EUROPEAN COMMISSION

Brussels, 20.7.2016

SWD(2016) 249 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Proposal for a
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the inclusion of greenhouse gas emissions and removals from land use, land use change and forestry into the 2030 climate and energy framework and amending Regulation No 525/2013 of the European Parliament and the Council on a mechanism for monitoring and reporting greenhouse gas emissions and other information relevant to climate change

{COM(2016) 479 final}
{SWD(2016) 246 final}

Contents

1.Problem definition

1.1.Context

1.1.1.Political context

1.1.2.Regulatory context

1.2.Identifying and describing the main problem components

1.2.1.Lack of governance for LULUCF following the Paris Agreement

1.2.2.Existing measures are not sufficient to reach the 2030 and 2050 EU targets

1.2.3.Accounting of emissions from biomass use

1.3.Baseline scenario, and drivers of the main problems

1.3.1.Continuation of Kyoto rules

1.3.2.LULUCF sector not expected to improve its performance in baseline scenario

1.4.Evidence of the extent of the problems, and identification of solutions

1.4.1.Need to upgrade and improve LULUCF accounting rules

1.4.2.Declining forest removals and increased use of biomass

1.4.3.Lower mitigation potential of the agriculture sector and synergies between mitigation on land and the agriculture non-CO2 sector

1.4.4.Absence of consistent governance framework for forest management

1.5.Who is affected?

2.Subsidiarity: Why should the EU act?

3.Objectives: What should be achieved?

3.1.General objectives

3.2.Specific objectives

3.3.Operational objectives

3.4.Consistency with other policies and the Charter for fundamental rights

4.Policy options

4.1.Improvement of accounting rules

4.1.1.Alternative choice of base year/period

4.1.2.Streamlining of the reporting framework – land-based accounting

4.2.The need for flexibility towards agriculture in the ESD

4.2.1.First screening of flexibility options

4.2.2.Design of flexibility options towards ESD

4.2.3.Options for credit generation in LULUCF and technical conditions

4.3.Forest land: Future governance of the projected forest reference levels

4.4.Summary of options

5.What are the impacts of the different policy options and who will be affected?

5.1.Introduction

5.2.Modelling framework

5.3.Sensitivity analysis is carried out to demonstrate robustness of the modelling tools. Improving LULUCF accounting rules

5.3.1.Impact of the alternative choice of base year/period

5.3.2.Impacts of streamlining the reporting framework

5.3.3.Impact of improved rules: Estimates of the credit generation for afforestation and agricultural land

5.4.Forest Land estimates: governance

5.5.Impact of flexibility options

5.5.1.Distribution of credit potential between Member States

5.5.2.Environmental impacts of flexibility options F1, F2 and F3

5.5.3.Economic impacts: abatement costs and production impacts in the Agriculture sector

5.6.Administrative, monitoring and reporting costs and who would be affected

5.7.Distributional, social and employment impacts

6.Comparing the Options

6.1.Introduction

6.2.Comparison of rule improvements and flexibility options

6.2.1.Comparison of accounting rule improvements

6.2.2.Comparison of options with different levels of flexibility between LULUCF and Agricultural emissions in the ESD

6.2.3.Selection of level of improved rules and flexibility level between LULUCF and agriculture emissions in the ESD

6.3.Selection of options

7.How will monitoring and evaluation be organised?

7.1.Introduction – international framework

7.2.Quality assurance

7.3.Obligations for Member States

7.4.Compliance cycle

7.5.Need to monitoring progress towards the EU Non-ETS target

Figures

Figure 1: The three main problems addressed and their drivers – structure in this document

Figure 2: Projection of reported emissions (+) and removals (-) from LULUCF main activities for the EU28 2005 - 2030, in MtCO2eq

Figure 3: Non-CO2 agricultural emissions and the volume of production in the EU28 agriculture sector, 1990-2012

Figure 4: Variable share of agriculture non-CO2 in the ESD, 2008-12.

