, the study does not

attempt to model EU or global transition pathways that would lead to these reductions, and

clarifies that they could in principle be met by a combination of domestic mitigation,

international emissions trading and support to 3

country emissions reductions. Therefore such

studies do not really look into what emission reductions the EU should and can achieve

domestically but apply a set of possible equity principles without any connection to real possible

emission pathways. Similarly, the website Climate Action Tracker synthesises results from a

https://www.eea.europa.eu/data-and-maps/daviz/decomposition-analysis-of-key-historic

See Section 5.5.3.2 of IPCC Special Report on Global Warming of 1.5°C (2018)

411

Höhne et al. (2018). Assessing the ambition of post-2020 climate targets: a comprehensive framework,

Climate

Policy,

18:4, 425-441, DOI: 10.1080/14693062.2017.1294046

412

See Council Conclusions on Climate Diplomacy, 20 January 2020

413

Robiou du Pont et al. (2017). Equitable mitigation to achieve the Paris Agreement goals.

Nature Climate Change

volume 7, pages38–43. DOI: 10.1038/nclimate3186

414

From Table 2 of Robiou du Pont et al. adjusted for 1990 baseline (EU28). The land sector globally is omitted from

the study’s effort share calculations.

410

409

197

range of effort sharing studies and calculates 2030 1.5°C reductions ranging from 45% below

1990 to over 120% below 1990 levels

415

https://climateactiontracker.org/

Fair Share data download from EU page, adjusted for 1990 baseline (EU28). The

land sector globally is omitted from the Climate Action Tracker calculations.

198

9.11 EU policies as an enabler

This section elaborates on enabling policies that would facilitate achieving higher GHG, EE and

RES ambition, with a focus on policies being developed in the context of:

9.11.1 Green recovery from the COVID-19 crisis

Though the COVID-19 crisis in itself has clearly resulted in a downward pressure on GHG

emissions, it does not change the fact that to achieve climate neutrality changes will be needed.

The building renovation rate will need to be increase significantly, the vehicle stock will need to

be replaced with low and zero emitting technologies, our energy system will need to be converted

more and more to a renewables based one and our industries will need to invest in new

production capacity with modern climate neutral, efficient and increasingly circular technology

solutions.

The economic fallout from the COVID crisis will likely make it more challenging for private

agents to mobilise the necessary levels of investment in the energy system as many agents may

face weaker balance sheets and capital positions as well as higher levels of indebtedness. As

assessed in section 6.4.1.3 on energy system investments, the transition to a climate neutral

economy will require significant additional investments, with an estimated total investment

requirement in the energy system (excluding transport) of around EUR 400 billion (2015 EUR)

per annum in the next decade.

Delivering on that investment challenge, in the current economic context of increased uncertainty

will thus make it all the more important that recovery plans focus have a very strong focus on

green investment. This will not only deliver the much needed short term investment stimulus, it

would also support long term sustainable growth (see section 6.4.2 on macro-economic impacts).

The Economic Recovery plan adopted on 27 May 2020 and adopted by the European Council in

July 2020, which the Commission headlined

“Europe’s moment: repair and prepare for the next

generation”,

aims to stimulate economic recovery across the EU to respond to the current crisis.

The Recovery plan underlines the importance of a green, digital and resilient recovery, and is

based on two key elements: firstly, an emergency Next Generation EU (NGEU) instrument of

EUR 750 billion

416

to temporarily boost the financial firepower of the EU budget with funds

raised on the financial markets. Secondly, a reinforced multiannual financial framework (MFF)

for 2021-2027 with a size of EUR 1 074.3 billion.

These two sets of stimulus mean a total of EUR 1.8 trillion of targeted and front-loaded support

to Europe's recovery. In addition, there are measures worth EUR 540 billion, already endorsed by

the April European Council on important safety nets for workers, businesses and sovereigns.

The plan confirms energy policy, and specifically clean green energy as a cornerstone of the

recovery. While the financing instruments for the recovery are largely horizontal, energy

investments within the framework of key upcoming energy initiatives can be supported by

various sources. For the recovery fund, like the general budget, 30% would be earmarked for

416

All figures of the NGEU and MFF are expressed in 2018 constant prices unless otherwise indicated.

199

delivering the climate goals of the Green Deal. The European Council specifically agreed that

2021-2027 MFF and NGEU instruments have to comply with the objective of EU climate

neutrality by 2050 and contribute to achieving the Union's new 2030 climate targets. All EU

expenditure will have to respect the green oath to ‘do no harm’. A large part of the (EUR 750bn)

Next Generation EU instrument will be spent through a new Recovery and Resilience Facility

(RRF) (EUR 672.5 billion) aimed at allowing Member States to support investments and reforms,

including investments linked to green transition based on the Member States’ Recovery and

Resilience Plans outlining their priorities. The RRF will provide grant (EUR 312.5 billion) and

loan support (EUR 360 billion) for the Member States to carry out needed reforms in line with

the European Semester recommendations, the National Energy and Climate Plans and the Just

Transition Plans, making sure that green transition is at the heart of the reforms. In addition to the

close alignment with the European Semester and the country specific recommendations, the draft

Regulation on the RRF includes interactions with the National Reform Programmes, the National

Energy and Climate Plans, the Just Transition Plans and the partnership agreements and

operational programmes adopted under the Union funds.

The other key parts of the plan are:



Increase the

Just Transition Fund

(the 1st pillar of

Just Transition Mechanism)

from

EUR 7.5 billion to EUR17.5 billion to facilitate transition in coal and carbon-intensive

regions where transition will present the biggest challenge. The revamped Just Transition

Fund should support and incentivise transition choices in coal and carbon-intensive

regions.

A proposal for the 3rd pillar of

Just Transition Mechanism

- a

loan facility for public

authorities

in just transition regions to help investments in areas such as clean heating,

buildings renovation and clean mobility.

The

REACT-EU

initiative includes EUR 47.5 billion of additional funds that will be

made available mainly to the cohesion policy through the European Regional

Development Fund (ERDF) and the European Social Fund (ESF)

–

until end of 2023.

The

InvestEU

scheme (EUR 8.4 billion budget provision). It will also include a new

Strategic Investment Facility

(EUR 15 billion provision) will be the key EU instrument

to crowd in private capital to support investments in policy areas essential for achieving

the European Green Deal objectives: including renewable energy, energy efficiency,

decarbonised energy infrastructure or research and innovation in green technologies. All

projects above a certain size financed by InvestEU will be subject to

sustainability

proofing,

to ensure they are in line with the Green Deal.

A Technical Support Instrument to ensure that Member States will benefit from tailor-

made expertise for developing and implementing sustainable and growth enhancing

reforms. Under this instrument, Member States would be able to receive support for

scaling up and improving the quality of green investments, including in the context of the

National Recovery and Resilience Plans.



200

The EU recovery plan follows the calls from other quarters who point to the need and opportunity

of implementing green recovery plans. The IEA recently released a Sustainable Recovery Plan

417

for actions that can be taken over the next three years to boosting economic growth, creating jobs

and building more resilient and cleaner energy systems. The IEA plan identified six key sectors

–

electricity, transport, industry, buildings, fuels and emerging low carbon technologies. The

analysis carried out estimates that implementing the plan would lead to a peak in global

emissions, putting the world on a path towards achieving the Paris Agreement goals while

leaving global GDP in 2023 3.5% higher than it would have been otherwise. Implementing the

plan would require investing approximately 0.7% of global GDP.

To achieve the desired effect, recovery plans should focus on the immediate future. Funds swiftly

allocated to projects would allow kick starting the energy and climate transition. For an

industrialised economy such as the European Union, it will have to be assessed whether and

which forms of conditionality for public support to existing businesses could contribute to the

achievement of climate priorities.

The recovery packages adopted by Member States and at the EU level will determine not only the

speed at which our economies will recover, but also the structure of our economies for decades to

come. The European Parliament and a significant number of Member States have stressed the

essential need to ensure that recovery packages are structured so as to achieve the twin objective

of generating a rapid pick-up in economic activity and setting our economies firmly and

definitively on an environmentally and socially sustainable path in the long term, including

through the transition to a climate neutral economy by 2050. These two objectives are

complementary rather than exclusive. In particular, it will be crucial to ensure that public support

for investment focus on assets that promote the climate, energy and digital transition, ensure the

long-term competitiveness of EU enterprises and their role in the clean technologies and products

of the future, and create sustainable jobs (e.g. in buildings renovation, electric vehicles or

renewables electricity equipment and infrastructure). The enabling environment will also play a

critical role in facilitating and channelling private investment in the necessary areas identified

above. The recently adopted Regulation 2020/852 on the establishment of a framework to

facilitate sustainable investment (hereinafter, ‘Taxonomy Regulation’) aims to incentivise

private

sector investment in environmentally sustainable economic activities in general, and as such, will

be crucial for guiding investments into the green recovery. The European Investment Bank is

among the front runner financial institutions, which through their internal energy lending policy

(revised in late 2019)

418

has set out a pathway for channelling financing to decarbonised

solutions. The future revision of the Commission’s guidelines on State aid for environmental

protection and energy will also provide a strengthened framework to support the necessary

investment in the energy system, fully aligned with the objective of climate neutrality by 2050.

417

418

Sustainable Recovery, IEA 2020,

https://www.iea.org/reports/sustainable-recovery

As per its new lending policy, the European Investment Bank will end financing for fossil fuel energy projects from

the end of 2021; unlock EUR 1 trillion of climate action and environmental sustainable investment in the decade to

2030 (including to accelerate clean energy innovation, energy efficiency and renewables); and align all financing

activities with the goals of the Paris Agreement from the end of 2020.

