REGULATORY SCRUTINY BOARD OPINION EU Climate target for 2040

EUROPEAN COMMISSION
22.12.2023
SEC(2024) 64
REGULATORY SCRUTINY BOARD OPINION
{COM(2024) 63}
{SWD(2024) 63-64}
EU Climate target for 2040
Offentligt
KOM (2024) 0063 - SEK-dokument
Europaudvalget 2024
________________________________
Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111
regulatory-scrutiny-board@ec.europa.eu
EUROPEAN COMMISSION
REGULATORY SCRUTINY BOARD
Brussels,
RSB
Opinion
Title: Impact assessment / EU Climate target for 2040
Overall 2nd
opinion: POSITIVE WITH RESERVATIONS
(A) Policy context
The European Climate Law enshrines the EU’s commitment to climate neutrality by 2050
and the EU’s 2030 climate target to reduce net greenhouse gas (GHG) emissions by at
least 55% in 2030 relative to 1990 levels. It also mandates the Commission to make a
legislative proposal for an EU 2040 climate target.
This impact assessment assesses different levels of net GHG emissions in 2040 and the
associated pathways between 2030 and climate neutrality by 2050. It does not present the
post-2030 energy and climate policy framework – this is to be developed in detail at a
later stage. It will feed into a Communication envisaged for the first quarter in 2024 to be
followed by a legal proposal defining the EU 2040 climate target.
(B) Summary of findings
The Board notes the improvements to the report.
However, the report still contains significant shortcomings. The Board gives a
positive opinion with reservations because it expects the lead DG to rectify the
following aspects:
(1) The report is not clear on how sustainable lifestyle changes are reflected in the
dynamic baseline scenario. The policy choices regarding the inclusion of
sustainable lifestyle changes (via the LIFE variant) are not brought out clearly
and their interaction with the three scenarios is neither comprehensively
assessed nor compared.
(2) The scoring of options is not convincingly demonstrated, the key trade-offs
between options not clearly presented and the choice of the preferred option not
sufficiently justified.
(3) The report is not sufficiently clear about the risks related to financial and
technological feasibility.
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(C) What to improve
(1) The specific objective on climate neutrality (SO1) is not sufficiently clear as all
retained 2040 target level options are expected to deliver on the 2050 climate law
neutrality objective. The report should clarify what exactly should be achieved regarding
this specific objective so that it is clear what success would look like and how
effectiveness on this aspect is assessed. The inclusion or lack of certain measures, such as
carbon storage and management or more ambition in certain sectors, should be reflected
in the design of the options and associated policy trade-offs, and not in the specific
objectives. Regarding the specific objective of minimising the EU’s GHG budget (SO2),
the report should explain how fairness of the contribution of the EU to the global agenda
is defined for the purpose of this impact assessment.
(2) While the report report identifies option 2 as the baseline scenario, it is not clear on
the assumptions made regarding the expected evolution of more sustainable lifestyles. In
case of uncertainty, the report should provide baseline variants describing alternative
evolutions based on different take-up assumptions on more sustainable lifestyles (e.g. no
change, more, less).
(3) The report should make clear that option 1 until 2040 is based on a rather theoretical
scenario, as the reduction target (of 78.5% in 2040 compared to 1990) is significantly
lower than what is expected to be achieved by the baseline scenario option 2 (with a
reduction of 88% by 2040). It should clarify upfront that options 2 and 3 both frontload
GHG emissions reduction and related financial and investment efforts in the 2030-2040
decade compared to the linear Climate Law trajectory under option 1.
(4) The report should better explain how societal trends related to more sustainable
behavioral and lifestyles changes described under the “LIFE” variant interacts with the
three policy options/scenarios. It should bring out more clearly that the inclusion of the
LIFE variant can be of both complementary (e.g. adding additional ambition) as well as
substitutional nature (e.g. reducing investment costs or re-distributing the effort required
in certain sectors). On this basis, the report should assess the impacts of each of the three
policy scenarios behind the three target options with and without the LIFE variant. Given
that this could result in additional as well as substitutional effects, the report should present
ranges of impacts for each combination of options with LIFE variants to better illustrate
the complete set of available policy choices. The report should present the impact
estimates in 2050 not only for scenario 3 but also scenarios 1 and 2.