Figure 5: Gross and net mitigation modelled in 2030 (% change versus EcAMPA REF 2030)

Figure 6: Four options of trajectories for Agriculture non-CO2 reduction between 2020 and 2030 without and with flexibility (F3 follows the trajectory of Reference 2016)

Figure 7: Improving accuracy and coverage in the LULUCF sector in accordance with IPCC guidance

Figure 8: Overview of EUCLIMIT modelling components used for the assessment of impacts related to agriculture and LULUCF

Tables

Table 1: Estimates of potential for credit generation in three major LULUCF activities (Afforestation, Agricultural land and Forest Management) for EU28 for the period 2021-30 under existing Kyoto rules (all figures in MtCO2eq)

Table 2: Biomass demand and LULUCF emissions/removals in the Reference 2016 scenario, 2005 and 2030

Table 3: Extract from EcAMPA [draft] final report, area and production changes for the EU-28 in 2030, all scenarios -20% reductions for agricultural non-CO2 emissions

Table 4: Estimated accounted sink (negative)/source (positive) for forest under KP, with different forest management scenarios and different reference levels

Table 5: Overview of options considered in this Impact Assessment

Table 6: Impact of the base year change on the potentially available LULUCF RMUs for the EU28 from agricultural land, 2021-2030, including additional mitigation enhanced at a carbon price of €20/tonne, in MtCO2, negative value is credits

Table 7: Impact of base year/period change on the potential credit generation (removal units) for agricultural land, in MtCO2eq per year (negative numbers represent removals, positive numbers emissions)

Table 8: Impact of streamlining framework different accounting rules on credit generation potential for Afforested Land (RMUs in MtCO2eq) EU28 2021-2030 including additional mitigation enhanced at a carbon price of €20/tonne, negative value is credits

Table 9: Impact of streamlining the framework different accounting rules on Member States' credit generation potential for Afforested Land (RMUs in MtCO2eq), 2021-2030 per Member State, negative numbers represent removals, positive numbers emissions including additional mitigation enhanced at a carbon price of €20/tonne

Table 10: Estimates of total potential credit generation (for RMU's) EU28 for the period 2021-30, under existing Kyoto rules and alternative rules (30 year transition for afforestation, base period 2005-2007 for agricultural land), in MtCO2eq

Table 11: Projected credit* generation potential (for RMUs) for Afforestation and Agricultural land per Member State in 2020, 2025, 2030, and total 2021-2030, including additional mitigation enhanced at a carbon price of €20/tonne, in MtCO2.

Table 12: Distribution of LULUCF credit limit for the ESD on the basis of share agriculture non-CO2 in the ESD, for Option F2.

Table 13: Distribution per Member State of LULUCF credit limit (cap) for the ESD for all three flexibility options (low, medium, high) in MtCO2eq for the period 2021-2030. Negative numbers represent removals.

Table 14: Distribution of potential credit generation under the cap, for Options F1, F2 and F3 in MtCO2 for the period 2021-2030 (figures in bold illustrate when the cap will not be reached)

Table 15: Direct impact of different levels of flexibility between LULUCF and ESD on GHG abatement costs in the agriculture non-CO2 sector (annual costs in 2030 in € 2013) and assuming a 20% reduction in 2030 compared to 2005

Table 16: Economic impacts in 2030 (% change compared to baseline) based on an assumed 20% reduction in agricultural non-CO2 emissions

Table 17: Comparison of the options for flexibility between LULUCF (with improved accounting rules) and agricultural emissions in the ESD

List of acronyms

List of definitions 1

1.Problem definition

1.1.Context

1.1.1.Political context

The Paris Agreement includes a long-term goal to put the world on track to limit global warming to well below 2°C above pre-industrial levels, and to pursue efforts to limit the temperature increase to 1.5°C. Regarding the agriculture, forestry and other land use sector, the Paris Agreement spells out that the contribution from land use and forests in reaching the long term climate mitigation objectives will be critical. 2  

In line with scientific findings reported by the Intergovernmental Panel on Climate Change (IPCC) in the fourth Assessment Report, the EU's objective, in the context of necessary reductions by developed countries as a group, is to reduce GHG emissions by 80-95% by 2050 compared to 1990. The Commission in its 2050 Low Carbon Economy Roadmap proposed concrete milestones to ensure the EU is on track to reduce these emissions by at least 80% domestically by 2050, with milestones of 40% and 60% reductions in 2030 and 2040. For 2020, the EU had agreed in 2007 on an economy-wide and binding target of at least 20% GHG emission reductions, as well as a binding renewables target of 20% and an indicative target of 20% energy savings. Land use, however, was not included in either of these initiatives.

The EU became the first major economy to present its climate plan for the Paris Conference (i.e. Intended Nationally Determined Contribution or "INDC") on 6 March 2015. This reflects the 2030 climate and energy policy framework set by the October 2014 European Council and the European Commission's blueprint for tackling global climate change beyond 2020. 3 The EU has set an ambitious economy-wide domestic target of at least 40% greenhouse gas emission reduction for 2030.