201

9.11.2 Energy financing and climate mainstreaming of the next MFF

The EU 2021-2027 budget was designed with a horizontal 25%

419

climate-mainstreaming target

across all EU programmes. The Council’s agreement on the Recovery plan increased the overall

climate mainstreaming ambition up to 30%. The “global” climate mainstreaming objective is

translated into programme-specific targets.

420

A large number of those programmes support

energy either as an explicit objective or under broader sets of priorities:



60% of the Connecting Europe Facility

421

funds will contribute directly to the climate

target, with EUR 5.18 billion proposed for energy infrastructure investments.

30% of funds under the European Regional Development Fund (EUR 196.9 billion) and

37% of the Cohesion Fund (EUR 42.5 billion)

422

support climate objectives, funding

investments in for instance clean and fair energy transition (through the policy objective

of a greener, low-carbon Europe), including measures to promote energy efficiency,

renewable energy and the smartening of grids.

Horizon Europe

423

, the new research and innovation framework programme, with an

overall proposed budget of EUR 80.9 billion and a dedicated Climate, Energy and

Mobility cluster, will see 35% of its funds supporting the achievement of the climate

goals.

The LIFE Programme

424

(EUR 4.8 billion) has an ambitious 61% climate mainstreaming

target: under LIFE, the Clean Energy Transition sub-programme (about EUR 1 billion)

will create enabling framework for energy efficiency and renewables implementation

building the capacity of private and public actors to create the right market & regulatory

conditions and to mobilise investments in clean energy.

The InvestEU Programme (with EUR 8.4 billion reserved under the EU budget for the

provisioning of the budgetary guarantee is expected to contribute 30% of the overall

financial envelope to climate objectives. This includes a 60% combined climate and

environmental mainstreaming under the Sustainable Infrastructure Window that will

support a large number of energy related investments (infrastructure, energy efficiency,

including in buildings, renewable energy).

The Just Transition Fund (EUR 17.5 billion) with a focus on the transition process

towards a climate-neutral economy of the Union by 2050 is also linked to the National

Energy and Climate Plans and the energy transition. The whole of the budget of the Just

Transition Fund is focussed on climate action.



Outside the EU budget, albeit not explicitly included in the climate mainstreaming target, the

Modernisation Fund and the Innovation Fund (c.a. EUR 14 and EUR 10 billion respectively) will

help support investments in areas crucial for decarbonisation and reducing GHG emissions.

Proposed areas of action include: modernisation of energy networks, renewable energy, energy

storage, energy efficiency, just transition in carbon intensive regions, innovative low carbon

technologies in renewable energy generation and energy intensive industries or CCUS.

419

420

Raised from 20% in the 2014-2020 MFF

The mainstreaming targets as per 2018 MFF proposal. The increased climate mainstreaming target of 30% will need

to be appropriately translated into relevant sectoral legislation and to be agreed upon by co-legislators.

421

https://ec.europa.eu/inea/en/connecting-europe-facility

422

Total values proposed for both programmes respectively as per May 2020 MFF proposal

423

https://ec.europa.eu/info/horizon-europe-next-research-and-innovation-framework-programme_en

424

https://ec.europa.eu/easme/en/life

202

9.11.3 Sustainable finance

The European Commission’s sustainable finance initiative, set out in the 2018 Action Plan on

Financing sustainable growth and the associated legislative and non-legislative elements brings

finance closer to the needs of the real economy for the benefit of the planet and society. It puts

finance at the service of decarbonisation, environmental and social objectives, therefore it is

closely tied to European climate, energy and environmental policies. The initiative responds to

the reality that the overwhelming proportion of capital to cover investment needs will come from

private sources. Sustainable finance policy seeks to transform the financial sector by reorienting

capital to sustainable investments, managing financial risks stemming from climate change and

environmental degradation and fostering transparency and long-term outlook for financial and

economic activity thus supporting companies in their transition towards more sustainable

business models.

The sustainable finance initiatives aims at creating a clear and predictable policy framework for

financial market participants and non-financial undertakings to guide their investment decisions

towards more sustainable solutions. Its elements are designed with a level of flexibility that

allows for re-adjustments in their features as technological development and legislative changes

concerning the climate and environmental targets make it necessary. This can be observed in the

main building block of sustainable finance, the EU Taxonomy. Integrating the 2030 climate and

energy targets and the 2050 vision of a climate neutrality, the Taxonomy will be an important

enabler to scale up sustainable investment and to implement the European Green Deal. The EU

Taxonomy is a harmonised, uniform classification system of environmentally and socially

sustainable economic activities. It sets a framework and principles for assessing economic

activities against six environmental objectives and defines technical screening criteria that

determines whether an economic activity could be considered environmentally sustainable. It is

used as a reference point across a number of other elements of the 2018 Sustainable Finance

Action Plan as well as in the European Green Deal Investment Plan.

9.11.4 Just transition, skills development and protecting vulnerable citizens

The analysis presented in sections 6.4 and 6.5 shows that the impact of the climate targets will be

overall small but uneven. The impact on growth, for example, is estimated to be small compared

to both unpredictable economic shocks (such as the COVID-19 pandemic) and long-term

macroeconomic trends (such as demographic changes). However, the results presented in section

6.5 show that the costs of the transition might put an unfair share of the burden on low-income

citizens. Similarly, macroeconomic analysis consistently shows that the impact of climate

policies

–

including the targets analysed in this impact assessment

–

on employment is small.

However, the results presented in section 6.4.2 shows that the impact on some sector (e.g.,

mining) will be large and disruptive.

The unwanted effects of energy and climate policies tend to be highly localised. The analysis

supporting long-term decarbonisation strategy showed that only two EU regions have

employment shares of more than 1% in sectors that are expected to decline. However, the closure

of a coal-mine can lead to the loss of thousands of direct and indirect jobs in a mining region.

203

When considering the industries that will have to transform (manufacture of chemicals and

chemical products, manufacture of other non-metallic mineral products, manufacture of basic

metals, manufacture of motor vehicles, trailers and semi-trailers, it becomes apparent that many

more regions will

be affected. Out of the EU’s 28 Member States

425

, 24 have regions where more

than 1% of the work force is employed in such a sector, with higher shares in Member States

with lower GDP per capita levels. The regions with the highest exposure are Strední Cechy in the

Czech Republic (10.4%), Közép-Dunántúl in Hungary (9.7%), and Vest in Romania (9.3%)

426

To mitigate the uneven effects of the energy transition, policy intervention is necessary at all

levels of governance: from the local and regional levels to the national and European levels. In

this context, local and regional policies have a direct role to play in enabling the climate and

energy transition.

For instance, the experience of already completed transitions away from coal in some European

countries shows the importance of designing and implementing a planned process, supported by

measures aimed at alleviating socioeconomic consequences while promoting the development of

new, future-oriented economic activities at national, regional and local levels. This is why since

2017 the European Commission has launched the Initiative for Coal Regions in Transition,

427

with the objective of supporting EU coal regions and their local communities in their efforts to

decarbonise their energy production and diversify their local economy. Specifically, it supports

coal regions (including peat and oil shale) across the EU in achieving a just transition through

tailored, needs-oriented assistance and capacity-building

428

. In the context of EU Green Deal the

Just Transition Mechanism is most recent concrete example of how EU-level policy measure can

facilitate targeted actions decided at the local level as it builds on and expands the work of the

existing Initiative for Coal Regions in Transition, also including carbon- intensive regions.

The Commissions has proposed in May 2020 a revised ambitious Just Transition Mechanism

resting on three pillars:

1. Upon developing a territorial just transition plan, Member States can access the Just

Transition Fund to support a socio-economic transition in regions at NUTS-3 level highly

dependent on extractive, carbon- and energy-intensive industries, notably coal, lignite,

peat, oil shale and carbon intensive industries.

2. A dedicated InvestEU just transition scheme, implemented through InvestEU financial

products, will support economically viable investments by private and public sector

entities, providing complementarity and synergies with the Just Transition Fund. Being

part of InvestEU, the final use of InvestEU will remain demand-driven and will depend

on the project pipeline.

Before the withdrawal of the United Kingdom from the European Union.

A Clean Planet for all A European long-term strategic vision for a prosperous, modern, competitive and climate

neutral economy.

427

https://ec.europa.eu/energy/topics/oil-gas-and-coal/EU-coal-regions/initiative-for-coal-regions-in-transition_en

428

Following report is a good example of such support: Kapetaki, Z., Ruiz, P. et al., Clean energy technologies in coal

regions: Opportunities for jobs and growth: Deployment potential and impacts, Kapetaki, Z. (editor), EUR 29895 EN,

Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-12330-9, doi:10.2760/063496,

JRC117938.

426

425

204

3. The public sector loan facility will encourage investments that support the transition

towards a climate-neutral economy by public sector authorities to the benefit of coal- and

carbon-intensive regions. The facility will be implemented with the involvement of the

European Investment Bank.

It aims to mobilise up to EUR 150 billion of investments to alleviate the socio-economic impacts

of the climate transition and build growth along with locally decided economic diversification

strategies.

