COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid Accompanying the document DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757

EN EN
EUROPEAN
COMMISSION
Brussels, 14.7.2021
SWD(2021) 557 final
COMMISSION STAFF WORKING DOCUMENT
Subsidiarity Grid
Accompanying the document
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
amending Directive 2003/87/EC establishing a system for greenhouse gas emission
allowance trading within the Union, Decision (EU) 2015/1814 concerning the
establishment and operation of a market stability reserve for the Union greenhouse gas
emission trading scheme and Regulation (EU) 2015/757
{COM(2021) 551 final} - {SEC(2021) 551 final} - {SWD(2021) 601 final} -
{SWD(2021) 602 final}
Europaudvalget 2021
KOM (2021) 0551 - SWD-dokument
Offentligt
1
Subsidiarity Grid
1. Ca the U io a t? What is the legal asis a d o pete e of the U io s’ i te ded a tio ?
1.1 Which article(s) of the Treaty are used to support the legislative proposal or policy initiative?
The legal basis for this proposal amending Directive is Article 192 of the Treaty on the Functioning of
the European Union (TFEU). In accordance with Article 191 and 192(1) TFEU, the European Union
shall contribute to the pursuit, inter alia, of the following objectives: preserving, protecting and
improving the quality of the environment; promoting measures at international level to deal with
regional or worldwide environmental problems, and in particular combating climate change.
1.2 Is the Union competence represented by this Treaty article exclusive, shared or supporting in
nature?
I the ase of e iro e t, the U io s o pete e is shared.
Subsidiarity does not apply for policy areas where the Union has exclusive competence as defined in
Article 3 TFEU1
. It is the specific legal basis which determines whether the proposal falls under the
subsidiarity control mechanism. Article 4 TFEU2
sets out the areas where competence is shared
between the Union and the Member States. Article 6 TFEU3
sets out the areas for which the Unions
has competence only to support the actions of the Member States.
2. Subsidiarity Principle: Why should the EU act?
2.1 Does the proposal fulfil the procedural requirements of Protocol No. 24
:
- Has there been a wide consultation before proposing the act?
- Is there a detailed statement with qualitative and, where possible, quantitative indicators
allowing an appraisal of whether the action can best be achieved at Union level?
In order to collect evidence and ensure greater transparency, the Commission first invited feedback
on an inception impact assessment, outlining the initial considerations and policy options of the
revision5
. The Commission then organised an online public consultation, receiving almost 500
replies6
. To support the initiative concerning carbon pricing for maritime transport, a targeted
stakeholder survey was carried out accompanied by a targeted interview programme7
.
1
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E003&from=EN
2
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E004&from=EN
3
https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E006:EN:HTML
4
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12016E/PRO/02&from=EN
5
The inception impact assessment was open for feedback from 29 October 2020 to 26 November 2020 and
received about 250 contributions. The outcome can be found on the following website:
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12660-Updating-the-EU-Emissions-
Trading-System.
6
This was open for 12 weeks from 13 November 2020 to 5 February 2021. The outcome can be found on the
following website: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12660-Updating-
the-EU-Emissions-Trading-System/public-consultation.
2
In addition, the Commission held (virtual) bilateral and multilateral stakeholder meetings, including
with industry representatives across different sectors, trade unions, non-governmental organisations
and Member States and participated in virtual conferences. Finally, the Commission instructed a
contractor to organise two expert workshops8
on the review of the Market Stability Reserve (MSR).
The results of the consultation activities are reported in the impact assessment accompanying this
proposal.
Articles 191 to 193 of the TFEU confirm and specify EU competencies in the area of climate change.
Climate change is a trans-boundary problem, which cannot be solved by national or local action
alone. Coordination of climate action must be taken at European level and, where possible, at global
level. EU action is justified on grounds of subsidiarity as set out in Article 5 of the Treaty on European
Union. Since 1992, the European Union has worked to develop joint solutions and drive forward
global action to tackle climate change. More specifically, action at EU level will provide for cost
effective delivery of the 2030 and long-term emission reduction objectives while ensuring fairness
and environmental integrity.
In light of the emission reduction target for 2030, and in the perspective of the climate neutrality
objective to be achieved by 2050, stronger EU action is needed.