(5) As regards impacts of the policy options, the report should provide further analysis of
the financial and technological feasibility of the frontloading described for options 2 and
3. In particular, the report should clarify potential challenges in technological
deployment/upscaling, and provide a more in-depth analysis of financial availability for
industry and of affordability for households.
(6) The report should further improve the transparency of the cost benefit analysis. It
should clearly present a summary table with all cost and benefit elements, as well as the
total costs and benefits for each option both in relative and absolute terms (including for
option 2). The estimates should be clearly presented both on an annualised basis and as
totals for the whole period (2030-2050).
(7) The report should further develop the competitiveness assessment. In view of the
impact of the additional costs due to the frontloading of investment, the competitiveness
analysis and competitiveness check with regard to cost and price competitiveness,
international competitiveness and SME competitiveness should be further developed for
the most significantly affected sectors. As the report considers that more ambitious climate
3
action by our global partners will be the determining factor in fostering EU international
competitiveness, the report should indicate how it considers that the preferred option will
encourage the EU's trade partners to decarbonise faster.
(8) The comparison of options should inform how the adoption of more sustainable
lifestyles variants would affect the comparative performance of the options as this
important decision-making element is currently absent in the comparison section. In
addition, the report should ensure that the scoring in the summary comparison table is
fully in line with the proceeding analysis. In particular the report should:
• review the scoring for the specific objective on delivering climate neutrality (SO1) in
the light of the comments made on this objective further above,
• adequately reflect the scoring of the competitiveness (SO4) of options, given the better
performance of option 1 on all used comparison criteria,
• explain why the impact on critical raw material dependence is not reflected in the
security of supply of energy and resources objective (SO6) but under the strategic
autonomy coherence heading. Given that the raw material needs (and dependency) are
significantly lower in option 1 compared to option 3, this should be reflected in the
scoring in line with the methodology used,
• clarify the efficiency scoring of options, as scenario 1 is the best option in terms of
total GHG mitigation cost and performs best in terms of net benefits under the
“central” climate change variant. In any event the related uncertainties need to be
presented more clearly in the comparison,
• adapt the scoring of proportionality in view of the above comments.
(8) As the applied scoring methodology tends to produce large scoring differences
between the options while the analysis often points to closer quantitative results, the
summary table should also include the absolute values of the key assessment criteria to
ensure a balanced and fully informative overview comparison and a clear presentation of
the key policy trade-offs. The comparison summary table should include the LIFE variants
as indicated above.
(9) The choice of the preferred option should be further substantiated with the results of
the additional analysis as explained above (e.g. consideration of all options/policy choices,
benefit-cost ratio, competitiveness impact). The report should further elaborate on the
technological feasibility and related business case of some measures (in particular those
with relative low technical readiness levels), which mostly contribute to the improved net
GHG emissions reduction for the the preferred option. It should also better assess the
societal acceptance challenges as well as effective monitoring arrangements of the
implementation of the preferred option including with respect to the envisaged
technological changes. It should provide a more developed assessment of the risks related
to financial feasibility of the frontloading of investment.
(10) The report should more clearly present stakeholders’ views, including diverging ones,
in particular in the comparison of options and the preferred option sections. Annex 3
should be further developed, including regarding the practical implications of the
initiative.
The Board notes the estimated costs and benefits of the preferred option in this initiative,
as summarised in the attached quantification tables.
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(D) Conclusion
The lead DG must revise the report in accordance with the Board’s findings before
launching the interservice consultation.
If there are any changes in the choice or design of the preferred option in the final
version of the report, the lead DG may need to further adjust the attached
quantification tables to reflect this.
Full title EU Climate target for 2040
Reference number PLAN/2023/220
Submitted to RSB on 06 December 2023
Date of RSB meeting Written procedure
5
ANNEX: Quantification tables extracted from the draft impact assessment report
The following tables contain information on the costs and benefits of the initiative on which
the Board has given its opinion, as presented above.