The transition to a low-carbon economy and decarbonisation will translate into new constraints

on the labour market and shifts to new clean and energy-saving production processes. These will

require active education and training policies and investment to meet the emerging skills needs

(professional and transversal) of both emerging and existing occupations and industries

429

. The

New Skills Agenda for Europe

430

, adopted by the Commission on 10 June 2016, launched 10

actions to make the right training, skills and support available to people in the EU. The updated

Skills Agenda for Europe, adopted by the Commission on 1 July 2020 together with a Youth

Employment Support (YES) package, consists of 12 actions to boost skills for jobs, including to

support strategic national upskilling action, support the green and digital transitions, and improve

the enabling framework to unlock Member States' and private investments in skills.

The transition may also increase the risk of energy poverty if vulnerable households do not

manage to invest in the required low carbon technologies, while being confronted with increasing

prices for carbon intensive fuels for instance due to carbon pricing or revisions of energy

taxation. Policies targeting energy poverty by investing in energy efficiency measures for the

social vulnerable groups can alleviate the households’ energy costs while achieving important

energy savings. Lump sum transfers have already been mentioned in section 6.5 as a way to

mitigate the regressive impact of higher energy prices. Combinations of measures may be suited

best, e.g. targeted energy efficiency measures, for example in the form of energy efficiency

obligation schemes or subsidies to low-income households, job retraining programmes and

funding low carbon technologies via general taxation or carbon revenues (instead than with a

surcharge on electricity consumption). The upcoming Recommendation on Energy Poverty will

help Member States to better identify the number of households in energy poverty and design

adequate mitigating measures that support energy poor households in ways that take into

consideration the building types, geographical specificities of regions and complementary

financial support available to such households. The Recommendation shall underline the need to

promote actions at local level (i.e. authorities and social housing associations) and to allow

stakeholders to familiarise themselves with most recently identified best practices.

Other examples of EU policies with direct bearing on the just transition include the ongoing

revision of the Energy Taxation Directive. Energy taxation has a direct impact on the cost of

energy for European consumers. Aligning taxation of energy products with EU energy and

climate policies could contribute to the climate targets, but also affect the way the burden of the

429

430

See forthcoming Employment and Social Developments in Europe 2020 report.

COM(2016) 381 final,

https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:52016DC0381&from=EN

205

transition is shared. The revision of the Guidelines on State aid for environmental protection and

energy (foreseen for 2021) will affect how national resources are spent in the energy sector. The

State aid instruments set the compatibility criteria for State aid measures for environmental

protection and energy (for example for support to the production of renewable energy, to energy

efficiency or to carbon capture and storage). Those rules ensure that support targets an objective

of common interest in the environmental and energy field while ensuring at the same time that

the support is limited to the minimum necessary to achieve the objective of common interest. A

close alignment between State aid rules and the European Green Deal priorities will allow setting

the right incentives for the use of national resources in a cost-effective manner.

9.11.5 Behavioural changes and their impact on energy and emission profiles

Behavioural changes may influence the future trajectory of emissions and energy use alike. A

sector where this has long been recognised is transport. Recently, more walking, cycling and

public transport have become more popular. Likewise, the sharing of vehicles seems to become

more attractive to younger people compared to vehicle ownership, particularly in urban areas.

Such trends, if they are economy-wide, increase the circularity of the transport sector and may

decrease energy and material consumption and, hence, emissions. Air transport, on the other

hand, has seen continuous increase in the demand for long distance air. With increasing material

welfare, this trend is projected to continue, leading to increased emissions and energy

consumption

431

Transport is not the only sector in which consumption patterns influence greenhouse gas

emissions. Other important behavioural changes which can have a sizeable role include:

432



More sustainable, low-emission dietary choices. Food products differ a lot with regards

to the GHG emission and energy consumption during their production and transport.

Examples for a GHG-intensive dietary choice are the consumption of red meat that is

often resource and energy intensive, and contributes directly to methane emissions, but

also fruits and vegetables that have to be transported over long distances, or cooled for

non-seasonal consumption. The Farm to Fork Strategy will propose actions that will help

consumers in following their preference for sustainably-produced food. Amongst others,

the Farm to Fork strategy is to propose minimum mandatory criteria for sustainable food

procurement, a proposal to empower consumers through a sustainable food labelling

framework, and to further include sustainability aspects into European food promotion

programs.

House and living preferences. The size of a residence influences its energy consumption,

but other elements, such as the temperature that is perceived as comfortable, also play a

role. Consequently, emissions from buildings will also be influenced by the life-style

choices of their inhabitants. Where one choses to live may have an impact on emissions

from commuting and other trips.



431

432

https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_analysis_in_support_en_0.pdf

The responses received in the public consultation displayed the following options selected the most: Travelling less

by plane (18%), reduced car-use in favour of walking, cycling and the use of public transport (17%), avoiding

overconsumption (16%), and changing dietary habits towards more healthy and less carbon intensive ones (16%). This

is driven by the responses of individuals, professionals also see recycling and reducing of waste as a possible change.

206



Uptake of new technologies, notably communication technologies. While this may

increase energy consumption (e.g. higher consumption of data centres), digitalization

may also deliver significant energy and emissions savings. Teleworking and better

energy demand management are two examples that potentially can have such effect.

433

Consumer preferences need the right regulatory environment to drive the change that

consumers desire. This is particularly true in the demand for energy-intensive goods

–

such as those made from steel or from non-ferrous metals. The Circular Economy Action

Plan sets out to support consumers in making the choices they want in creating lead

markets for energy-intensive products such as steel or cement. Actions announced under

this plan include sustainable product policy as a key theme for, among others, legislative

action on empowering consumers for active participation in the green transition

434

The COVID-19 crisis has displayed in dramatic fashion the short-term impact of changing

consumption patterns

–

most notably with an impressive drop in transport activity. Transport

activity is resuming as societies emerge from lockdown. However, the pandemic may impact

consumers’ behaviour in the long-term.

The impact on energy demand and emission could be

both positive (if less daily trips are made or more sustainable transport modes are chosen) or

negative (e.g. more private vehicle use to avoid public transportation).

9.11.6 Circular economy and its impacts on climate change mitigation

As outlined in the Commission’s Long

Term Strategic Vision on GHG Emissions Reduction

scenarios

435

, to become climate neutral by 2050 and achieve net GHG removals thereafter, the

EU will have to rely on a variety of mitigation strategies. A circular economy coupled with more

climate-, environment-friendly and healthier consumer choices are a key such strategy. A

reduction of materials input through prevention, re-use and recycling will improve

competitiveness, create business opportunities and jobs, and require less energy, in turn reducing

pollution and greenhouse gas emissions. A more circular and shared economy will also contribute

positively to alleviating expected growing competition for access to strategic minerals and raw

materials

436

that will be increasingly required in the ecological and digital transition.

The EU Circular Economy Action Plan will support the objective of substantial greenhouse gas

emissions reductions by 2030 and climate neutrality by 2050, by addressing circularity in key

economic sectors. Implementation of a highly circular economy will also benefit a green

recovery, providing resilience and autonomy of key product value chains as well as job creation

Studies suggest, though,

that teleworking can have significant rebound effects: “A systematic review of the energy

and climate impacts of teleworking” (2020, Andrew Hook et al.)”

434

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12467-Empowering-the-consumer-for-the-

green-transition

435

The eighth scenario builds upon the previous scenario but assesses the impact of a highly circular economy and the

potential beneficial role of a change in consumer choices that are less carbon intensive. It also explores how to

strengthen the land use sink, to see by how much this reduces the need for negative emissions technologies.

436

See COM(2020) 474 final on “Critical Raw Materials Resilience: Charting a Path towards greater Security and

Sustainability”

433

207

and increased GDP. In the context of moving towards a more resource-efficient economy, the

Commission will also present an initiative on sustainable corporate governance

437

Science and policy-makers nowadays acknowledge the relevance of resource efficiency and the

circular economy for climate action. Increased circularity, in this view, can be an effective tool in

the mitigation of greenhouse gas emissions. This recognition is, however, relatively new. For

example, the first Circular Economy Action Plan of 2015

438

mentioned the synergies with climate

policy, but without a strong emphasis or data.

A seminal report by Material Economics and Sitra, in 2018, entitled

The circular economy

–

powerful force for climate mitigation

439

was one of the first attempts to quantitatively measure the

potential impacts of the circular economy for GHG emissions reductions. The study focusses on

energy intensive sectors such steel, cement, plastics, aluminium, passenger cars and buildings.

The study concluded that “in

an ambitious scenario, as much as 296 million tonnes

per year

in the EU by 2050, out of 530 in total

–

and some 3.6 billion tonnes per year globally. Demand-

side measures thus can take us more than halfway to net-zero emissions from EU industry, and

hold as much promise as those on the supply side”.

The analysis included circular practices like

more materials circulation (i.e. reuse and recycling), product materials efficiency and more

circular business models for mobility and buildings (e.g. sharing). The combined effect of such

approaches would lead to 56% emissions reduction in these sectors. The report, however,

recognised that there were still many methodological uncertainties and that more research was

needed. Whether all of the potential GHG emissions reductions can be obtained in practice is also

an open question for research.

The Commission’s Long Term Strategy on GHG Emissions

Reduction, Communication and in-

depth analysis

A Clean Planet for All,

included circular economy actions in one of the two

scenarios achieving climate neutrality by 2050

440

. It found that circular economy and lifestyle

changes combined prove a cost-effective mitigation strategy which required a total level of

annual investment around 5% and 8% lower, respectively, than that of the other pathways with a

similar level of ambition. Even though the in-depth analysis recognised methodological

limitations, the

assumptions were considered very prudent and “no-regret options”.

