Reducing emissions from sectors not covered by the European Union Emissions Trading Scheme (EU ETS) will be crucial to achieving Europe’s emissions reduction goals for 2030 and beyond. In 2012, these “effort sharing agreement” sectors accounted for approximately 60% of EU greenhouse gas emissions. Last October, the European Council set a goal of reducing emissions in the non-ETS by 30% (relative to 2005 levels) by 2030.
To be effective, the EU’s 2030 Agreement on non-ETS sectors will need to do several things at once. Firstly, it will need to ensure that all Member States reduce emissions in these sectors. At the same time, the Agreement will need to respect the principles of fairness and solidarity, acknowledged by the European Council. Finally, the 2030 Effort Sharing Agreement must balance the need for solidarity (and hence different targets for different Member States) with the need for cost-effectiveness, to ensure that it actually achieves its 2030 targets.

An effective flexibility mechanism can make an important contribution to meeting these three challenges in the 2030 Effort Sharing Agreement. It can help reduce compliance costs at the margin for high income Member States, while providing much needed financial flows to help catalyse abatement in lower income Member States (who tend to have lower cost abatement options).