The 2014 European Council conclusions also mandated the European Commission to put forward policy to include Land Use, Land Use Change and Forestry (LULUCF) into the EU's 2030 climate and energy framework. The European Council specifically acknowledged "the multiple objectives of the agriculture and land use sector, with their lower mitigation potential, and the need to ensure coherence between the EU's food security and climate change objectives". It invited the Commission "to examine the best means of encouraging the sustainable intensification of food production, while optimising the sector's contribution to greenhouse gas mitigation and sequestration, including through afforestation".

The European Council's guidance on including LULUCF into the EU's 2030 climate and energy framework is also reflected in the EU's INDC. The EU announced that its target is "an economy-wide absolute reduction from base year emissions", reaching "at least 40% domestic reduction", covering 100% of the EU's emissions. As for LULUCF, it was added that "policy on how to include Land Use, Land Use Change and Forestry into the 2030 greenhouse gas mitigation framework will be established as soon as technical conditions allow and in any case before 2020." 4  

1.1.2.Regulatory context

The current 2020 EU climate policy framework covers most sectors and greenhouse gases. It consists of two main elements:

–The EU Emissions Trading System (EU ETS), directly involving more than 11000 large installations in power generation and manufacturing industries, and operators in the aviation sector.

–A large part of the emissions from sectors 5 outside the EU ETS are addressed by the Effort Sharing Decision (ESD). The ESD sets 2020 targets, and defines a linear trajectory of corresponding binding emission limits for each year from 2013 to 2020.

Progress towards the 2020 targets is ensured through annual reporting obligations and compliance checks, set out in Regulation 525/2013/EC. 6

Emissions and removals from the land use sector are treated differently:

–Land Use, Land Use Change and Forestry (LULUCF) greenhouse gas accounting results were not included in the EU’s domestic reduction target for 2020.

–Emission and removals 7 of greenhouse gases in this sector are instead covered by international obligations only, up to 2020. The rules for the LULUCF sector for the first commitment period (2008-2012) of the Kyoto Protocol were finalised among international Parties in 2001, and formally adopted in 2005. A set of improved methodologies and rules, valid for the second commitment period of the Kyoto Protocol (2013 to 2020), was adopted at the Durban climate conference in 2011.

–Emissions and removals from LULUCF are accounted applying the so-called "no debit rule". This means that internationally, the EU and each of its Member States need to ensure that the LULUCF sector does not result in extra emissions – after accounting rules are applied.

–Reporting – but not accounting – in the LULUCF sector, as part of the EU's annual greenhouse gas inventory, is addressed by Regulation 525/2013/EC. 8

1.2.Identifying and describing the main problem components

1.2.1.Lack of governance for LULUCF following the Paris Agreement

Governance today for LULUCF falls under the auspices of the UNFCCC and is agreed through the relevant decisions of the so-called Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (CMP). Accounting of removals and emissions in the LULUCF sector is thus contingent on the specific technical guidance developed for the implementation of the Kyoto Protocol, which itself takes into account related IPCC guidelines. The current Kyoto Protocol LULUCF accounting rules have been incorporated into EU legislation by Decision 529/2013/EU ("LULUCF Decision"), but these do not apply beyond the 2nd commitment period of the Kyoto Protocol(2013-2020). Moreover, the results of these accounts play no part in the EU’s domestic reduction target for 2020.

In a significant step forward, the Paris Agreement requires all Parties to report information on their LULUCF emissions and removals. In a change to the international framework and contrary to the Kyoto Protocol, however, it does not contain a single harmonised set of legally binding accounting rules. It also does not specify how emissions and removals from land use have to be counted towards national reduction targets. Parties will not be bound by one stringent international set of standards. Instead, they may be allowed to choose from a "menu of options" on how to govern LULUCF 9 .

The EU's INDC clearly outlines the principles for the inclusion of LULUCF into its international commitment. The implementation of the current LULUCF Decision is underway and will deliver improved systems and broader coverage of accounting for the Member States, by the end of 2020. Nevertheless, without a legal framework consolidating this implementation and defining the applicable rules for the post-2020 period, the way in which LULUCF would be included into the 2030 framework could be heterogeneous across the EU.

In conclusion, in order to address the lack of international governance, governance within the EU needs to be further developed. The LULUCF sector needs to be fully covered under the EU climate policy framework as of 2020, which requires establishing the accounting rules to be applicable before this date. Timely action is needed to ensure that Member States, currently improving systems, direct this work towards the establishment of appropriate monitoring frameworks. EU action on the LULUCF sector could also have a wide-ranging influence on global approaches to land-based emissions and removals, influencing the overall global ambition for the period beyond 2020.