The explanatory memorandum of the proposal, and the impact assessment under chapter 3, contain
sections on the principle of subsidiarity.
2.2 Does the explanatory memorandum (and any impact assessment) accompanying the
Co issio ’s p oposal o tai a ade uate justifi atio ega di g the o fo ity with the
principle of subsidiarity?
Yes, they do. The explanatory memorandum (as well as the accompanying impact assessment)
explain that climate change is by its very nature a trans-boundary challenge that cannot be solved by
national or local action alone. Coordinated EU action can effectively supplement and reinforce
national and local action and enhances climate action.
Although initiatives at the national, regional and local level can create synergies, alone they will not
e suffi ie t. O their o , i di idual Me er States ar o arkets would represent too small a
market to achieve the same level of results. Therefore, an EU wide approach is needed to drive
industry level changes and to create economies of scale.
2.3 Based on the answers to the questions below, can the objectives of the proposed action be
achieved sufficiently by the Member States acting alone (necessity for EU action)?
This proposal aims increase the contribution of emissions trading in a manner commensurate with
the overall EU emissions reduction target of at least 55% for 2030. This objective cannot be achieved
by the Member States alone as it requires cost-efficient emissions reductions across the Union and
increased resources that can only be achieved through the EU-level carbon market.
(a) Are there significant/appreciable transnational/cross-border aspects to the problems being
tackled? Have these been quantified?
7
The stakeholder survey run from December 2020 and February 2021, and the targeted interview programme
from January 2021 to February 2021.
8
https://ec.europa.eu/clima/events/expert-workshop-market-stability-reserve_en,
https://ec.europa.eu/clima/events/2nd-expert-workshop-market-stability-reserve_en.
3
Climate change is a trans-boundary problem and both international and EU action can effectively
complement and reinforce regional, national and local action. The European Climate Law9
, as agreed
by the co-legislators, akes the EU s li ate eutralit target legall i di g, a d raises the
ambition by setting a target of at least 55% net emission reductions by 2030 compared to 1990. The
EU Emissions Trading System (ETS) covers 41% of the EU's greenhouse gas emissions. The
environmental contribution of the ETS needs to be increased in a manner commensurate with the
overall EU target for 2030. If the legislation remains unchanged, sectors currently covered by the ETS
would together achieve a 2030 emission reduction of 51% compared to 2005 (see Section 5.1 of the
impact assessment). This would be an insufficient contribution to an overall target of -55% compared
to 1990. The policy scenarios that achieve around 55% reductions project a cost-effective
contribution of the sectors currently covered by the ETS in the range of -62-63% compared to 2005.
(b) Would national action or the absence of the EU level action conflict with core objectives of
the Treaty10
or significantly damage the interests of other Member States?
Urgent economy-wide emission reductions to combat climate change are necessary to fulfil the
objectives of Article 192 TFUE, of preserving, protecting and improving the quality of the
environment, protecting human health, as well as to promote measures at international level to deal
li ate ha ge. The a se e of EU le el a tio ould lead to e iro e tal du pi g et ee the
Member States, where Member States compete for the least stringent climate change measures to
benefit their own economies, damaging the internal market and weakening climate action. An urgent
climate transition requires a high degree of investments. As a result, foregoing the benefits of
economies of scale and the possibility of reducing emissions where they are more cost-effective,
would result in a slower climate transition due to increased costs and less available funds.
(c) To what extent do Member States have the ability or possibility to enact appropriate
measures?
Member States are able to act to reduce greenhouse gas emissions that are under the scope of the
EU ETS through other policies than emission limits adopted pursuant to Directive 2010/75/EU.
However, they are not able to establish an EU-level carbon market. In particular, national action
remains important in the areas of buildings and road transport, for which a separate EU level
emissions trading system is proposed as additional economic incentive to achieve cost-effective
emission reductions.
(d) How does the problem and its causes (e.g. negative externalities, spill-over effects) vary
across the national, regional and local levels of the EU?