If the draft report has been revised in line with the Board’s recommendations, the content of
these tables may be different from those in the final version of the impact assessment report,
as published by the Commission.
I. Overview of Benefits (total for all provisions) – Preferred Option
Description Amount Comments
Direct benefits
Avoided costs of
climate change (section
6.3.1).
In option 3, in comparison with option 2,
the average annual benefit from climate
change mitigation is between EUR 20
and 38 billion for the time period 2031-
2040, by EUR 24 and 44 billion for 2041-
2050 and by EUR 22 and 42 billion over
the entire period 2031-2050.
Avoiding costs of climate change is a
general benefit for the whole society,
including population, businesses, the
public budget, and for nature and
ecosystems.
Such costs are generally thought to
be underestimated, given the
difficulty in predicting the impacts of
climate change.
Higher energy
independence and
reduction of the risks
associated with fossil
fuel price shocks (see
section 6.4.3.1)
In comparison with option 2, option 3
implies average annual savings of €22
billion for 2031-2040 due to reduced
fossil fuel import. In 2041-2050, the
annual savings amount to EUR 9 billion.
This is a benefit for the whole
economy, large companies as well as
SMEs, and, in fine, for the public
budget as well.
Indirect benefits
Reduction of air
pollution and reduction
of the associated
premature mortality and
morbidity (see Section
6.3.2)
Annually, the average benefit from air
pollution reduction is between EUR 1 to
2 billion in option 3 compared to option
2 (in 2031-2040, as well as in 2041-
2050).
This is a benefit for the whole EU
population and for the public budget
as a consequence of reduced health
expenses.
6
II. Overview of costs – Preferred option
Citizens/Consumers Businesses Administrations
One-
off
Recurrent One-
off
Recurrent One-
off
Recurren
t
Action (a)
Direct adjustment
costs
The figures for energy
system costs provided
below are annual
averages. More details
can be found in section 6.
4.3. of this document and
in Section 2.3 of Annex 8.
For the residential sector,
the total energy system
costs in 2031-2040 are
EUR 9 billion (1%)
higher in option 3 than in
option 2. For 2041-2050,
they are EUR 2 billion
(0.2%) higher in option 3
than in option 2. The
capital costs1
are EUR 8
billion (1.6%) more in
option 3 than in option 2
for 2031-2040 and EUR 4
billion (0.7%) more for
2041-2050. Energy
purchases are EUR 1
billion higher in option 3
than in option 2 for 2031-
2040 but EUR 2 billion
lower for 2041-2050.
The figures for energy system
costs provided below are
annual averages. More details
can be found in section 6.
4.3. of this document and in
Section 2.3 of Annex 8.
For industry the capital costs
are EUR 2 billion (2%) higher
in 2031-2040 in option 3
compared to option 2 and
EUR 1 billion (less than 1%)
higher in 2041-2050. Energy
purchases are EUR 8 billion
(2%) more in option 3
compared to option 2 for
2031-2040. They are EUR 2
billion (0.5%) more for 2041-
2050.
For the tertiary sector, capital
costs are EUR 4 billion (3%)
more in option 3 than in
option 2 for the time period
2031-2040. They are EUR 2
billion (1%) higher for the
time period 2041-2050.
Energy purchases are EUR 1
billion (0.4%) smaller in
option 3 than in option 2 for
2031-2040. They are EUR 1
billion (0.4%) smaller for
2041-2050.
Will depend on the
future post-2030
policy framework
Energy systems costs for transport are borne partly by households, partly by businesses and
public administrations. The corresponding capital costs are EUR 4 billion (1.6%) higher in
2031-2040 for option 3 compared to option 2, and EUR 6 billion (2%) higher in 2041-2050.
Energy purchases for transport are EUR 12 billion (2%) higher in 2031-2040 but EUR 7
billion (1.4 %) lower in 2041-2050.
Direct
administrative
costs
Will depend on the future post-2030 policy framework
1
Capital costs includes financing and opportunity cost for private actors through the application of a WACC
at 10% in the annualization of overnight investment costs.