Figure 1: The three main problems addressed and their drivers – structure in this document

1.2.2.Existing measures are not sufficient to reach the 2030 and 2050 EU targets

On the basis of current policies, GHG emissions are not expected to decrease sufficiently to reach the EU's 2030 target of 30% GHG domestic reductions under the ESD. In the EU Reference Scenario 2016, reflecting current trends and policies, emissions covered by the ESD are projected to decrease by around 16% in 2020 and achieve 24% reduction in 2030 compared to 2005. This reflects full implementation of existing legally binding targets as well as adopted policies. This leaves a gap of 6 percentage points to the 30% reduction in 2030, requiring cumulatively still around 1 billion ton additional reductions in the period 2021-2030. 10

The results of earlier impact assessments for 2030 11 and 2050 firmly underline the growing importance over time of mitigation action in forests and agriculture. In the case of an overall EU emission reduction of 80%, and without additional mitigation action in agriculture compared to today, the proportion of agricultural emissions is estimated to rise to about one third of all EU emissions by 2050. This is double its current share in the EU’s emission budget. 12

At the same time, the LULUCF sector offers untapped potential for emission reduction and enhanced removals through carbon sequestration and substitution of fossil carbon. 13  

In conclusion, the importance of both land use and agriculture in terms of climate policy is, therefore, set to increase and additional mitigation efforts both in agriculture and in the LULUCF sector are needed. This is particularly important to prepare for the long-term, as emissions in the period after 2050 may well have to be counterbalanced by higher removals. 14

1.2.3.Accounting of emissions from biomass use

The increased utilisation of biomass for energy and wood products can lower emissions in other sectors through energy and material substitution. Enhancing the bio-economy can therefore contribute positively to climate mitigation. However, the increased use of biomass for the production of renewable energy and for material substitution shifts the accounting of emissions from the energy and others sectors to the land use sector, in particular to forest management. It is therefore of key importance that the use of biomass is appropriately accounted for in LULUCF.

Under the current Kyoto accounting rules, the combustion of biomass counts as zero in the energy sector while the resulting carbon stock changes are accounted as emissions in LULUCF. This avoids double counting of emissions 15 . Under the current EU climate and energy package, bioenergy emissions are counted as zero in the ETS and in the ESD, but LULUCF is not yet fully included in the EU's domestic reduction target. Moreover, in the absence of uniform international rules after the end of the Kyoto regime, accounting for emissions generated by biomass use would be incomplete, and the EU framework would be unbalanced.

If a change in the amount of biomass harvested is a result of more biomass being used for bioenergy or materials, the impact of higher than Business as Usual (BAU) harvests would result in decreased accounted removals (or increased emissions) in the LULUCF sector with a corresponding decrease of accounted emissions in the ETS and ESD. The net impact of a harvest rate beyond the BAU in LULUCF accounts would therefore appropriately reflect – and balance – the biogenic emissions of the zero-rated energy feedstock in the full, economy wide accounts. In addition, any benefits (i.e. reduction of emissions) would potentially occur off the accounting sheet of the Member State producing the biomass, if the energy feedstock was exported.

In conclusion, a robust and credible accounting regime for the LULUCF sector, within the overall EU accounting framework, is necessary to guarantee that emissions and removals resulting from biomass use are properly accounted.

1.3.Baseline scenario, and drivers of the main problems

1.3.1.Continuation of Kyoto rules

In the baseline scenario the continuation of the current (2013-2020) Kyoto accounting rules is assumed including for the three main LULUCF categories:

Afforestation and deforestation

Agricultural land (crop and grasslands)

Forest management.

1.3.1.1. Reporting and accounting rules

The internationally agreed Kyoto rules applied by the EU make a key distinction between "reported" and "accounted" emissions and removals in LULUCF. While reporting concerns an inventory of emissions and removals, accounting aims to identify those which are human induced and the result of real action. A significant part of the removals associated with forests and soils is the result of the natural carbon cycle, and needs to be identified.

Until the end of the Kyoto Protocol's second commitment period, Member states are required to report in parallel under two different regimes: that of the UNFCCC (where all Parties need to report emissions and removals) and the Kyoto Protocol (specifically for developed countries). At the end of the Kyoto Protocol, this latter obligation will stop.