Moreover, the Commission’s plastics strategy of 2018 estimated that the production and

incineration of plastics produce globally every year 400 MtCO

-eq emissions. If it were possible

to avoid that emissions from plastics reach the atmosphere, the equivalent to 3.5 billion of oil

barrels per year would be saved. Recycling a million of tonnes of plastics is equivalent to the

emissions of one million cars

441

Already in 2017, the UN’s International

Resources Panel (IRP) estimated that, by 2050, resource

efficiency policies could reduce global extractions by 28%. Combined with an ambitious climate

action, such policies can reduce greenhouse gas emissions around 63%, and increase economic

Public consultation is open until October 2020:

https://ec.europa.eu/info/law/better-regulation/have-your-

say/initiatives/12548-Sustainable-corporate-governance

438

Communication “Closing

the loop -

An EU action plan for the Circular Economy”,

COM(2015)614 final.

439

Material Economics and SITRA (2018)

The circular economy

–

A powerful force for climate mitigation.

Stockholm, Material Economics Sverige AB. In:

https://media.sitra.fi/2018/06/12132041/the-circular-economy-a-

powerful-force-for-climate-mitigation.pdf

440

1.5LIFE, including a more circular economy, changing consumer preferences and a high incentive to enhance the

LULUCF sink.

441

Communication “A

European Strategy for Plastics in a Circular Economy“

COM(2018) 28 final.

437

208

growth by 1.5%

442

. This initial analysis was further refined, upon demand of the G7, with the

report 2020

Resource Efficiency and Climate Change: Material Efficiency Strategies for a Low-

Carbon Future

443

The report assesses the reduction potential of GHG emissions from material

efficiency strategies applied in residential buildings and light duty vehicles. Emissions from the

production of materials as a share of global GHGs increased from 15% in 1995 to 23% in 2015.

This corresponds to the share of GHG emissions from agriculture, forestry, and land use change

combined, yet they have received much less attention than other sectors. An estimated 80% of

emissions from material production were associated with material use in construction and

manufactured goods. It is expected that 70% of the global population will live in cities in 2050,

and 50% of this urban environment is not yet built

444

. Consequently, cement and steel production

and their associated GHG emissions will have a large potential for mitigation with upgraded

construction materials and techniques.

GHG emissions from the material cycle of residential buildings in the G7 and China could be

reduced substantially by 2050 through: resource efficiency approaches include more intensive

use of homes (up to 70% reduction in 2050 in the G7), designing buildings which use less

material (8– 10% in 2050 in the G7), and sustainably harvested timber (1–8% in 2050 in the G7).

However, it has to be recognised that the higher end of the plausible mitigation potential would

come from substantial lifestyle changes, for instance in housing, that might be seen by some as a

loss of comfort. On the other hand, consumers increasingly demand more sustainable lifestyle

options but are hampered in obtaining them in practice

445

. Improved recycling of construction

material could reduce GHGs by 14-18% in 2050 in the G7. Overall, using these strategies in the

G7 could result in cumulative savings in the period 2016-2050 amounting to 5–7 GtCO

-eq.

Regarding transport, modelling by the International Resources Panel shows that GHG emissions

from the material cycle of passenger cars in 2050, considering their production, use and disposal,

could be reduced by up to 70% in G7 countries through ride-sharing, car-sharing, and a shift

towards trip-appropriate smaller cars, among others.

Additional evidence comes from the European Commission’s Joint Research Centre (JRC). The

JRC has quantified the climate impacts of the circular economy through the life cycle

assessment-based

JRC’s consumption and consumer

footprints

446

. The latter has the advantage of

442

UNEP (2017)

Resource Efficiency: Potential and Economic Implications.

Nairobi: UN Environment. In:

http://www.resourcepanel.org/reports/resource-efficiency

443

IRP (2020)

Resource Efficiency and Climate Change: Material Efficiency Strategies for a Low-Carbon Future.

Hertwich, E., Lifset, R., Pauliuk, S., Heeren, N. A report of the International Resource Panel. Nairobi: United Nations

Environment Programme.

444

https://www.un.org/en/ecosoc/integration/pdf/fact_sheet.pdf

445

https://www.beuc.eu/publications/most-eu-consumers-open-eat-more-sustainably-face-hurdles-new-survey-

shows/html

446

Sala S., Beylot A., Corrado S., Crenna E., Sanyé-Mengual E, Secchi M. (2019)

Indicators and Assessment of the

environmental impact of EU consumption. Consumption and Consumer Footprint for assessing and monitoring EU

policies with Life Cycle Assessment.

Luxembourg: Publications Office of the European Union.

The complete technical report: Sala S., Benini L., Beylot A., Castellani V., Cerutti A., Corrado S., Crenna E., Diaconu

E., Sanyé-Mengual E, Secchi M., Sinkko T., Pant R. (2019)

Consumption and Consumer Footprint: methodology and

results. Indicators and Assessment of the environmental impact of EU consumption.

Luxembourg: Publications Office

of the European Union. For a scientific paper describing the methodology, see: Sala, S., & Castellani, V. (2019) “The

consumer footprint: Monitoring sustainable development goal 12 with process-based

life cycle assessment”.

Journal of

Cleaner Production,

240, 118050.

209

showing different environmental impacts including on climate change

447

, thereby providing

information on potential trade-offs to other environmental impacts. This is very relevant under

the European Green Deal, which aims at tackling current environmental issues (climate change,

biodiversity loss, pollution and resources depletion) in a systemic manner. Nonetheless, current

models assess the benefits of specific circular economy scenarios rather than a comprehensive

assessment of the full potential of circular economy-related intervention. A comprehensive

scenario representing the whole circular economy quantifying the actual impact on

decarbonisation is still under development.

The abundance of the different circular economy actions affecting multiple supply-chains makes

it hard to grasp the cumulative effect of these actions on overall greenhouse gas mitigation. The

current state of the literature does not yet allow a full quantification, though efforts are well

underway

448

. A study commissioned by the EEA

449

concluded that circular actions in non-energy

sectors “can make modest, yet valuable impacts on GHG abatement throughout sectors and

throughout the different lifecycle stages of products in Europe”. Such impacts are

likely to

increase overtime, from “around 80-150

MtCO

-eq per year by 2030 in Europe, which equals to

around 2 to 4% of the GHG baseline emissions by 2030 in the EU Reference Scenario. By 2050,

the GHG abatement potential is estimated to rise to around 300-550 MtCO

-eq per year in

Europe, amounting to around 10-18% of the GHG baseline emissions by 2050 in the EU

Reference Scenario”. The study also confirms that there are not, to date, publications that give a

comprehensive overview of all circular actions and points out the sectors with more potential:

materials (plastics, cement, steel), food (including food waste, packaging and nutrient recycling),

construction, waste management sector, and automotive (car sharing, durability, improved end of

life). The study provides estimates of GHG emissions reductions for these sectors by 2050,

mainly based on the Material Economics-SITRA study, as well as other sources for food waste

and sustainable diets

450

, the collaborative economy and waste management

451

. On the latest, the

increased recycling targets that the European Parliament and Council adopted in May 2018 as a

result of the Circular Economy Action Plan of 2015 are estimated to avoid 477 million tonnes of

greenhouse gases emissions between 2015 and 2035

452

At present, the different interventions therefore may imply emissions reductions as per the

following examples, focused on circular economy strategies for reuse, waste prevention, use of

recycled material and waste valorisation. In terms of climate impacts, the main areas of

consumption are food, mobility, housing, household goods and appliances:

447

The 16 environmental impact categories of the Environmental Footprint method are covered: climate change, ozone

depletion, human toxicity

–

cancer, human toxicity

–

non-cancer, particulate matter, ionizing radiation

–

human health,

photochemical ozone formation

–

human health, acidification, eutrophication

–

terrestrial, eutrophication

–

freshwater,

eutrophication

–

marine, ecotoxicity

–

freshwater, land use, water use, resource use

–

minerals and metals, resource use

- fossil.

448

https://de.ramboll.com/-/media/files/rm/rapporter/methodology-and-analysis-of-decarbonization-benefits-of-

sectoral-circular-economy-actions-17032020-f.pdf?la=de

449

Svatikova, K. et al. (2018)

Quantifying the benefits of circular economy actions on the decarbonisation of EU

economy.

Study commissioned by the European Environment Agency, by Trinomics, Ricardo and TNO.

450

Deloitte (2016)

Circular economy potential for climate change mitigation;

PBL (2011)

The protein puzzle: the

consumption and production of meat, dairy and fish in the European Union.

451

CE Delft (2016)

The circular economy as a key instrument for reducing climate change;

Eunomia (2014)

impact

assessment on Options Reviewing Targets in the Waste Framework Directive, Landfill Directive and Packaging and

Packaging Waste Directive;

Final Report for the European Commission DG Environment.

452

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015SC0259

210

The substitution of virgin steel produced with blast furnace by recycled steel with electric

arc technology can reduce climate change impacts by almost 80% (low-alloyed steel). A

steel scrap sector exists in Europe to support such change

453

, though market constraints

on the availability of steel scrap in a very high demand case exist. An increase in the

recycled content of steel in vehicles for satisfying the mobility demand of EU citizens by

10% and avoiding the landfilling by increasing steel recycling at the end of life would

have a limited effect on the climate change impact of the life cycle of vehicles (reduction

of 0.3%). If current market constraints would be modified, however, and a recycled

content up to 75% could be expected, climate change impacts could be reduced up to

3.5%.

- The re-use of

50%

furniture up would decrease the climate change impact of the

consumption of this household product in the EU by more than

40%.

