Effort Sharing Regulation (ESR)
Built environment, mobility, agriculture and non-energy intensive industry
The European Union (EU) uses three instruments to reduce emissions: the European Emissions Trading Scheme (ETS), the Effort Sharing Regulation (ESR) and Land use, land use change and forestry (LULUCF). All emissions fall within one of these categories. If we compare this with the Dutch setup, the allocation is as follows:
Effort Sharing Regulation (ESR)
Built environment, mobility, agriculture and non-energy intensive industry
European Emissions Trading Scheme (ETS)
Land use, land use change and forestry (LULUCF)
Land use
This European allocation fits quite nicely with the Dutch setup. LULUCF matches exactly the Dutch sector land use. Most of the emissions from the ETS come from the electricity and industry sectors. For the ESR 14% of emissions came from electricity and industry (in 2020), the rest came from built environment, mobility and agriculture.
With Fit for 55, the ESR, ETS and LULUCF are going to change. For the ETS, the following changes are taking place:
o
Companies covered by the (old) ETS, (domestic electricity generation, large industrial companies, part of international shipping and aviation) must collectively reduce their emissions in the EU by 62% in 2030 compared to 2005. From 2039 there are no new emission allowances for this ETS.
o
There will be a new, different ETS for (among others) mobility, built environment and other industry. Companies falling under this system must collectively reduce their emissions in the EU by 42% in 2030 compared to 2005. As of 2044, there are probably no more emission rights in this system.
For the ESR these changes will occur:
o
An increase in the European target from 29% to 40% reduction in 2030 compared to 2005.
o
The Dutch target is increased from 36% to 48% reduction in 2030 compared to 2005. This means an additional reduction of 15 megatons compared to the old target.
o
An emission ceiling applies for each year in the period 2021 - 2030. This makes the cumulative reduction task, for the Netherlands, 62 megatons more than the previous task.
o
There will also be a new ETS for the built environment and road transport, which will co-exist (for now) with the other ETS for electricity and energy-intensive industry.
And finally, there is one important adjustment for the LULUCF:
o
In the EU, carbon sequestration must increase by 15% by 2030. This means the total amount of sequestration of all member states combined should be 310 gigatons per year. For the Netherlands, emissions from land use cannot exceed 4.52 megatons by 2030.
These European changes have the following implications on the Dutch sectors:
| wdt_ID | Sector | EU ETS | ESR | LULUCF |
|---|---|---|---|---|
| 7 | Electricity | Hogere ETS-prijs, wat leidt tot lagere SDE++-subsidie | Potentially higher demand for electricity to reduce emissions | None |
| 8 | Industry | Minder gratis rechten en hogere ETS-prijs, wat leidt tot lagere SDE++-subsidie | Non ETS emissions from industry may contribute to target | None |
| 9 | Built environment | New system: ETS price affects natural gas price and thus consumption | Reducties in emissies dragen bij aan doelstelling | None |
| 10 | Landbouw & Landgebruik | None | Reductions in emissions contribute to target | Emissions and sequestration from land use gain importance |
| 11 | Mobility | New system: ETS price may lead to emissions reduction | Reductions in emissions contribute to target | None |
Electricity
Higher ETS price, leading to lower SDE++-subsidy
Potentially higher demand for electricity to reduce emissions
None
Industry
Fewer free allowances and higher ETS price, leading to lower SDE++-subsidy
Non ETS emissions from industry may contribute to target
None
Built environment
New system: ETS price affects natural gas price and thus consumption
Reductions in emissions contribute to target
None
Landbouw & Landgebruik
None
Reductions in emissions contribute to target
Emissions and sequestration from land use gain importance
Mobility
New system: ETS price may lead to emissions reduction
Reductions in emissions contribute to target
None
The Netherlands focuses its climate policy primarily on reducing greenhouse gas emissions. The EU also has additional targets for renewable energy generation (RED) and energy conservation (EED). The first targets for the RED were set in 2009 and in 2018 they were revised. The EED came to life in 2012. With Fit for 55, both guidelines have been renewed.