Because of the accounting rules, only a limited amount of carbon sequestration reported in the LULUCF sector can be used towards compliance with Kyoto targets. This restriction helps address methodological uncertainties and preserve environmental integrity.

The reporting and accounting of afforestation and deforestation as well as forest management follow the mandatory rules applicable during the 2nd commitment period of the Kyoto Protocol. However, this reporting and accounting is specific to the Kyoto Protocol and not consistent with the reporting required from all parties under the UNFCCC.

The LULUCF Decision introduced requirements for Member States to extend their use of reporting on croplands and grasslands. As of 2013, they must provide estimates of accounts for the Kyoto Protocol activities of cropland management and grazing land management to the Commission. The LULUCF Decision provides a step-wise path for implementation 16 , up to the last year of the Kyoto Protocol (2020). The obligation is introduced in a gradual manner, allowing Member States first to submit preliminary and non-binding annual estimates, with full accounting only starting for the accounting year 2021. 17  

Significant progress has been made in collating and analysing relevant data. According to a recent study 18 , the level of detail of reporting on cropland and grassland in Member States has improved substantially, since the adoption of the LULUCF Decision in 2013.

Nevertheless, Kyoto Protocol reporting and accounting presents issues with respect to being fit for purpose post 2020, and furthermore obliges a double reporting requirement upon Member States.

1.3.1.2.Forest management

Kyoto rules permit the accounting of emissions or removals from forest management against projected forest reference levels, to exclude legacy management effects and other natural factors from accounts. The actual mitigation performance in the sector is compared to a nationally determined projected forest reference level. Member State specific reference levels for 2013-20 are estimates of future removals or emissions. Some are based upon historic trends, others may take policy implementation into account, for instance harvest rates. The Kyoto Protocol granted a significant degree of choice in how these forward-looking estimates are calculated. Indeed the assumptions made in approaches applied by EU Member States, vary to a great extent.

Furthermore, under the Kyoto Protocol rules a cap is used in LULUCF accounts to limit the use of potential credits from forest management by a Party. The role of the cap is to limit uncertainty associated with the projections which underpin forest management reference levels 19 , and to ensure the environmental integrity of the accounts. Forest Management removal units used to balance emissions from other LULUCF activities are only allowed up to a maximum of 3.5% of a Party's 1990 total emissions (see Annex 5).

1.3.1.3. Intra-LULUCF flexibility rules

Flexibility is already granted within the Member State LULUCF accounts: Member States can use enhanced mitigation in one LULUCF activity (e.g. forests) to compensate for accounted emissions by other LULUCF activities (e.g. emissions resulting from conversion of land to settlements). They can also trade removal units among the Kyoto Protocol Parties.

1.3.1.4.No-debit rule for LULUCF sector

As described above, emissions and removals from LULUCF are currently accounted towards the Kyoto Protocol obligations of Member States applying the so-called "no debit rule". These Kyoto accounts mostly concern emissions and removals from afforestation, deforestation and forest management. Few Member States have elected non-forest activities under their international obligations 20 .

Under EU legislation for the second commitment period, emission reductions in the LULUCF sector cannot be used to compensate for increased emissions in other sectors. In other words, LULUCF credits and debits are calculated only for reporting purposes and are not taken into account in measuring compliance with the EU 2020 targets in the EU ETS and the Effort Sharing Decision.

When distributing the overall EU reduction target to individual Member States, there are strong reasons in favour of keeping the current "no debit" approach, whereby each Member State maintains the obligation to ensure that its LULUCF sector is not in debit:

–During the stakeholder consultation and at expert meetings, many Member States signalled a preference of avoiding a complicated target-setting exercise for LULUCF;

–As Member States must comply with no debit targets during the second commitment period of the Kyoto Protocol, it would contravene the principle of "no backsliding" to opt for a collective level target in the post-2020 period;

–For all options that involve flexibility, LULUCF accounts per Member State can only be calculated using individual Member State LULUCF targets;

–Intra-LULUCF trading flexibility already permits the re-distribution of effort between Member States; a target-setting exercise would to some extent duplicate this.

In conclusion, the "no debit" approach is retained both for the overall EU target and the individual MS targets. This maintains the same ambition level of the "at least -40%" target, under the conditions as applied today under the Kyoto Protocol.

1.3.1.5. No use of LULUCF credits for compliance under ESD

In the baseline scenario, the use of the accounted LULUCF sink, or "flexibility" in the context of this impact assessment, refers only to the possible exchange of removal units within the LULUCF pillar. The baseline scenario assumes that no flexibility (or use) of LULUCF credits is permitted in the Climate and Energy Framework, as is the case for the current 2020 package.

