Effort Sharing – One of the Three Pillars of EU Climate Policy

The EU’s climate policy guides the actions of the EU and its Member States in mitigating and adapting to climate change. Through its climate policy, the EU aims to reduce its net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. In addition, the EU’s long-term goal is to achieve a balance between emissions and removals – that is, climate neutrality – by 2050. The EU climate policy aims to reach these targets through three main sectors: the Emissions Trading System (ETS), the Effort Sharing sector, and Land Use, Land-Use Change and Forestry (LULUCF). This article focuses on the Effort Sharing sector of EU climate policy.

According to Finland’s national Climate Act, the country’s net greenhouse gas emissions must be zero or negative by 2035. Finland is also required to reduce its total emissions by 60 percent by 2030 compared to the 1990 level.

The Effort Sharing sector accounts for approximately 60 percent of the EU’s greenhouse gas emissions. The EU’s Effort Sharing Regulation (ESR) was adopted in 2018 with the goal of reducing emissions from key sectors not covered by the Emissions Trading System (ETS) by 40 percent by 2030 compared to 2005 levels. The sectors included in the so-called Effort Sharing sector are:

• Domestic transport, excluding domestic aviation
• Buildings
• Agriculture
• Small-scale industry
• Waste
• Fluorinated greenhouse gases (F-gases)

The Effort Sharing sector accounts for 55% of Finland's total emissions, with the sector's emissions amounting to 26.7 Mt CO2-equivalent in 2022. Finland's EU-level obligation is to reduce these emissions by 50% by 2030.₂-ekv vuonna 2022. Suomen EU-tasolla sovittu velvoite on vähentää näitä päästöjä 50 prosenttia vuoteen 2030 mennessä.

Each member state has been assigned annual emissions targets for the Effort Sharing sector for the period 2021–2030, along with a set of annual emission allowances and flexibility mechanisms to accommodate fluctuations in greenhouse gas emissions due to weather or economic conditions. If emissions exceed these targets, member states may use the flexibility provisions included in the Effort Sharing Regulation to meet their obligations. These flexibility mechanisms include borrowing emission allowances from the following year, transferring allowances to future years, or transferring emission shares between member states.

The achievement of emissions targets in the Effort Sharing sector is also influenced by the fulfillment of obligations under the Land Use, Land-Use Change, and Forestry (LULUCF) sector, as the LULUCF regulation stipulates that the net emissions calculated for this sector increase the corresponding reduction obligation for the Effort Sharing sector. In practice, this means that if the LULUCF sector is a source of emissions during the review period, the member state must compensate for the resulting emissions either through additional actions in the Effort Sharing sector or by purchasing LULUCF emission units from another member state.

In the Effort Sharing sector, member states are responsible for national actions to reduce emissions.

In the Effort Sharing sector, member states are responsible for national actions to reduce emissions, unlike sectors covered by the emissions trading system, which are regulated at the EU level. Member states must develop and approve their own national energy and climate action plans to achieve the sector's targets. According to the European Commission, such measures may include:

• Reducing transportation needs
• Promoting public transport
• Transitioning away from fossil fuel-based transport
• Supporting renovation and retrofitting of buildings
• Implementing more efficient heating and cooling systems and utilizing renewable energy in them
• Using climate-friendly methods in agriculture
• Utilizing livestock manure for biogas production

How do the sectors under the effort sharing sector and their development look in terms of emissions? The largest sectors of Finland's effort sharing sector are transportation, agriculture, building heating, and machinery. F-gases form only a small emission category. Finland's share of EU's effort sharing sector emissions is approximately 1%. Finland's greenhouse gas emissions decreased by about 4% in 2022 compared to 2021. The reduction in the effort sharing sector was 3%.

Domestic traffic accounted in 2021 for slightly over 20% of Finland's total emissions and 36% of the emissions in the effort sharing sector. Emissions from transport decreased the most in the entire energy sector, with a reduction of about 4%, mainly due to the increased bio share of fuels. The bio share of fuels was estimated to be nearly 18% of the energy content in 2021. The distribution obligation, which promotes the use of renewable fuels, is a key emission reduction measure in the transport sector.