The

implementation of combined food waste prevention measures could reduce up at least

10% of the climate change impact of the EU food system.

- An increased remanufacturing of household appliances enlarging their lifespan (between

10 and 20%) could decrease the climate change impacts of their life cycle between

(e.g. washing machine) to

6.5%

(tumble dryer).

- The substitution of virgin PET by recycled PET in polyester textiles could reduce by at

least

11%

the climate change impact of this material used in textile.

- The use of recycled PET in the packaging of bottled mineral water would reduce by

the impact of this product.

- In the housing sectors, an increase by 20% of the recycled content of concrete materials

and a raise in the current recycling rate from 47% to 90% would decrease by 2.2% the

climate change impact of the infrastructure of buildings.

- An increased use of recycled material in concrete production between 20% and 50%,

depending on national standards, can decrease climate change impacts between 1.4% and

3.5%

454

The modelling of the climate and environmental impacts of the circular economy remains an area

where more research is needed. All current methodologies and approaches have caveats and are

not easily fit to integrate the traditional energy and climate models, notably the framework used

by the Commission services. The numbers provided by the studies mentioned here are based on

several assumptions and have to be considered as orders of magnitude. In any case, current

research confirms the relevance of the circular economy to reach the EU climate ambition

–

together with other environmental and economic benefits.

9.11.7 R&D

Research and innovation (R&I) plays a crucial role of providing solutions in testing,

demonstrating and providing solutions through individual technology development, system

deployment or even social innovation. Solutions may materialise over different time horizons,

ranging from the next ten years to well beyond 2050, in line with long investment cycles

453

BDSV (2020):

“Results of the Fraunhofer Insitute’s Umsicht Study on the Future of Steel Scrap. An Investigation

for the BDSV”, June 2020.

454

Note here that the use of virgin or recycled materials for concrete production has no effect on the concrete

production technology. Therefore, we are considering the difference between extracting virgin materials or using

recycled ones (with the processes needed, e.g. fragmentation). In the case of steel, we observed higher climate change

benefits as there was a technological change from blast furnace (virgin) to electric arc (recycled).

211

typically seen in capital-intensive sectors such as the energy and industry sectors. R&I can set

direction and address trade-offs to ensure that long-term targets are met.

R&I will define the speed at which the decarbonisation can take place, at which costs and with

which co-benefits. Reaching costs competitiveness requires a combination of deployment to scale

and focussed technology improvements. Successful R&I would benefit the EU's private sector in

building leadership in the upcoming global clean technologies markets and would yield the

positive economic and social impacts that will underpin the necessary political support a climate

transition requires

455

The key to success in the long-term is to develop a wide portfolio of cost-effective and efficient

carbon-free alternatives for each GHG-emitting activity, in combination with solutions for an

integrated energy system, built on digitalisation and sector integration. In the near future, the rate

at which the European R&I system succeeds in developing and commercialising such innovative

solutions will steer the EU’s future competitiveness of its existing and newly emerging industries.

In order to secure the transition to GHG neutrality, technological development activities need to

go along climate research and research on socio-economic systems.

Figure 102: Relevant research and innovation areas

Climate science

Zero-carbon

power

Electrifi-

cation

Hydrogen,

synthetic

fuels, and

fuel cells

Circular,

zero-carbon

industry

Bio-

economy,

agriculture,

and forestry

Integration of required technologies, infrastructure, and digitalisation

Socio-economic and behavioural research and innovation

As described in section 6.2.1, electrification will be key for the decarbonisation of the energy

sector. Efforts are needed to further optimise mature renewable energy technologies (e.g. onshore

wind, solar photovoltaics, and established bioenergy) accelerate the deployment of proved

technologies (e.g. offshore wind) and to widen the portfolio of options, such as in the field of

ocean energy (wave/tidal), alternative photovoltaic concepts (thin-film, concentrated PV), or

concentrated solar power.

On the demand side, electrification offers great opportunities to contribute to the decarbonisation

of the transport, heating and industry sectors, which largely still use fossil fuels. Bringing supply

and demand side together will require enabling technologies and concepts. Batteries will become

one of the key technological components of a low-carbon economy and a fast growing global

value chain is emerging.

Hydrogen may provide an alternative fuel for transport, heating and industry where direct

electrification might face challenges. In particular, hydrogen can help integrate renewable

455

The High-Level Panel on Decarbonisation Pathways Initiative formulated a range of recommendations for future

R&I research under Horizon Europe and other EU an Member State programmes:

http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupDetailDoc&id=36435&no=1

212

electricity in cases when generation by far exceeds the system load as is expected to be

increasingly the case between 2030 and 2050. Innovation will be needed along the entire

hydrogen supply chain to improve performance and reduce cost (e.g. for electrolysers and

stationary and mobile fuel cell applications). The Commission’s hydrogen strategy provides

guidance to the actions needed for rolling out a European hydrogen economy. Both direct

electrification as well as the production of hydrogen using electricity will increase the complexity

of the energy system as supply and demand sectors will be interconnected in multiple ways.

Technological innovation, taking stock of advances in digitalisation will be required for an

integration of increasingly decentralised supply and demand sectors. Energy research also

includes technologies, which will likely not be deployed before 2050 such as the International

Thermonuclear Experimental Reactor (ITER) project, in which all major economies (EU, USA,

China, Japan Russia, South Korea and India) explore the feasibility of nuclear fusion energy.

Industrial GHG related research addresses the reduction of emissions, energy needs and material

fluxes, including synergies between these. Energy- and material-intensive industries can reduce

their environmental footprint by converting most material fluxes into closed loops, in cases where

this is decreasing the required amount of energy and raw materials. Carbon capture and storage is

an option to reduce emissions of industries which have high process-related greenhouse gas

emissions such as blast furnaces.

Research and innovation in the bioeconomy focusses on sustainable forestry and agricultural

practices, in particular those that increase production while reducing non-CO

emissions and with

the objective of enriching and conserving carbon in soils that can play a role as a potential source

of negative emissions. Furthermore, there remains significant potential for alternatives for

industrial production of fertilisers, bio-waste management, ruminant livestock management, and

a reduction in burning of agricultural residues. Research addresses how to use the available land

in the best way, as to increase the carbon uptake (carbon productivity), and to use the available

biomass in the most resource efficient way without damaging biodiversity and environmental

quality.

Socio-economic research includes the development and implementation of new business models,

their financial and social attractiveness and the role of possible enablers such as trade, consumers'

habits, digitalisation, big data, block-chain or artificial intelligence.

The EU shows both strengths and weaknesses in this race to new low carbon technologies

markets. Europe is still a very active actor of the global research landscape, accounting for 30%

of all scientific publications and one fifth of global research expenditure

456

. European enterprises

are responsible for an important share of technological innovation and are responsible for almost

two thirds of the EU’s R&D investments

457

. However, the EU is progressively falling behind,

spending comparatively less on research than other regions. The ratio of expenditures to GDP,

also known as R&D intensity, remains at 2%, hence below the targeted 3% envisaged in the

Europe 2020 Strategy

458

and well below levels in Japan (3.3% in 2015) and the USA (2.8% in

European Commission (2016), Open innovation, Open Science, Open to the World

–

a vision for Europe,

https://ec.europa.eu/digital-single-market/en/news/open-innovation-open-science-open-world-vision-europe

457

European commission (2018), Smarter, greener, more inclusive?

—

Indicators to support the Europe 2020 strategy -

2018 edition,

http://ec.europa.eu/eurostat/web/products-statistical-books/-/KS-02-18-728

458

European Commission (2018), Europe 2020 strategy,

456

213

2017). China is also progressing and, with almost 2.1% in 2017, is now spending more on R&D

per share of GDP than the EU.

459

This is due to lower private investment in research and

innovation in Europe.

Figure 103: Gross domestic expenditure on R&D compared to GDP

Source: Eurostat

460

In 2018, the EU spent 0.03% of GDP on energy-related research

461

. Patenting in clean energy

technologies has been increasing over the last decade, with European companies targeting "high

value" inventions with international protection, which displays a growing confidence of their

competitiveness in the global energy technology market

462, 463

https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-

monitoring-prevention-correction/european-semester/framework/europe-2020-strategy_en

459

In the public consultation, the most selected options which areas of RI&D funding would be most important to

achieve GHG emission reductions by 2030, keeping in mind 2050 targets were: Energy storage (12%), circular or zero-

carbon industry (12%), and renewable energy (11%). Responses from professionals differed in this regard. While also

mentioning the previous areas quite frequently, energy efficiency (10%), hydrogen and fuel cells (8%), and technology

integration, infrastructure and digitalisation (7%) scored similarly for this group. Also business organisations such as

the Verband der Industriellen Energie- und Kraftwirtschaft eV believe that more financial support for R&D is needed.