Should intra-LULUCF flexibility not be sufficient to comply with the "no-debit rule", Member States can use ESD credits to compensate for inadequate mitigation in the LULUCF sector. 21 In other words, current flexibility between different pillars of the EU's climate policy exists in one direction: from the ESD towards LULUCF.

1.3.1.6.Summary of existing provisions in the baseline scenario

The following legacy conditions will, as explained in the sections above, be included in the baseline scenario:

Application of accounting rules applicable to the 2nd commitment period of the Kyoto Protocol

Specifically, application of the projected reference level approach for assessing the performance of enhanced removals and emissions from forest land, including the application of the 3.5% cap on removal unit generation.

Intra-LULUCF flexibility and trade of removal units between Member States;

No-debit rule for the LULUCF sector; Member States must maintain their LULUCF accounts without debits at the end of the applicable compliance period;

No use of LULUCF credits for ESD compliance.

Variants of these in terms of the options to be compared are specified in Table 5 .

1.3.2.LULUCF sector not expected to improve its performance in baseline scenario

The reference scenario projects 22 that the LULUCF sector in 2030 would continue to be an important net sink in the EU-28 (see Table 2 and Figure 2 ). 23 Net removals would decrease slightly from about -299 Mt CO2 in 2005 to -288 Mt CO2 in 2030, under the assumed continuation of the current reporting and accounting regime. 24 To give some scale to this figure, this annual reported net sink from LULUCF is a little over 10% of the annual net emissions of the ESD in 2005.

While the overall LULUCF reported sink is projected to remain stable, the contribution by forest management (i.e. harvests of timber), new planting (afforestation), and conversion from forest to other land use (deforestation) does vary over time. In particular the sink related to forest management is projected to decline substantially. This is in part due to the natural cycle of forests in Europe, and in part due to increased biomass demand for energy.

Differences among Member States can be substantial. Several Member States expect forest management to become a source by 2020 (i.e. emitting more CO2 than they absorb); examples are Ireland, Estonia, and Austria. By contrast, other countries project the forest management sink to develop positively by 2020, for example Hungary, Slovakia, Spain, Cyprus and the Czech Republic 25 .

In addition, the rate of afforestation reached a peak in 2009, and appears to have slowed down. 26 While the effects of earlier Afforested Land will continue to be shown in accounts for a number of decades, this positive impact is in decline.

Without additional policies, timber used in the harvested wood products pool is affected; its contribution to the sink decreases by half. The trend for decreasing deforestation is encouraging and the afforestation sink is projected to increase in the reference projection, even if future rates of new planting will decrease in most countries.

Concerning agricultural and non-forest land categories, most of the benefits expected in decreased emissions from crops result from more efficient management and (to a limited extent) the emergence of some energy crops. With more land being converted to grassland, a modest improvement in sink is also projected. The remaining emissions of wetlands and settlements are projected to remain stable and of low magnitude.

Figure 2: Projection of reported emissions (+) and removals (-) from LULUCF main activities for the EU28 2005 - 2030, in MtCO2eq

Notes: Removals (sink) and emissions (source) represented as negative and positive values, respectively

Source: EUCLIMIT Reference 2016 model projections 

The impact of increased biomass demand on the EU LULUCF sink is made uncertain by different factors regarding the biomass sources. The emergence of energy crops on marginal agricultural land may perhaps not materialize, or timber demand could be higher, or the expected positive changes in certain LULUCF sub-sectors (e.g. afforestation) might not occur. In these cases, the overall LULUCF sink could decrease more significantly by 2030, having a negative impact on the EU's overall emissions.

In conclusion, the baseline scenario shows the complex interaction of land uses and their effects on emission and removals from the LULUCF sector. Biomass demand and supply factors create an important uncertainty in the modelling process. Existing incentives and rules for biomass may undermine the historical trend of an overall sink for the EU, potentially wasting an opportunity to underpin the EU's longer term commitment under the Paris Agreement.

1.4.Evidence of the extent of the problems, and identification of solutions

1.4.1.Need to upgrade and improve LULUCF accounting rules

Assuming a continuation of the existing Kyoto Protocol rules, the total accounted sink from LULUCF in 2021-2030 could be in the order of nearly 2000MtCO2eq over the ten-year period (see Table 1 ). Significant uncertainties exist for forest management in particular, as explained in Section 1.4.4.