The effects of raising the contribution of emissions trading towards a higher emissions reduction
target will not be felt equally across the EU, as their starting point in terms of the emissions in the
sectors covered by the Directive are not the same. Some Member States will be more affected than
others. Increasing the contribution of the ETS to achieve the revised target will require investments
in the energy systems and the greening of industrial processes in Member States where
modernisation needs are already the highest. Regions and local communities in which employment is
linked to fossil fuel production are impacted more significantly than others. Furthermore, there are
distributional concerns within Member States, as low-income households across the EU will bear a
9
Regulation (EU) 2021/... of the European Parliament and of the Council of ... establishing the framework for
achieving climate neutrality a d a e di g Regulatio s EC No / a d EU / Europea
Cli ate La OJ L ... .
10
https://europa.eu/european-union/about-eu/eu-in-brief_en
4
relatively higher burden notably in terms of heating fuel expenses compared to wealthier
households. Hence, there are likely to be different distributional issues that emerge if the EU
emissions trading is expanded to new sectors. At the same time, there will be also positive social
impacts, like an improvement concerning health issues linked with air pollution. In addition,
emissions trading generates auction revenues which can be used by Member States to address these
problems, including if there were specific problems at regional or local level.
(e) Is the problem widespread across the EU or limited to a few Member States?
The need to address climate change is widespread across the EU.
(f) Are Member States overstretched in achieving the objectives of the planned measure?
The ETS Directive establishes a carbon market in the EU, without specific targets per Member State.
Emission reductions take place where they are most cost-efficient. Nevertheless, the ETS Directive
includes measures to mitigate the distributional and social effects of the ETS explained in point 2.3(d)
above, reinforced by the proposal. Notably, the ETS Directive includes:
- A solidarity redistribution provision consisting of the redistribution of 10% of the auctioned
allowances to 16 low income MS (around 5% of the current overall cap or around 700 million
allowances over the 2021-30 period)
- The Modernisation Fund (up to 2025, 2% of the overall cap or around 275 million allowances
over the 2021-30 period, from 2026 onwards 4% of the cap).
- 150 million allowances issued under the new emissions trading system for road transport
and buildings will be made available to increase the current Innovation Fund of 450 million
allowances to stimulate the green transition.
- Article 10c derogation applying to 10 low income Member States that can opt to give free
allocation (of up to 40% of their regular auction volume) to investments in power generation
for the modernisation of the energy sector (totalling about 630 million allowances over the
2021-30 period).
- [CBAM]
In addition, Decision (EU) 2015/1814 establishes a market stability reserve for the ETS with an intake
until 2025 that is only based on the 90% regular auctioning shares, exempting the 10% solidarity
shares. The proposed new Regulation on a social facility for climate action addresses the social
impacts of carbon pricing in the new emissions trading system for buildings and road transport.
(g) How do the views/preferred courses of action of national, regional and local authorities
differ across the EU?
The ETS is widely supported across the Union. The different views or preferred courses of action do
not relate to the use of the ETS in itself, but to aspects of its design.
2.4 Based on the answer to the questions below, can the objectives of the proposed action be
better achieved at Union level by reason of scale or effects of that action (EU added value)?
The objectives of the proposed action be better achieved at Union level by reason of the cost-
efficiency of emissions reductions, coherence of EU action, preserved functioning of the internal
market and strengthened EU position to foster global action on climate change.
(a) Are there clear benefits from EU level action?
Yes. The benefits from EU level actions relate to the economies of scale and improvement of the EU
internal market explained below. In addition, EU action can also inspire and pave the way for the
5
development of market based measures at global level, e.g. as regards the maritime transport within
International Maritime Organisation. EU action also allows the EU to have a stronger position
internationally to apply a Carbon Border Adjustment Mechanism, which will be based on the ETS to
ensure compliance with the World Trade Organisation rules.
(b) Are there economies of scale? Can the objectives be met more efficiently at EU level (larger
benefits per unit cost)? Will the functioning of the internal market be improved?
Yes. As a carbon market, the ETS incentivises emission reductions to be made by the most cost-
efficient solutions first across the activities it covers, achieving greater efficiency by virtue of its scale.
Implementing a similar measure nationally would result in smaller, fragmented carbon markets,
risking distortions of competition and likely lead to higher overall abatement costs. The same logic
holds for the extension of carbon pricing to new sectors.
Many of the policy elements of the proposal have an important internal market dimension, in
particular the options related to the carbon leakage protection and the low-carbon funding
mechanisms.
(c) What are the benefits in replacing different national policies and rules with a more
homogenous policy approach?