For RED, the following changes have taken place:
o
Increasing the European target for the share of renewable energy in (gross) final energy consumption: from 32% to at least 42.5%.
o
There is no binding target for EU member states, but the European Commission lists 39% renewable energy in 2030 as an efficient contribution for the Netherlands. The previous contribution, matching the 32% target, was 27%.
o
There are also a number of sub-targets that apply to the Netherlands. Click on the menu below to see these.
o
The EED sets the following new targets:
o
Reduction in energy use of by 11.7% from 2030 projections.
o
This requires the Netherlands to have final energy consumption of no more than 1,609 petajoules and primary energy consumption of no more than 1,935 petajoules by 2030.
o
The EED obligation must be filled with national policies. Other European instruments, such as the ETS for the built environment and transport, may not be used. Demonstrating the national contribution to the EED is a rather complex task.
These changes have the following effects on the Dutch sectors:
| wdt_ID | Sector | EU ETS | ESR | LULUCF |
|---|---|---|---|---|
| 12 | Electricity | Hogere ETS-prijs, wat leidt tot lagere SDE++-subsidie | Potentially higher demand for electricity to reduce emissions | None |
| 13 | Industry | Minder gratis rechten en hogere ETS-prijs, wat leidt tot lagere SDE++-subsidie | Non ETS emissions from industry may contribute to target | None |
| 14 | Built environment | New system: ETS price affects natural gas price and thus consumption | Reducties in emissies dragen bij aan doelstelling | None |
| 15 | Landbouw & Landgebruik | None | Reductions in emissions contribute to target | Emissions and sequestration from land use gain importance |
| 16 | Mobility | New system: ETS price may lead to emissions reduction | Reductions in emissions contribute to target | None |
Electricity
Potentially strong growth in demand for renewable electricity
Potentially lower demand due to energy conservation measures
Industry
Renewable energy use counts towards target
Reduced energy consumption contributes to national target
Built environment
Renewable energy use counts towards target
Reduced energy consumption contributes to national target and countries should have explicit policies against energy poverty
Landbouw & landgebruik
Renewable energy use counts towards target
Reduced energy consumption contributes to national target
Mobility
None
Reduced energy consumption contributes to national target
The European Commission has also made proposals to synchronize the tax system with climate ambitions. For this purpose, adjustments have been made to the Energy Taxation Directive (ETD). The table below shows the changes and their consequences for the Netherlands.
New minimum tax rates for energy
Little, rates in the Netherlands are quite high compared to other countries and already often well above the new minimum.
Member States must apply equal rates
(Major) adjustment of the energy tax and ode: higher rates in the first and second tranches should go down or lower rates in the third and fourth tranches should go up
Member States should use the same ranking as ETD in tariff setting
Taxes on diesel and gasoline should be taxed equally, while the tax on diesel is now lower than the tax on gasoline. Both rates should also be higher than biofuels. Electricity should have the lowest rate, while itss currently twice as expensive as natural gas due to energy taxes and ODE.
Limitation on exemptions and lowering tariffs.
Higher energy costs for specific sectors
Minimum rates for energy use in international aviation and shipping
More tax revenue
The new carbon border adjustment mechanism (cbam) will charge an equal CO2 tax on imported products from outside the EU to those made within the EU. The mechanism will initially apply to steel, iron, electricity and fertilizer, but the European Commission may add more products later. The height of the tax will depend on the market price of the ETS. Introducing CBAM will strengthen the competitive position of Dutch industry.
The EU uses different types of legislation for its climate policy. Find out the differences between them.
During the writing of Rutte-IV's coalition agreement (fall 2021), not all the consequences of Fit for 55 for the Netherlands were known. However, civil servants had outlined in the report Destination Paris (January 2021) how the Netherlands could translate a European 55% target into its own climate policy. They came up with three variants:
| wdt_ID | Variant | Description | Consequences |
|---|---|---|---|
| 17 | A | National reduction target remains 49%, only necessary additional effort for ESR targets | 11 megaton additional emission reductions needed in ESR sectors |
| 18 | B | Nationale reductiedoel wordt opgehoogd naar 55%. | 27 megatons of additional emission reduction needed in both ESR and ETS sectors |
| 19 | C | European agreements set national targets and there is no (additional) national target | Industrie hoeft minder emissies te reduceren. Nederland loopt dan wel achter bij het Europees gemiddelde en moet in de periode 2030 - 2050 een hoop emissies reduceren om klimaatneutraliteit te realiseren |
A
National reduction target remains 49%, only necessary additional effort for ESR targets
11 megaton additional emission reductions needed in ESR sectors
B
National reduction target is increased to 55%.