Table 1: Estimates of potential for credit generation in three major LULUCF activities (Afforestation, Agricultural land and Forest Management) for EU28 for the period 2021-30 under existing Kyoto rules (all figures in MtCO2eq)

Notes: Removals (sink) and emissions (source) represented as negative and positive values, respectively

Source: EUCLIMIT modelling

At the same time, until the end of the Kyoto Protocol's second commitment period, Member states are required to report in parallel under two different regimes: that of the UNFCCC (where all Parties need to report emissions and removals) and the Kyoto Protocol (specifically for developed countries). This creates additional administrative burden, and renders the reporting system more complex.

In conclusion, as the Paris Agreement no longer requires reporting and accounting in technical compliance with the Kyoto Protocol, an opportunity exists to streamline reporting to the one mandatory UNFCCC approach. This would simplify the administrative and technical effort to be made both by Member States and the Commission, and remain compatible internationally with the EU's INDC.

1.4.2.Declining forest removals and increased use of biomass

Although overall LULUCF removals are projected to decrease only slightly by 2030, removals on forest land are in decline. Forest land removals are projected to decrease from -353 MtCO2eq in 2005 to approximately -242 MtCO2eq by 2030. This is a more than 30% reduction in the Forest Management sink over these 25 years. A number of interlinked reasons are behind this trend.

Table 2: Biomass demand and LULUCF emissions/removals in the Reference 2016 scenario, 2005 and 2030

Notes: Emissions and removals are absolute but remain only partially calibrated due to scope and coverage of the modelling framework

Source: EUCLIMIT Reference 2016 model projections 

The decline of the forest removals is partly explained by earlier management decisions. Typically, older forests approach a steady state where gains due to growth are balanced by losses due to decay. Removal rates in mature or unmanaged forest would gradually approach zero. Although in the baseline projection carbon sequestration on afforested land increases, this is due to the maturing of already planted trees and despite an expected decreasing trend in new planting up to 2030.

The trend of increased land-take for settlements is also a concern. This land use change is not only reducing the area available for productive land, but also reduces capacity to store carbon. 27 Trends of deforestation are projected to decline but land-take remains a major environmental issue. 28  

Another factor that could have an influence is the increasing use of biomass. 29 Forest harvests are driven mainly by demand for material wood products, even though the demand for energy increases in the Reference 2016 projection. Bioenergy is currently the biggest renewable energy source and is projected to remain so up through to 2030. Under the Renewable Energy Directive , 30 binding national targets for 2020 commit Member States to raise the share of renewable energy in their energy consumption. In 2013, biomass use for heat, power and transport represented over 60% (or 105 Mtoe) of the overall EU renewable energy consumption. Under the 2016 Reference scenario, bioenergy consumption in the EU is projected to grow by 20% between 2015 and 2020, and will stabilise or slightly grow between 2020 and 2030. Direct harvest for energy in this scenario expands to 28% (159.2Mm3) of harvest by 2030.

Moreover, there is uncertainty to what extent biomass demand would be met through domestic sources (i.e. agriculture, forestry and waste) or imports. If more of the supply gap were met through imports, it could shift the negative impacts on the carbon sink from the EU to non-EU countries. However, the Paris Agreement contains provisions so as to make sure that corresponding international emissions from biomass harvest are to be reported and accounted towards third party nationally determined commitments.

The share of imported biomass for bioenergy is projected to increase from less than 4% of the final consumption in 2015 to about 15% in 2020, then slightly decline by 2030.

Many stakeholders, in particular environmental NGOs, have expressed concerns about increased bioenergy use and consider it an important driver of emissions. At the same time, forest or other biomass producers were of the view that current rules focus too much on maintaining the sink, thereby limiting use of wood and other biomass. Overall, many stakeholders pointed out the need to avoid an "accounting gap" in biomass use (Section 1.2.3).

In conclusion, biomass and land use change can be identified as key drivers of the LULUCF sink.

1.4.3.Lower mitigation potential of the agriculture sector and synergies between mitigation on land and the agriculture non-CO2 sector

Past performance, 1990-2012

Since 1990, agriculture non-CO2 emissions in the EU28 have declined by 24%, or in absolute terms by nearly 150 Mt CO2eq per year. 31 Indeed by 2012, the sector’s emissions amounted to 10.3 % of total emissions in the EU. 32 The largest relative reductions were reported for nine EU Member States that joined the EU in 2004 or later, headed by Bulgaria (-65%), Latvia (-59%) and Estonia (-58%). In the same period, the EU-15 Member States reduced their agricultural GHG emissions by -15%, with the biggest relative reductions reported for the Netherlands (-29%), Denmark (-23%) and Germany (-21%). This decrease demonstrates a significant de-coupling of emissions and agricultural output ( Figure 3 ). This was achieved without specifically addressing the main actors (farmers) under direct climate legislation.