7
Direct regulatory
fees and charges
Will depend on the future post-2030 policy framework
Direct
enforcement costs
Will depend on the future post-2030 policy framework
Indirect costs
Costs related to the ‘one in, one out’ approach
Total
Direct and
indirect
adjustment costs
The figures for energy
system costs provided
below are annual
averages. More details
can be found in section 6.
4.3. of this document and
in Section 2.3 of Annex 8.
For the residential sector,
the total energy system
costs in 2031-2040 are
EUR 9 billion (1%)
higher in option 3 than in
option 2. For 2041-2050,
they are EUR 2 billion
(0.2%) higher in option 3
than in option 2. The
capital costs2
are EUR 8
billion (1.6%) more in
option 3 than in option 2
for 2031-2040 and EUR 4
billion (0.7%) more for
2041-2050. Energy
purchases are EUR 1
billion higher in option 3
than in option 2 for 2031-
2040 but EUR 2 billion
lower for 2041-2050.
The figures for energy system
costs provided below are
annual averages. More details
can be found in section 6.
4.3. of this document and in
Section 2.3 of Annex 8.
For industry the capital costs
are EUR 2 billion (2%) higher
in 2031-2040 in option 3
compared to option 2 and
EUR 1 billion (less than 1%)
higher in 2041-2050. Energy
purchases are EUR 8 billion
(2%) more in option 3
compared to option 2 for
2031-2040. They are EUR 2
billion (0.5%) more for 2041-
2050.
For the tertiary sector, capital
costs are EUR 4 billion (3%)
more in option 3 than in
option 2 for the time period
2031-2040. They are EUR 2
billion (1%) higher for the
time period 2041-2050.
Energy purchases are EUR 1
billion (0.4%) smaller in
option 3 than in option 2 for
2031-2040. They are EUR 1
billion (0.4%) smaller for
2041-2050.
Energy systems costs for transport are borne partly by households, partly
by businesses and public administrations. The corresponding capital
costs are EUR 4 billion (1.6%) higher in 2031-2040 for option 3
compared to option 2, and EUR 6 billion (2%) higher in 2041-2050.
Energy purchases for transport are EUR 12 billion (2%) higher in 2031-
2040 but EUR 7 billion (1.4 %) lower in 2041-2050.
2
Capital costs includes financing and opportunity cost for private actors through the application of a WACC
at 10% in the annualization of overnight investment costs.
8
Administrative
costs (for
offsetting)
Will depend on the future post-2030 policy framework
9
EUROPEAN COMMISSION
REGULATORY SCRUTINY BOARD
Brussels,
RSB
Opinion
Title: Impact assessment / EU Climate target for 2040
Overall opinion: NEGATIVE
(A) Policy context
The European Climate Law enshrines the EU’s commitment to climate neutrality by 2050
and the EU’s 2030 climate target to reduce net greenhouse gas (GHG) emissions by at least
55% in 2030 relative to 1990 levels. It also mandates the Commission to make a legislative
proposal for an EU 2040 climate target.
This impact assessment assesses different levels of net GHG emissions in 2040 and the
associated pathways between 2030 and climate neutrality by 2050. It does not present the
post-2030 energy and climate policy framework – this is to be developed in detail at a later
stage. It will feed into a Communication envisaged for the first quarter in 2024 to be followed
by a legal proposal defining the EU 2040 climate target.
(B) Summary of findings
The Board notes the additional information provided and commitments to make
changes to the report.
However, the Board gives a negative opinion because the report contains the following
significant shortcomings:
(1) The problem, its drivers and its potential consequences are not clearly identified.
The report does not adequately define the specific objectives and criteria based on
which the performance of alternative 2040 target options would be assessed in line
with the requirements of the EU Climate Law.
(2) The description of the dynamic baseline is underdeveloped and not sufficiently
clear. The report fails to establish an appropriate benchmark for comparison. The
rationale behind, the content of and the interaction between the options and the
scenarios lack clarity. The report does not bring out clearly enough all available
target and pathway choices and the trade-offs between them.
(3) The level of uncertainty of the modelling, including in terms of the remaining CO2
budget, and the robustness of the results is not clearly identified and analysed.
