On its way to reach climate neutrality by 2050 the EU has set an ambitious target to decrease greenhouse gas (GHG) emissions in the EU by at least 55% by 2030 compared with 1990 levels.

The goal for 2030 seemed clear at first glance when the president of the European Commission, Ursula von der Leyen, announced it in her 2020 State of the Union speech, but intense debates ensued among both EU institutions and EU Member States about how exactly to define the reduction goal. In early 2021 it was agreed to understand the 55% cut as a net target taking GHG removals (so-called sinks) into account. Then, in July 2021, the Commission released its “Fit for 55” legislation package of proposals to make the EU's climate, energy, transport and taxation policies fit for the envisaged reduction goal.

In this article we briefly explain the 55% net reduction goal and how it is linked with the sub-targets defined in the Fit for 55 package..

First, it needs to be borne in mind that EU GHG emissions are split into three categories:

• Emissions falling under the EU Emissions Trading System (EU ETS): This is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It works on a cap-and-trade principle: a cap is set on the total amount of certain GHGs that can be emitted by the installations encompassed by the scheme and, within this cap, the installations can buy or receive emission allowances. The cap is reduced over time so that total emissions fall. It covers GHG emissions from 10,000 installations in the power sector and manufacturing industry, as well as flights within the EU. Adding intra-EU emissions from shipping is part of the Fit for 55 proposal.
• Emissions under the Effort Sharing Regulation (ESR): The ESR sets binding annual GHG emission targets for each EU Member State based on the principles of fairness, cost-effectiveness and environmental integrity. These commitments specify emission reduction targets for sectors not covered by the EU ETS.
• Emission removals (sinks) under the Land Use, Land-Use Change and Forestry (LULUCF) regulation: The land sector can be both responsible for GHG emissions (for example from cropland, settlements, deforestation or draining wetlands) and the removal of greenhouse gases from the atmosphere (CO2 absorbed by plant growth and forest land). The LULUCF regulation sets targets for EU Member States on how much more carbon should be absorbed than released. These net carbon sinks count towards GHG emission goals.

Figure 1 shows that net sinks from LULUCF lower the 1990 baseline from which net GHG emissions must be cut by 55% by 2030. To arrive at the emissions allowed for the EU ETS and the ESR sectors in 2030 (i.e. total or gross GHG emissions), the net sinks in 2030 need to be included in the calculation. Doing so gives a gross GHG reduction goal of 51% by 2030.

Figure 1: The EU GHG net reduction target includes sinks from LULUCF

Source: Frontier Economics based on EEA and EC

Note: GHG emissions of EU27

The Fit for 55 package translates the 55% reduction goal into the legislation needed to hit the 2030 objectives. Among other things, the package includes targeted reductions for the EU ETS and the ESR sectors of 61% and 40% respectively. These cuts, which are set in relation to GHG levels in 2005, the year the EU ETS was implemented, are equivalent to a 51% drop in gross GHG emissions from 1990 levels, as shown in Figure 2.

Figure 2: The EU ETS and ESR reduction targets

Source: Frontier Economics based on EEA and EC

Note: EU ETS emissions for 2005 include intra-EU maritime emissions.

If and how the proposed reduction targets are legally implemented is going to be decided over the course of the Trilogue negotiations under way between the European Commission, the European Parliament and the Council of the European Union.

Frontier regularly advises clients on EU energy policy and the green energy transition. For instance, you can read here about a study that we conducted for Energie Baden-Württemberg AG (EnBW) on how to reform the EU ETS to meet Green Deal targets.