460

Eurostat (2018), Statistics explained, R&D expenditure,

http://ec.europa.eu/eurostat/statistics-explained/index.php/R_%26_D_expenditure#Main_statistical_findings

461

European commission (2020), Indicators for monitoring progress towards Energy Union objectives,

https://ec.europa.eu/energy/en/atico_countrysheets/scoreboard?dimension=Research%2C+innovation+and+competitiv

eness

462

JRC (2017), Monitoring R&I in Low-Carbon Energy Technologies,

http://publications.jrc.ec.europa.eu/repository/handle/JRC105642

463

JRC SETIS,

https://setis.ec.europa.eu/publications/setis-research-innovation-data

; JRC112127 Pasimeni, F.;

Fiorini, A.; Georgakaki, A.; Marmier, A.; Jimenez Navarro, J. P.; Asensio Bermejo, J. M. (2018): SETIS Research &

Innovation country dashboards. European Commission, Joint Research Centre (JRC) [Dataset] PID:

http://data.europa.eu/89h/jrc-10115-10001

214

These general trends also reflect in the situation of EU companies, which are very active in the

global clean energy market (sized at USD 1.4 trillion in 2016

464

). Indeed, in 2017 Europe was

hosting 41 of the top 100 global energy companies, and the EU 6 of the 25 largest renewables

companies

465

. European renewable energy businesses employed almost 1.5 million people (out of

10 million globally

466

). They are accelerating R&I investments with an increasing number of

patents filed (+50% between 2010 and 2016

467

), clearly contributing to the global shift towards

renewables developments (global patents in the field have doubled over 2010-2016). However,

international competition is increasing, with Asian and North American companies getting an

increasing weight in the market

468

Over the years, the EU has put in place a number of instruments to deliver on research and

innovation for the EU economy as a whole, and on clean energy and climate change mitigation

activities in particular:



The EU R&D programmes Horizon 2020

469

(by 2020), including the Green Deal Call

which will be launched in September with a budget of EUR 1 billion to support R&I

projects which address the major priorities of the European Green Deal, including:

climate; clean, secure and affordable energy; clean and circular industry; energy and

resource efficient buildings; sustainable and smart mobility; food systems and Farm to

Fork; ecosystems and biodiversity; and zero-pollution.

Horizon Europe

470

(2021-2027), which should benefit from a budget increase to EUR

94.4 billion, of which 35% is dedicated to climate action. Cluster 5 is on Climate, Energy

and Mobility (EUR 13.706bn + 3.449bn extra proposed in the recovery plan).

The four Green Deal Missions under Horizon Europe cover critical areas: (1). Healthy

Oceans, Seas, Coastal and Inland Waters; (2). Climate-Neutral and Smart Cities; (3). Soil

Health and Food; and (4). Adaptation to Climate Change, including Societal

Transformation. These Missions aim to catalyse action and drive the Green Deal

objectives by setting targeted, measurable and time-bound actions for systemic change.

The Strategic Energy Technologies (SET) Plan

471

enhancing the coordination and

synergies between the EU, Member State and industry has put in place 10 platforms

promoting market uptake by technologies, or the European Energy Research Alliance

472

that brings together 175 research organisation across the EU.



464

Advanced Energy Economy (2017), 2017 Market Report,

https://info.aee.net/aen-2017-market-report

465

Thomson Reuters (2017), Top 100 Global Energy Leaders.

https://www.thomsonreuters.com/en/products-services/energy/top-100.html

466

IRENA (2018). Renewables and Jobs

–

Annual Review 2018,

https://irena.org/-/media/Files/IRENA/Agency/Publication/2018/May/IRENA_RE_Jobs_Annual_Review_2018.pdf

467

IRENA (2018), Database on patents evolution,

http://resourceirena.irena.org/gateway/dashboard/

468

Stash Investments, Top 10 Largest Clean Energy Companies by Revenue,

https://learn.stashinvest.com/largest-clean-energy-companies-revenue

469

https://ec.europa.eu/programmes/horizon2020/en/

470

European commission (2018), Horizon Europe - the next research and innovation framework programme,

https://ec.europa.eu/info/designing-next-research-and-innovation-framework-programme/what-shapes-next-

framework-programme_en

471

COM (2015) 6317

https://ec.europa.eu/energy/en/topics/technology-and-innovation/strategic-energy-technology-

plan

472

https://www.eera-set.eu/

215



The SET Plan is complemented by the Knowledge Innovation Community scheme

(KIC), which aims at spurring public-private partnerships on different societal

challenges, including on energy

473

The Innovation Fund under the Emissions Trading System is an instrument to support the

development of innovative low carbon technologies. It aims to create financial incentives

to invest in the next generation of clean technologies that can enable the climate

transition. The Innovation Fund also helps to boost the competitiveness of EU companies

in this growing sector.

R&I is a key dimension of the National Energy and Climate Plans (NECPs

474 475

). The

inclusion of specific and measurable R&I objectives in the NECPs will help integrating

national strategies and priorities at EU level in a 2030-2050 perspective.

Publication in Autumn of the first Progress Report on Competitiveness with the State of

the Energy Union, underpinned by the ”Clean energy transition technologies and

innovations report”, an evidence-based

assessment of the technology status, gaps and

competitiveness of the EU clean technologies.

InvestEU (EUR 31.6 billion of provisioning for a EUR 75 billion budget guarantee) with

a sustainable Infrastructure Window (doubling of guarantee) and a strategic Investment

Facility (EUR 15 billion provisioning for a EUR 31 billion budget guarantee), which

includes an R&I window.

Energy related innovation is among the most frequently identified priorities in the current

120 Smart Specialisation Strategies that chart out the investment of over EUR 41 billion

from European Regional Development Fund (ERDF) programmes. The current Smart

Specialisation Platforms

476

(on agriculture, energy, industrial modernisation, all relevant

topics for the decarbonisation) help coordinating the efforts and use of regional funds to

strengthen the regional innovation capacities. As of 2021, a new interregional innovation

investment scheme under the Interreg part of the ERDF will further strengthen the

cooperation of regions around shared smart specialisation priorities.

The EU is participating in international fora on innovation related to decarbonisation, in

particular as a member of the Clean Energy Ministerial

477

and of the Mission

Innovation

478

, the global initiatives launched in the context of COP15 and COP21, to

accelerate clean energy innovation. Members of the Mission Innovation

479

have

committed to double governments’ clean energy research and development investments,

and to cooperate on different Innovation Challenges

480

. Furthermore, the EU supports the

IPCC which makes a major contribution to the advancement, assessment and

dissemination of climate science.

473

474

http://www.innoenergy.com

COM(2016) 759 final/2

475

https://ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/governance-energy-union

476

http://s3platform.jrc.ec.europa.eu

477

http://www.cleanenergyministerial.org/about-clean-energy-ministerial

478

http://mission-innovation.net/

479

As of September 2018: the EU, 9 EU Member States and 14 non-EU large countries

480

The European Commission is co-leading on 3 of them: "Affordable heating and cooling of buildings", "Converting

Sunlight" and "Hydrogen"

216

9.11.8 Maritime Policy

Member States’ National Energy and Climate Plans already envisage at least four fold increase of

offshore wind deployment by 2030 and this will also be reflected in the maritime spatial plans

that they will submit to the Commission by March 2021. Furthermore, the policy scenarios and

the zero carbon scenarios of the “Clean Planet for all” Communication foresees a further

threefold increase by 2050. This implies allocating more than a quarter of some Member States

waters

481

. Site selection takes 2 years, consenting another 4, financial closure 2 more and

installation a further 3 years thus planning for this expansion cannot wait. Even if the process can

be speeded up, space will need to be found for these installations in the next year or so. At the

same time, plans will need to take into account the potential of these locations to host the low-

trophic aquaculture for food and feed that can compensate for land lost for biomass production.

These plans will necessarily need to apply the ecosystem-based approach and take into account

the need to protect or reinforce biodiversity. This requires surveying potential sites beforehand

and monitoring them during construction and operation. Industry has reported that the different

requirements of Member States increase their costs. Scientists and environmental groups insist

that a more common approach in each sea basin, taking into account ongoing monitoring for

other purposes, would give more confidence that biodiversity targets would be met.

482

In the light of this, the Commission will undertake an evaluation of the Maritime Spatial Planning

legislation to determine how to incorporate a more long-term approach and take into account

plans of neighbours. This could build on existing mechanisms such as the North Sea Energy

Cooperation. At the same time an impact assessment will examine options for a more joined-up

approach to ocean observation.

481

482

WindEurope, Our energy, our future How offshore wind will help Europe go carbon-neutral, November 2019

European Sustainable Energy Week - Green Deal and Ocean Observation, June 2019

https://webgate.ec.europa.eu/maritimeforum/en/node/4705

217

LOSSARY

Term or acronym

AFOLU

BACS

Biofuels

Meaning or definition

EU Agriculture, Forestry and Land Use

Building Automation and Control Systems

Biofuels are liquid or gaseous transport fuels such as biodiesel and

bioethanol which are made from biomass.

Biofuels are produced from food and feed crops.

Biofuels produced from a positive list of feedstock (mostly wastes

and residues) set out in Part A of Annex IX of Directive (EU)

2018/2001.

Barrels of oil equivalent

Common Agricultural Policy

Common Agricultural Policy Regionalised Impact model: a global

multi-country agricultural sector model, supporting decision making

related to the Common Agricultural Policy and environmental

policy.

Carbon Capture and Storage: a set of technologies aimed at

capturing, transporting, and storing CO2 emitted from power plants

and industrial facilities. The goal of CCS is to prevent CO2 from

reaching the atmosphere, by storing it in suitable underground

geological formations.

Carbon Capture and Utilisation: the process of capturing carbon

dioxide (CO2) to be recycled for further usage.

European Centre for the Development of Vocational Training

Connecting Europe Facility: an EU funding instrument to promote

growth, jobs and competitiveness through targeted infrastructure

investment at European level.

Computable General Equilibrium: a family of economic models.

Combined Heat and Power: a combined heat and power unit is an

installation in which energy released from fuel combustion is partly

used for generating electrical energy and partly for supplying heat

for various purposes.

Biofuels (conventional)

Biofuels (advanced)

BOE

CAP

CAPRI (model)

CCS

CCU

CEDEFOP

CEF

CGE

CHP

218

is the chemical formula for methane, a greenhouse gas. CH

used as shorthand to refer to methane.