27 megatons of additional emission reduction needed in both ESR and ETS sectors
C
European agreements set national targets and there is no (additional) national target
Industry needs to reduce fewer emissions. However, the Netherlands lags behind the European average and must reduce a lot of emissions in the period 2030 - 2050 to achieve climate neutrality.
The three variants were developed because the targets from the European Climate Law cannot be simply copied to a national context. It's up to Dutch policymakers how to interpret the European goal. Civil servants had developed these variants to help politicians in the decision-making process.
Rutte-IV chose variant B. With the ESR task, an additional 11 megatons of emissions would have to be reduced. On top of that, 16 megatons would have to be reduced in both ESR and ETS sectors: this is extra compared to European targets. By choosing variant B, the government took more national control and opted for more emission reductions through 2030, which would make the task between 2030 and 2050 easier.
The Rutte-IV coalition agreement contains (preliminary) measures to achieve the new, national 55% target. The additional proposed emission reduction amounted to 25.4 - 31.0 megatons and was allocated in the following way:
| Subsidy scheme for CO2-free gas power plants | 0.5 - 2.0 megatons |
| Stimulating use of hybrid heat pumps (150,000 per year). | 0.9 megaton |
| Faster to insulation standard rent (link to abolition of landlord levy) | 1.0 megaton |
| Make social real estate more sustainable | 1.0 megaton |
| Energy performance requirements for new industrial buildings | 0.1 megaton |
| Shift energy tax 1st bracket (of electricity) | 1.3 megatons |
| Obligation to use green gas in gas blend (20%) | 2.88 - 2.9 megatons |
| Monitoring and enforcement of energy conservation obligation | 0.1 - 0.5 megatons |
| Incentive program to develop and scale up recycling | 0.1 megaton |
| Mandatory percentage of recyclate in building materials | 0.15 - 0.3 megaton |
| Circular supply chain projects | 0.01 megaton |
| Increasing CO2 tax for industry | 4.0 megatons |
| Energy tax rate structure for gas and electricity | 0.5 megatons |
| Abolish energy tax exemptions - mineralogical and metallurgical processes | 0.1 - 0.5 megatons |
| Nitrogen policies | 5.0 megatons |
| Limit input exemption in energy tax for natural gas used in CHPs | 1.0 megaton |
| Abolish reduced natural gas tax rate greenhouse industry | 1.0 megaton |
| More sustainable passenger transport options and travel behavior | 0.3 - 0.5 megaton |
| Motor vehicle tax | 2.5 megatons |
| Van purchase tax exemption to 0% in 2026 | 0.7 megaton |
| Increasing untaxed travel reimbursement | -0.2 - -0.2 megaton |
| Increasing budget EIA | 0.2 megaton |
| Increasing budget MIA/VAMIL | 0.3 megaton |
| Impact Fit for 55 | 1.0 - 2.0 megatons |
| Impact National Climate Agreement + august decision making | 2.0 - 4.0 megatons |
To achieve this reduction, the following measures were also taken:
o
There will be a €35 billion climate and transition fund for the next ten years
o
A Minister of Climate and Energy will be in charge of climate policy and the climate fund
o
Tailor-made agreements will be created with the 10 to 20 largest emitters in industry
o
The use of woody biomass for energy purposes will be phased out
o
Two new nuclear power plants will be constructed
o
Gas extraction in Groningen will be phased out according to plan
o
There will be a long-term National Insulation Program
o
All new cars will be emission-free by 2030
o
In 2030 there will be a system of Pay by Use for cars
Schoof-I's coalition agreement (May 2024) states that the new government is committed to existing targets. It explicitly states that there will be no national headlines on European targets.
This was a fun little chapter with all kinds of abbreviations. Sorry about this, but we didn't come up with the names either. Each measure (and thus abbreviation) has its own logic, but seeing them all together can quickly complicate things. The fact that the EU and the Netherlands are taking different approaches towards climate policy makes the overall picture pretty complex.
The good news is that you have now read all the ambitions, targets and plans. Let's find out if these actually lead to emission reductions.