(4) The costs and benefits of each option are not clearly presented. The report is neither
clear on the total costs and benefits due to frontloading investments in the 2031-
2040 period nor on the related financial and technological feasibility.
(5) Options are not adequately compared as regards effectiveness, efficiency, coherence
and proportionality. The choice of the preferred option is not sufficiently justified.
10
(C) What to improve
(1) The report should clearly indicate from the outset which specific initiatives and decisions
this impact assessment is intended to inform. It should briefly describe the progress made
towards the 2030 target and indicate whether the EU policy framework is overall on track,
including by making better use of recent progress reports. As the current problem definition
is confusing, it should be simplified and aligned with the core objective of the initiative, i.e.
the identification and assessment of pathways towards climate neutrality in 2050 and the
related intermediate target for 2040.
(2) The report should recall the explicit set of requirements provided under Article 4(5) of
the Climate Law and explain how those elements will feed into defining the objectives of the
initiative. The specific objectives should build on the general objectives and should include
a clear set of effectiveness, efficiency and coherence criteria based on which the performance
of alternative options should be assessed and compared. The report should define what
effectiveness in terms of target setting means, and how and based on which criteria it should
be operationalised to allow measuring to what extent the specific objectives will be achieved.
The criteria concerning aspects of specific objectives such as just transition should be
assessed under effectiveness. Regarding policy coherence the report should differentiate
between criteria covering the internal coherence of the target options and pathways as such
and the external coherence with other EU policy priorities, such as competitiveness or
strategic autonomy. The intervention logic should be revised to streamline the relationship
between the general objectives, the specific objectives and the core problem.
(3) The report should define a clear dynamic baseline which serves as benchmark when
comparing other available scenarios and options. It should clarify how the baseline scenario
relates to the linear trajectory in accordance with Article 8 of the European Climate Law.
The baseline should clearly explore if any of the relevant on-going initiatives are expected
to over- or under- perform. The report should explain how updates of Member States’
National Energy and Climate Plans are taken into consideration. It should also explain how
the baseline considers the effects of policies beyond 2030 and how it reflects already adopted
measures from the LIFE scenario (e.g., food waste, circular economy).
(4) The report should better explain the design of, rationale behind, trade-offs between and
interaction of the options and scenarios. It should briefly explain the “filtering process” that
led to the selection of the maintained options and scenarios, clarify whether these all will be
technically capable to deliver on the 2050 target, and explain how the scenarios explored in
the scientific advice of the European Scientific Advisory Board on Climate Change has
informed the presentation of options.
(5) The report needs to be clearer on the content of policy options and scenarios in terms of
broad policy mix and how these translate into different ambition levels, so that the differences
and trade-offs between the options become clearer. It should be also clearer on the key
assumptions and parameters behind the options / scenarios, as well as be more explicit on
their common elements. The report should clarify how the LIFE scenario should be
analytically interpreted in terms of interaction with the main options and scenarios. In this
context, the report should clarify more generally what the scope for policy variants within
the presented scenarios is and what this means in terms of differences in their respective
synergy and trade-off profiles.
(6) The report should significantly improve the explanation of its methodological approach
and more explicitly present the level of overall confidence in the modelling. In particular, the
methodology underlying the projected indicative EU GHG budget should be explained. The
main and most relevant assumptions underpinning the models should be transparently
11
presented. The report should more explicitly indicate how robust, credible and accurate the
modelling results are. The level of uncertainty should be clearly identified and analysed. This
should include being clear about the uncertainties related to the impacts of the LIFE scenario
including the estimated savings in investment costs. The report should better describe the
evidence base underpinning the expected additional voluntary changes in consumer
behaviour and any uncertainties related to that. The report should also better explain a multi-
model approach to cross-validate results for several critical parameters and present the results
of the different sensitivity analyses. It should indicate how the modelling quality assurance
was ensured, individually for each model and overall for the whole analysis.