-eq stands for carbon dioxide-equivalent. This is a measure used

to compare quantities of different greenhouse gases in a common

unit on the basis of their global warming potential over a given time

period.

Conference of the Parties: decision-making body of the United

Nations Framework Convention on Climate Change (see UNFCCC)

Carbon Offsetting and Reduction Scheme for International Aviation

Global pandemic caused by a coronavirus unknown before the

outbreak began in Wuhan, China, in December 2019.

Directorate General Economic and Financial Affairs

Energy-Environment-Economy Macro-Econometric

model for macroeconomic analysis.

European Central Bank

Energy Efficiency

European Environment Agency

Energy Efficiency Directive: Directive 2012/27/EU and amending

Directive 2018/2002/EU

Liquid fuels produced on the basis of hydrogen obtained from

electricity via electrolysis

Gaseous fuels produced on the basis of hydrogen obtained from

electricity via electrolysis

European Investment Bank

Energy intensive industries

Sum of fixed and variable costs for the energy system, including

investments, operations and maintenance, as well as fuels.

Energy performance of buildings directive: Directive 2010/31/EU

and amending Directive 2018/844/EU

Energy Performance Certificates

(see also EPBD)

Model:

-eq

COP

CORSIA

COVID-19

DG ECFIN

E3ME

ECB

EEA

EED

E-fuels

E-gas

EIB

EII

Energy system costs

EPBD

EPC

219

ERDF

ESOS

ESR

ETD

EU ETS

European Regional Development Fund

Energy savings obligation scheme

Effort Sharing Regulation: Regulation 2018/842/EU

Energy Taxation Directive: Directive 2003/96/EC

European Union Emissions Trading System as established under

Directive 2003/87/EC

European Union with 27 Member States since 1 February 2020

European Union with 28 Member States from 1 July 2013 to 31

January 2020

European Union Transaction Log: central transaction log, run by the

European Commission, which checks, records and authorises all

transactions between accounts in the Union Registry (see also EU

ETS, NIMs)

Food and Agriculture Organization

Final Energy Consumption: all energy supplied to industry,

transport, households, services and agriculture, excluding deliveries

to the energy transformation sector and the energy industries

themselves (see also GIC, PEC)

Fluorinated greenhouse gases, including hydrofluorocarbons

(HFCs) perfluorocarbons (PFCs) and sulphur hexafluoride (SF

Forest Reference Level (see also LULUCF)

Group of 20: international forum for the governments and central

bank governors from 19 countries and the European Union (EU)

483

Greenhouse gas and Air Pollution Information and Simulation

Gross Domestic Product

General Equilibrium Model for Energy Economy Environment

interactions: a computable general equilibrium model, version

operated by E3Modelling, a company (see also JRC-GEM-E3).

EU, EU27

EU28

EUTL

FAO

FEC

F-GASES

FRL

G20

GAINS (model)

GDP

GEM-E3-FIT (model)

483

The Group of Twenty (G20) is a forum made up of the European Union and 19 countries: Argentina, Australia,

Brazil, Canada, China, Germany, France, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa,

South Korea, Turkey, the United Kingdom and the United States.

220

GHG

GIC

Greenhouse Gas

Gross Inland Consumption: the quantity of energy necessary to

satisfy inland consumption of the geographical entity under

consideration, i.e. the Total Energy Supply, plus the international

aviation (see also FEC, PEC).

Global Biosphere Management Model: a model for land use of

agriculture, bioenergy, and forestry.

Giga tonnes of CO

Gigawatt

Household Budget Surveys: national surveys of households

focusing mainly on consumption expenditure.

A feedstock for industrial processes and energy carrier that can be

produced through a variety of processes from fossil fuels or

electricity via electrolysis.

Hydrogen from GHG neutral sources, mainly through electrolysis

using GHG neutral electricity. This includes renewable hydrogen,

which is from renewable electricity via electrolysis.

Hydrogen, which is from renewable electricity via electrolysis.

Impact assessment

International Air Transport Association

International Civil Aviation Organisation

Information and Communication Technology

International Energy Agency

International Institute for Applied Systems Analysis

International Maritime Organization

Intergovernmental Panel on Climate Change

International Renewable Energy Agency

Joint Research Centre of the European Commission

General Equilibrium Model for Energy Economy Environment

interactions: a computable general equilibrium model, version

GLOBIOM (model)

GtCO

HBS

Hydrogen

Hydrogen (GHG neutral)

Hydrogen (Clean, Renewable)

IATA

ICAO

ICT

IEA

IIASA

IMO

IPCC

IRENA

JRC

JRC-GEM-E3

221

operated by the JRC (see also GEM-E3-FIT)

LRF

LTS

Linear Reduction Factor (see also ETS)

COM(2018) 773: A Clean Planet for all - A European strategic

long-term vision for a prosperous, modern, competitive and climate

neutral economy

Land Use, Land-Use Change, and Forestry

Regulation on emissions and absorptions of the LULUCF sector:

Regulation (EU) 2018/841

Multiannual Financial Framework

Monitoring, Reporting and Verification scheme implemented in

Regulation (EU) 2015/757 on the monitoring, reporting and

verification of CO

emissions from maritime transport

Market Stability Reserve (see also EU ETS)

Million tonnes of CO

Million tonnes of oil equivalent

Megawatt hour

O is the chemical formula for nitrous oxide, a greenhouse gas.

O is used as shorthand to refer to nitrous oxide.

Nationally Determined Contributions (as required by the Paris

Agreement)

National Energy And Climate Plan

Next Generation EU

National Implementation Measures, submitted under Article 11 of

the ETS Directive (see also ETS)

Nitrogen Oxide(s)

Under EU legislation adopted in May 2018, EU Member States

have to ensure that greenhouse gas emissions from land use, land

use change or forestry are offset by at least an equivalent removal of

CO₂ from the atmosphere in the period 2021 to 2030.

Near Zero Energy Building

LULUCF

LULUCF regulation

MFF

MRV

MSR

MtCO

Mtoe

MWh

NDC

NECP

NGEU

NIMs

NOX

‘No Debit rule’

NZEB

222

OECD

PDF (indicator)

PEC

Organisation for Economic Co-operation and Development

Potentially Disappeared Fraction of global species

Primary Energy Consumption: Gross Inland Consumption (GIC)

minus the energy included in the final non-energy consumption

(see also, FEC, GIC)

Pumped Hydropower Storage

Particulate Matter with a diameter of 2.5 micrometre or less

Prospective Outlook on Long-term Energy Systems: a global long-

term energy system model operated by the JRC

Price-Induced Market Equilibrium System: an energy system model

for the European Union.

Model for the transport sector, integrated in the PRIMES model.

Power to gas: technologies for the production of E-gases (see also

E-gases)

Power to liquids: technologies for the production of E-fuels (see

also E-fuels)

Quarterly Economic Simulation Tool: a global macroeconomic

model used by the Directorate General for Economic and Financial

Affairs (DG ECFIN)

Renewable Energy Directives 2009/28/EC and 2018/2001/EU

Renewable Energy Sources

Renewable Energy Sources in the generation of Electricity

Renewable Energy Sources in Heating and Cooling

Renewable Energy Sources in Transport

Renewable Fuels of Non-Biological Origin: liquid or gaseous fuels

which are used in the transport sector other than biofuels or biogas,

the energy content of which is derived from renewable sources other

than biomass

EU Strategic Energy Technology Plan

Any process, activity or mechanism that removes a greenhouse gas,

an aerosol, or a precursor to a greenhouse gas from the atmosphere

PHS

PM 2.5

POLES-JRC (model)

PRIMES (model)

PRIMES-TREMOVE (model)

PtG

PtL

QUEST / E-QUEST (model)

RED / RED II

RES

RES-E

RES-H&C

RES-T

RFNBO

SET-Plan

Sink

223

SME

Synthetic fuels and gases

TEN-E

TEN-T

TFEU

TWh

UNFCCC

VAT

ZELV

ZEV

Small and Medium-sized Enterprise

See E-fuels, E-gases

Trans-European Networks for Energy

Trans-European Networks for Transport

Treaty on the Functioning of the European Union

Terawatt-hour

United Nations

United Nations Framework Convention on Climate Change

Value Added Tax

Zero and low emissions vehicles

Zero emissions vehicles

224

IST OF

IGURES

Figure 21: Interlinkages between models

...................................................................................... 14

Figure 22: Schematic representation of the PRIMES model.........................................................

Figure 23: Schematic representation of the GEM-E3 model

........................................................ 22

Figure 24: Projected EU GDP (2015 = 100)

................................................................................. 25

Figure 25: Oil price projections in 2030 according to various sources

......................................... 27

Figure 26: Gross Inland Consumption in the Baseline

.................................................................. 32

Figure 27: Primary energy production in the Baseline

.................................................................. 33

Figure 28: Gross electricity generation in the Baseline.................................................................