The benefits of a more homogenous approach are highlighted in point 2.4(b) above. Emission
reductions take place where they are most cost-effective, thus reducing the overall cost of the
climate transition for the EU. Emissions reductions also take place without distorting the internal
market, and preventing environmental dumping. As highlighted in point 2.3(c) above, for the new
ETS for buildings and road transport, the aim is not to replace but to complement national policies.
(d) Do the benefits of EU-level action outweigh the loss of competence of the Member States
and the local and regional authorities (beyond the costs and benefits of acting at national,
regional and local levels)?
The benefits of EU-level action outweigh the loss of competence of the Member States and the local
and regional authorities, because reducing greenhouse gas emissions is fundamentally a trans-
boundary issue that requires urgent effective action at the largest possible scale. The EU, as a
supranational organisation is well-placed to establish effective climate policy in the EU. Concretely,
the benefits are the cost-efficiency of emissions reductions, coherent EU action, preserved
functioning of the internal market and strengthened EU position to foster global action on climate
change.
(e) Will there be improved legal clarity for those having to implement the legislation?
Yes. The wording of several provisions is improved (e.g. Article 10a(8) of the ETS Directive on the
Innovation Fund).
3. Proportionality: How the EU should act
3.1 Does the explanatory memorandum (and any impact assessment) accompanying the
Co issio ’s p oposal o tai a ade uate justifi atio ega di g the p opo tio ality of the
proposal and a statement allowing appraisal of the compliance of the proposal with the
principle of proportionality?
Yes. The explanatory memorandum (as well as the accompanying impact assessment) explain that
this proposal complies with the proportionality principle because it does not go beyond what is
6
necessary in order to achieve the U io s o je ti es of redu i g gree house gas e issio s i a ost-
effective manner, while ensuring fairness and environmental integrity.
The European Climate Law has endorsed an overall economy-wide and domestic reduction in
greenhouse gas emissions of at least 55% below 1990 levels by 2030 and climate neutrality by 2050.
All options analysed for the strengthening of the existing ETS are based on the already existing
instrument, the ETS Directive. The initiative is limited to ETS adjustment needs that are triggered by
this increased emissions reduction target of at least 55%.
The instrument of emissions trading ensures that additional costs for industry due to the increased
le el of a itio of the EU s li ate poli ies are e pe ted to e kept to a minimum, given that the
ETS incentivises emissions reduction by operators with the lowest abatement costs. Moreover, the
use of the existing instruments minimises any additional administrative costs.
3.2 Based on the answers to the questions below and information available from any impact
assessment, the explanatory memorandum or other sources, is the proposed action an
appropriate way to achieve the intended objectives?
The proposal is the appropriate way forward to ensure that the sectors currently under the ETS, and
those to which the system is extended, contribute to the reduction of emissions in line with the
increased EU emissions reduction target for 2030. It reinforces a carbon pricing mechanism that has
proved to be effective for those sectors already covered by the ETS, and extends it to sectors that
currently are not reducing their emissions sufficiently, building on the lessons from the successfully
established existing ETS.
(a) Is the initiative limited to those aspects that Member States cannot achieve satisfactorily on
their own, and where the Union can do better?
Yes, the proposal is limited to a carbon pricing system in those sectors previously under the EU ETS,
and those sectors that in the absence of additional measures would not decrease as much as
required to be on a path to achieve an economy-wide 55% reduction in emissions (buildings, road
transport, and the maritime sectors). These sectors are subject to regulatory measures but generally
not subject to a carbon price and may therefore not be sufficiently incentivised to reduce their
emissions. Carbon pricing is only one of the policies that will be necessary to achieve the level of
emissions reductions required; Member States should make use of additional measures to trigger the
reduction of greenhouse gas emissions.
(b) Is the form of Union action (choice of instrument) justified, as simple as possible, and
coherent with the satisfactory achievement of, and ensuring compliance with the objectives
pursued (e.g. choice between regulation, (framework) directive, recommendation, or
alternative regulatory methods such as co-legislation, etc.)?
The objectives of this proposal can be best pursued through a Directive. This is the most appropriate
legal instrument to make amendments to the existing ETS Directive.