The age of the vehicle fleet significantly affects transport emissions. In Finland, the pace of fleet renewal is slow due to strict taxation. Additionally, there are still issues with the availability of electric cars. The number of kilometers driven decreased by 0.5% in Finland in 2021 compared to 2020, suggesting that the rise in fuel prices did not have a significant impact on the number of kilometers driven.

At the EU level, transport sector emissions were reduced by 5% of the total reductions in the effort-sharing sector from 2005 to 2019. During the same period, energy consumption in transport increased by 6%. The transport sector will face the greatest emission reduction needs in the future, as transport emissions are targeted for a 50% reduction by 2030.

Construction industry accounts for about a third of the EU's energy emissions and 10% of Finland's effort-sharing sector emissions. To achieve the EU's 55% net reduction target by 2030, the sector would need to reduce its emissions by an additional 60% compared to 2015 levels. To reach this goal, renovation and the renewal of heating systems play a key role. The energy efficiency of buildings must be further improved.

Agriculture, which accounts for 23% of the effort-sharing sector's emissions and 13% of Finland's total greenhouse gas emissions, has reduced its emissions by 12% compared to 1990 levels. This is primarily due to a reduction in the use of synthetic fertilizers and a decrease in the number of livestock. Farming methods have also been developed in a more environmentally friendly direction. On the other hand, the area of cultivated land on peat soils has increased, which raises nitrous oxide emissions from the soil. In recent years, agricultural emissions have shown only a slight decrease, partly due to seasonal fluctuations. It is important to note that agriculture is not only a source of emissions but also a carbon sink, and its carbon sequestration can still be increased through sustainable farming practices. To ensure food security, agricultural production can be strengthened, for example, by promoting the transition from fossil fuels to renewable energy sources. In 2021, biogas production on farms in Finland increased by 50%.

It is important to note that agriculture is not only a source of emissions but also a carbon sink.

A study conducted by the Natural Resources Institute Finland (Luke) examined the impact of a plant-based diet on agricultural greenhouse gas emissions. In the scenario, it was assumed that meat consumption in Finland would decrease by one-third and dairy product consumption by one-fifth from 2020 to 2035. According to Luke, the emission reduction effect of such a dietary shift in agriculture would be a total of 1.07 Mt CO₂equivalent by 2035. In the LULUCF sector, the emission reduction effect would be 0.99 Mt CO₂and in the energy sector, it would be 0.26 Mt CO₂for a total of 2.32 Mt CO₂This would mean that Finland's greenhouse gas emissions would decrease by 4.8 percent by 2035 due to such a dietary change, as the reduction effects would be fully realized only by that time, since the shift to a plant-based diet occurs gradually and impacts agricultural production and land use with a delay. At the EU level, the effect would be 0.06 percent, given that Finland's share of total EU emissions is 1.3 percent.

The waste sector's share of emissions in 2021 was 4 percent, or 1.8 Mt CO₂-eqv of Finland's total emissions. The sector accounted for 9 percent of the emissions in the effort-sharing sector. Compared to 2020, emissions from the sector decreased by 4 percent, and compared to 1990 levels, emissions have decreased by 65 percent. This reduction is primarily due to the measures required by the Waste Act, which came into force in 1994, and the EU Landfill Directive. These measures, including restrictions on the landfill disposal of biodegradable waste and significant improvements in landfill gas recovery, have played a major role in emissions reduction. More recent legislation has continued to reduce emissions, and very little biodegradable municipal waste is now disposed of in landfills.

F-gases amounted to 0,0 Mt CO₂-eqv or 2 percent of Finland's total emissions, and they decreased by 5 percent compared to the previous year. The share of F-gases in the effort-sharing sector is 3%. Refrigeration and air conditioning equipment account for over 90 percent of F-gas emissions.

The effort-sharing sector is a significant source of emissions at both the EU and national levels, as well as a key area for emissions reductions, with numerous challenges but also opportunities for new business models, methods, and technologies. According to the Ministry of the Environment, uncertainties are associated with achieving Finland's emissions reduction targets for the effort-sharing sector, especially regarding the use of flexibility between the effort-sharing and LULUCF sectors. This is due to the fact that, according to the latest available data, the LULUCF sector has shifted from being a carbon sink to a source of emissions, meaning there is no longer flexibility available. Therefore, achieving the emissions reduction targets for the effort-sharing sector will require concrete actions in the sectors concerned, primarily in transport, agriculture, and buildings.

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