Effort sharing: High costs of insufficiently ambitious climate action

If Germany misses its European climate change mitigation targets in the areas of transport, buildings and agriculture, this could cost the country 600 million euros by 2020. This is the conclusion of calculations by the Oeko-Institut based on current emissions data and the German government’s projections until 2030. For the period 2021-2030 there could be additional costs of between five and 30 billion euros. If Germany had to buy additional emission certificates, it would also miss the federal government’s national climate protection target for 2030.

“In the transport sector in particular, climate-damaging emissions are still at the level of 1990”, explains Jakob Graichen, Senior Researcher at the Oeko-Institut. “But it is also clear that if Germany were to put further effective measures in place very promptly, the billions in extra costs could still be saved.”

Effort sharing: Climate change mitigation targets for transport, buildings, agriculture

Under the EU’s Effort Sharing Regulation, all Member States are allocated an emissions budget for sectors of the economy that fall outside the scope of the Emissions Trading System (ETS), including transport, buildings, agriculture, waste and some industry. If a country’s emissions exceed its budgeted allowance, the additional emissions must be offset by purchasing allocations from other Member States.

In its climate change mitigation targets for the sectors covered by effort sharing, Germany has pledged to reduce its greenhouse gas emissions by 14 per cent (compared to 2005) by 2020 and by 38 per cent by 2030. According to the Oeko-Institut’s latest calculations, the country is set to miss these targets by a large margin, since by 2017 emissions had fallen by just short of three per cent by comparison with the 2005 baseline. In 2014 emissions were in fact a good eight per cent below those of 2005, but they have risen significantly since then.

The cost analysis in detail

The Oeko-Institut’s analysis of the resulting costs is based on various assumptions. For example, the researchers have hypothesised that emissions over the next three years will remain at the 2017 level and will therefore require Germany to buy emission certificates for around 120 million tonnes of greenhouse gases.

For the period 2021-2030 the experts have calculated a greenhouse gas emissions gap of around 300 million tonnes. This figure was arrived at by comparing the EU’s allocated emissions for the effort-sharing sectors with the climate change mitigation measures in the German government’s Projection Report 2017. If additional climate change mitigation measures described in the Projection Report are implemented, this could halve the shortfall.

On the basis of these emission figures, the Oeko-Institut calculates the cost of the additional emission certificates needed, assuming a CO₂ price of five euros per tonne until 2020 and a price between 33 and 100 euros per tonne for the period 2021-2030. The low price until 2020 is due to the fact that there is a considerable surplus of emission rights throughout Europe and apart from Germany there are only a few countries that are likely to need to buy small quantities of additional rights. Post-2021 there will be a shortage of emission rights in the effort-sharing system. The lower end of the cost estimate is based on the CO₂ price used by the German government for the emission trading system in 2030, while the upper end is based on CO₂ taxes in Switzerland and Sweden.

The Oeko-Institut’s brief study “Abschätzung des erforderlichen Zukaufs an Annual Emission Allowances (AEA) im Rahmen des Europäischen Effort Sharings” [Assessment of the additional purchases of Annual Emission Allowances (AEA) required as a result of the European effort-sharing scheme]