A Directive requires Member States to achieve the objectives and implement the measures into their
national substantive and procedural law systems. This approach gives the Member States more
freedom when implementing an EU measure than does a Regulation, in that Member States are left
the choice of the most appropriate means of implementing the measures in the Directive. This allows
Member States to ensure that the amended rules are consistent with their existing substantive and
procedural legal framework implementing the EU ETS, in particular regulating permits for
installations as well as enforcement measures and penalties.
(c) Does the Union action leave as much scope for national decision as possible while achieving
satisfactorily the objectives set? (e.g. is it possible to limit the European action to minimum
7
standards or use a less stringent policy instrument or approach?)
Yes, as a Directive is used, leaving to Member States the decision on how to achieve the objectives
set out in Directive, where uniform conditions of implementation are not needed. For example, the
ETS Directive leaves to the Member States the choice of excluding smaller installations under certain
conditions, or of unilaterally including additional activities and gases. A less stringent policy
instrument would not be adequate to establish an EU carbon market, that requires a common
framework applying to all the Union to ensure equivalent application in all Member States. Else, the
benefits of cost-efficient emissions reductions and prevention of environmental dumping would not
be achieved.
(d) Does the initiative create financial or administrative cost for the Union, national
governments, regional or local authorities, economic operators or citizens? Are these costs
commensurate with the objective to be achieved?
The EU ETS generates significant revenues. At present most of those auction revenues accrue to
Member States. The proposal affects national budgets and administrations primarily because it
provides for the transfer of a share of ETS auction revenues to the EU budget. This is in line with the
inter-institutional agreement of 16 December 202011
, which requires the Commission to propose a
limited own resource based on the EU ETS by mid-202112
.
Nevertheless, national budgets of Member States will benefit from the extension of the EU ETS scope
to maritime transport and from the new emissions trading for road transport and buildings.
The secure operation of the Union registry is funded from the Union budget. Extending the ETS scope
to maritime transport and the new ETS for road transport and buildings will require additional
resources for the secure operation of the Union registry, as specified in the financial statement
accompanying this proposal. These resources will be made available through redeployment in the
light of the budgetary and staffing constraints for European Public Administration under the current
Multiannual Financial Framework while related operational expenditure will be funded with the LIFE
programme envelope. IT development and procurement choices will be subject to pre-approval by
the European Commission Information Technology and Cybersecurity Board.
Financial and administrative costs are limited for those sectors already covered by the ETS. The
covered e tities, ha e e o e er fa iliar ith the ETS s a ual o plia e le ased o
obligations related monitoring, reporting and verification of emissions. Compliance with these rules
is almost 100%. This also holds for the national authorities responsible for various implementing
tasks, such as the issuing of emission permits, the assessment of monitoring plans and emission data,
as well as the allocation of free allowances.
A strengthening of the ETS does not affect these regular activities. However, as ambition increases
and free allocation starts to decrease, industrial players may choose to become more active
participants on the carbon market, increasing their hedging behaviour to better manage their
compliance costs.
The situation is different for the new sectors to which emissions trading may be extended.
With regard to the maritime sector, the regulated entities, i.e. the ship-owners will already be
familiar with the dedicated rules on monitoring, reporting and verification of emissions for their
sector. These activities will have to be complemented by allowance management to ensure a
sufficient number of allowances is acquired and surrendered in time.
The regulated entities in the road transport and buildings sector have no experience with emissions
trading or its practical implications. Putting the obligation upstream on the tax warehouses and on
11
OJ L 433I , 22.12.2020, p. 28–46
12
Proposal for a Council Decision amending Decision (EU, Euratom) 2020/2053 on the system of own
resources of the European Union (COM(2021) xxxx).
8
fuel suppliers implies however that those entities usually have experience in dealing with fuel
taxation and related administrative procedures. Additional administrative tasks will be related to the
particularities of an emissions trading system, such as obtaining a GHG emissions permit; opening
and maintaining registry account(s), complying with monitoring, reporting and verification rules; and
the timely purchasing and surrendering of allowances. No free allocation is envisaged for these
sectors, hence the implementation for national authorities is simplified. Member States could decide
to establish as the competent authority for the new sectors the same as the one actually responsible
for the current EU ETS, reducing the administrative burden and benefitting from synergies.
(e) While respecting the Union law, have special circumstances applying in individual Member
States been taken into account?
Yes, see point 2.2.(f).