(7) The report should be clear about the differences of the options/scenarios vis-à-vis the
dynamic baseline/benchmark. It should clearly present the costs and benefits of each
option/scenario and develop the feasibility analysis. It should be clear on the total costs and
benefits due to frontloading the investments in the 2031-2040 period in some options. The
estimates of the costs and benefits should be also presented in absolute terms to better
illustrate the differences between options/scenarios. The assessment of the environmental
and health benefits should be further developed, quantified and monetised to the extent
possible. The report should make a clearer the assessment of financial and technological
feasibility. The former should refer to both the private sector and Member States. In terms of
technological feasibility, the report should assess how realistic the scenarios are.
(8) The report should further develop the distributional analysis. It should elaborate on the
difference of impacts between different options/scenarios including on sectors and
households. The impact on SMEs should be further assessed. The report should explain to
what extent the impacts on SMEs already depend on the degree of frontloading in the
options.. It should also indicate in which sectors SMEs will be mostly affected.
(9) The report should provide a more developed competitiveness assessment regarding the
most affected sectors, including bioeconomy, agriculture, services, transport and energy. It
should be more specific on the affected energy intensive industries facing significant higher
energy costs. The annexed competitiveness check should be further developed. Regarding
‘cost and price’ and international competitiveness, the analysis should consider costs from
frontloading the investments, such as financing costs, opportunity costs, availability of
technologies. It should explain how the assessment reflects the views of affected
stakeholders.
(10) The comparison section should be significantly developed. It should explain how the
scenario impact analysis results have informed the assessment of the performance of the
options, including by identifying, presenting, and comparing key quantitative performance
estimates. It should assess how the options compare against the dynamic baseline/
benchmark, against a clear set of criteria, against each other, and in terms of effectiveness,
efficiency, and coherence. The report should clearly and transparently present the major
trade-offs between the options and scenarios. In this context, the report should also explain
how and to what extent the LIFE scenario is reflected in the comparison of scenarios / options
and what synergies / trade-offs the inclusion (or not) of the LIFE analysis would have on the
overall performance of the individual scenarios. The effectiveness assessment should be done
in terms of delivery on all the specific objectives and the corresponding specific assessment
criteria, avoiding focusing on a sub-section of criteria only. It should also explain how
(financial) feasibility and availability of technologies are reflected in the effectiveness
assessment. The efficiency analysis should provide estimates on the benefits and costs of
options, as well as net benefit or benefit-cost ratio for each option. The coherence of the
options regarding other EU long-term priorities, such as competitiveness, strategic autonomy
12
and lowering the EU third country dependence of critical raw materials, should be assessed
more thoroughly and granular.
(11)The report should bring out more clearly the trade-offs between options. It should
provide a thorough and substantiated assessment of their proportionality. The choice of the
preferred option should follow from the comparative analysis and should be better justified,
including in terms of practical feasibility and implementation challenges. It should be
supported by financial feasibility analysis at the level of both Member States and affected
stakeholders.
(12)In presentational terms the report should present comparison summary tables/graphs,
including all key elements underpinning the effectiveness, efficiency, coherence, and
proportionality assessment. The scoring methodology used should be transparently
explained, sufficiently nuanced and fully in line with the preceding qualitative and
quantitative analysis.
(13)The stakeholders’ view, in particular diverging ones, should be presented in a more
balanced and transparent manner systematically throughout the report. The report should
clearly explain why certain groups agree or disagree with certain options, including the
preferred one. The analysis should be more granular and different types of stakeholders
should be clearly identified, without putting together disparate groups.
(14)Annex 3 should be further developed and revised. It should clearly identify which
stakeholders will be affected and how. The costs and benefits reported in the tables should
be presented vis-à-vis the baseline/benchmark scenario.
Some more technical comments have been sent directly to the author DG.
(D) Conclusion
The lead DGs must revise the report in accordance with the Board’s findings and
resubmit it for a final RSB opinion.
Full title EU Climate target for 2040
Reference number PLAN/2023/220
Submitted to RSB on 16 October 2023
Date of RSB meeting 15 November 2023
Electronically signed on 22/12/2023 13:02 (UTC+01) in accordance with Article 11 of Commission Decision (EU) 2021/2121