Figure 29: Net installed capacity in the Baseline

.......................................................................... 34

Figure 30: Final energy consumption by sector in the Baseline

................................................... 34

Figure 31: Final energy consumption by fuel in the Baseline

....................................................... 35

Figure 32: Evolution of CO

emissions by sector (left) and their shares (right) in BSL

............... 35

Figure 33: Non-CO

emissions by sector and by gas in the Baseline

........................................... 36

Figure 34: GHG emissions profile in the Baseline

........................................................................ 37

Figure 35: GHG reductions in the Baseline

.................................................................................. 38

Figure 36: Energy gross inland consumption

................................................................................ 50

Figure 37: Final energy demand by energy carrier

....................................................................... 51

Figure 38: Evolution of final energy consumption (compared to 2005)

....................................... 52

Figure 39: Share of sectors in final energy consumption

.............................................................. 53

Figure 40: Renewables shares

....................................................................................................... 53

Figure 41: Renewable energy production

..................................................................................... 55

Figure 42: Disaggregation of the renewables share in heating and cooling

.................................. 55

Figure 43: Disaggregation of the renewable transport target as per RED II

................................. 56

Figure 44: Final electricity demand...............................................................................................

Figure 45: Evolution of final electricity demand (compared to 2015)

.......................................... 57

Figure 46: Electricity production

.................................................................................................. 58

Figure 47: Installed power production capacities

.......................................................................... 59

Figure 48: Electricity storage and new fuels production capacity.................................................

Figure 49: Consumption of gaseous fuels per gas type.

................................................................ 61

Figure 50: Consumption of gaseous fuels per sector.....................................................................

Figure 51: Evolution of the energy consumption in buildings in 2030 (compared to 2005).........

Figure 52: Renovation rates (Type 1) in buildings in 2026-30

..................................................... 66

Figure 53: Renovation rates (Type 1) per type of energy renovation in Residential buildings in

2026-30

......................................................................................................................................... 67

Figure 54: Renovation rates (Type 1) per type of energy renovation in Services buildings in

2026-2030......................................................................................................................................

Figure 55: Energy demand in residential buildings

....................................................................... 69

Figure 56: Energy demand in services

.......................................................................................... 69

Figure 57: Non-electricity energy consumption in (residential and services) buildings

............... 70

Figure 58: International maritime freight activity in BSL in 2015, 2030 and 2050

...................... 72

Figure 59: Car stock by type of drivetrain in 2030 and 2050

........................................................ 73

Figure 60: Van stock by type of drivetrain in 2030 and 2050

....................................................... 74

Figure 61: Heavy Goods Vehicle stock by type of drivetrain in 2030 and 2050

.......................... 74

Figure 62: Share of alternative fuels in Transport (incl. aviation and maritime navigation)

........ 75

Figure 63: Fuels in transport (including aviation and maritime navigation)

................................. 76

Figure 64: CO

emissions from Transport.....................................................................................

225

Figure 65: CO

emissions in industry by sector and type (sectoral emissions refer to energy-

related emissions)

.......................................................................................................................... 80

Figure 66: Energy Consumption in Industrial Sectors

.................................................................. 80

Figure 67: Differences in energy consumption in industry compared to Baseline

....................... 81

Figure 68: Historic GHG emissions related to industrial sectors in the EU ETS (EU27, Norway

and Iceland)

................................................................................................................................... 82

Figure 69: 2030 marginal abatement cost curve across all non-CO

greenhouse gases

................ 86

Figure 70: 2030 marginal abatement cost curve by non-CO

greenhouse gas

.............................. 87

Figure 71: 2030 marginal abatement cost curve for all non-CO

greenhouse gas emissions in the

agricultural sector

.......................................................................................................................... 89

Figure 72: Evolution of consumption of animal products for five different possible dietary choice

....................................................................................................................................................... 91

Figure 73: Greenhouse gas emissions effects of different dietary choices through 2030

............. 91

Figure 74: LULUCF emissions and removals in the EU

.............................................................. 93

Figure 75: Changes vs. 1990 in emissions or removals by LULUCF category in the EU

............ 93

Figure 76: Wood production in the EU

......................................................................................... 94

Figure 77: Use of bioenergy by sector and by scenario

................................................................ 95

Figure 78: Gross inland consumption of biomass and waste for energy

....................................... 95

Figure 79: Break down of bioenergy feedstocks

........................................................................... 96

Figure 80: Imports of Bioenergy

................................................................................................... 97

Figure 81: Potential for carbon sequestration and LULUCF sink enhancement at different carbon

prices in 2030

................................................................................................................................ 98

Figure 82: Technical potential for CO

and non-CO

emission reductions on agriculture land by

2030 (EcAMPA 3)

........................................................................................................................ 99

Figure 83: GHG emissions from wildfire in the EU28

............................................................... 100

Figure 84: Additional number of days per year with high-to-extreme fire danger for different

levels of global warming compared to present (1981-2010).

...................................................... 101

Figure 85: Changes in land use in the baseline scenario (dashed line) and in the mitigation

scenario (solid line)

..................................................................................................................... 103

Figure 86: Potentially Disappeared Fraction of global species (PDF) indicator

......................... 104

Figure 87: Average price of electricity........................................................................................

107

Figure 88: Average annual energy system investment on the supply (patterned bars) and demand

sides (full bars), baseline, 55% scenarios and MIX-50, 2021-2030, 2031-2050 and 2021-2050

(billion euros 2015)

..................................................................................................................... 108

Figure 89: Expenditures for energy-related products by income decile in the EU*

................... 115

Figure 90: Changes in relative welfare by income decile due to changes in relative prices

(fragmented action REG, MIX and CPRICE scenarios with 55% level of ambition)

................ 116

Figure 91: Emissions profile by 2050 for selected climate-neutral scenarios of the in depth

analysis supporting the EU Long Term Strategy

........................................................................ 148

Figure 92: Representation of the main building blocks of the European Green Deal

................. 167

Figure 93: Risk of climate change impacts across Europe

.......................................................... 180

Figure 94: Global Greenhouse Gas Emissions in Reference and NDC scenarios with below 2°C

and 1.5°C pathways

..................................................................................................................... 188

Figure 95: Global total primary energy supply

........................................................................... 189

Figure 96: Global gross electricity production

............................................................................ 190

Figure 97: Global weighted average total installed costs, capacity factors and LCOE for onshore

wind power, 2010-2019...............................................................................................................

191

226

Figure 98: Global weighted average total installed costs, capacity factors and LCOE for solar PV,

2010-2019....................................................................................................................................

192

Figure 99: 50-55% reduction pathways and ADVANCE 1.5°C scenario

................................... 195

Figure 100: Emissions reductions compared to 1990, EU, OECD and Global 1.5°C pathways and

EU objective of 50-55% reduction by 2030 leading climate neutrality by 2050

........................ 196

Figure 101: Decomposition of historic and projected drivers in EU emissions (EU28)

............. 197

Figure 102: Relevant research and innovation areas

................................................................... 212

Figure 103: Gross domestic expenditure on R&D compared to GDP

........................................ 214

227

IST OF

ABLES

Table 29: Desired 2030 ambition on the climate target .................................................................. 7

Table 30: Desired 2030 ambition on the renewable energy target .................................................. 9

Table 31: Desired 2030 ambition on the energy efficiency target ................................................ 10

Table 32: Opportunities related to a higher 2030 climate ambition .............................................. 11

Table 33: Challenges related to a higher 2030 climate ambition .................................................. 12

Table 34: International fuel prices assumptions

–

non-COVID scenarios .................................... 26

Table 35: International fuel prices assumptions

–

COVID scenarios ........................................... 28

Table 36: Key energy indicators for BSL and COVID-BSL ........................................................ 38

Table 37: Scenario assumptions description (scenarios produced with the PRIMES-GAINS-

GLOBIOM modelling suite) ......................................................................................................... 40

Table 38: Key modelling variables reflecting underlying policy assumptions ............................. 44

Table 39: Sectoral greenhouse gas emissions per scenario ........................................................... 48

Table 40: Emission reduction potential based on provisional updated benchmarks repressing

medium and best performing installations .................................................................................... 83

Table 41: Emissions of non-CO

greenhouse gases in AR4 and AR5 across all sectors (MtCO

eq) .................................................................................................................................................. 85

Table 42: Baseline emissions for non-CO

greenhouse gases by sector (MtCO

-eq, AR5) ......... 85

Table 43: 2030 mitigation options for non-CO

GHG emissions across all sectors in the EU27

compared to baseline (MtCO

-eq, AR5) ....................................................................................... 86

Table 44: Potential emission reductions of non-CO

greenhouse gases by sector in 2030 in the

EU27 compared to baseline (AR5) ............................................................................................... 88

Table 45: Sectoral disaggregation of Energy System Costs ........................................................ 106

Table 46: Average annual investment for BSL, all policy scenarios and MIX-nonCO2 variant

(2011-2015, 2016-2020, 2021-2030 and 2031-2050, billion euros 2015) .................................. 109

Table 47: Impacts of 50% and 55% reduction on EU sectoral investment (deviation from

baseline, percent) ......................................................................................................................... 111

Table 48: Impacts of 50% and 55% reduction on EU consumer prices (deviation from baseline,

percent) ........................................................................................................................................ 112

Table 49: Impact of policies and company behaviour on output in ETS sectors (55% fragmented

action, deviation from baseline) .................................................................................................. 113

Table 50: Energy Related Expenditure per Household (excluding transport) (€'15/household)

. 114

Table 51: Current and 2030 ETS and ESR shares for different scenarios and sectoral coverages

..................................................................................................................................................... 129

Table 52: Competent authorities’ structures across Member States in 2018 in the current EU ETS

framework ................................................................................................................................... 137

Table 53: Selected Climate Change Impacts to Natural Systems at 1.5°C & 2°C ...................... 175

Table 54: Selected Climate Change Impacts to Human Systems at 1.5°C & 2°C ...................... 176

Table 55: Co-benefits and trade-offs between adaptation and mitigation ................................... 183

228