The share of agriculture emissions in national greenhouse gas ESD emissions varies considerably within the EU ( Figure 4 ). On the basis of emissions in the period 2008-12, the share is lowest in Luxembourg (7%), Malta (8%), and the Croatia (9%) and highest in Ireland (40%), Lithuania (28%) and Denmark (27%). Member States with higher shares could be expected to need to find more mitigation in the sector to meet their future targets.

The most important source of the EU's agriculture non-CO2 emissions is nitrous oxide emissions from agricultural soil management. These represent around half of the total agriculture emissions in the EU, mainly due to the application of manure and mineral nitrogen fertilizer. Enteric fermentation emissions of methane gas make up one-third, mainly from cattle and sheep. Emissions of both gases from manure management add a further 16%. 33  

Since 1990, each of these three major sources has shown a decline in emissions of more than 20 %. 34   Figure 3 shows that maintaining agricultural output can be compatible with a reduction of emission intensities. The decrease so far can be attributed to several factors, most of all to productivity increases and a decrease in cattle numbers, as well as improvements in farm management practices. 35  

Figure 3: Non-CO2 agricultural emissions and the volume of production in the EU28 agriculture sector, 1990-2012

Source: Compiled by European Commission, data from Eurostat and FAO

Support for climate-friendly agriculture through the Common Agricultural Policy (CAP) has significantly contributed to this "decoupling". Emission trends have been influenced by CAP measures, such as the decoupling of agricultural production from CAP subsidies since the early 2000s, and the abolishment of milk quotas. Cross-compliance under the CAP with environmental legislation will have played a significant role, such as national and EU legislation to reduce nitrogen and ammonia emissions to water and air. 36 The CAP rural development policy, for instance, supports farm modernisation in order to cut energy consumption, produce renewable energy, improve input efficiency, and thereby reduce emissions. In 2015, it is estimated that €13.6 bn of the CAP budget was climate relevant.

Despite these successes, continuing the trend of steady emission reductions from agriculture may be challenging. In most Member States the reduction path slowed down significantly between 2001 and 2012. For some countries, much of the low cost mitigation potential in agriculture non-CO2 emissions has already been utilised. 37

Future prospects until 2030

Agriculture non-CO2 emissions in 2005 amounted to 446 MtCO2 for the EU28. In the Reference 2016 baseline scenario, agriculture emissions are projected to decline by just 2.1% by 2020, compared to an overall 10% reduction that is required for all sectors under the ESD.

Regarding agricultural production, medium-term prospects show increasing production of many agricultural commodities, such as cereals, oilseed, sugar, poultry, eggs, milk and dairy products in the period 2015-2025 38 . Even so, the total utilised agricultural area is projected to decrease slightly. Similarly, a small decline in dairy cow numbers is expected, in spite of the domestic increase in dairy product supply. 39 Consistent with this, the Reference 2016 baseline scenario projects very limited reductions of emission to around −2.4% by 2030 compared to 2005. This is significantly more limited than the expected reductions of other ESD sectors, with existing measures.

Studies looking into the technical emission reduction potential show that limited opportunities for further reduction of non-CO2 emissions exist in the agricultural sector (see for instance the results of the ECAMPA study 40 in Box 1). This is, to some extent, addressed by availability of cost-efficient CO2 mitigation in the LULUCF sector, also on agricultural land. Furthermore, the importance of its role in mitigation action is dependent upon the importance of the sector, which varies considerably between Member States ( Figure 4 ).

Hence, while the agricultural sector has a role to play in reducing emissions, the cost-efficient mitigation potential of agriculture is apparently lower than for other sectors. This has been acknowledged in the European Council Conclusions of October 2014. As the overall 2030 reduction target for the non-ETS sectors has been set at -30 %, other sectors such as buildings, transport, and waste would have to deliver relatively higher emission reductions to compensate for lower mitigation in agriculture. For Member States with agriculture sectors that dominate ESD emissions, this impact would be the even stronger.

In conclusion, there are clear synergies between mitigation on land and the agriculture non-CO2 sector. The results of a meta-study on mitigation action on agricultural land (see Box 2) showed considerable cost-effective potential for the reduction of CO2 emissions in agricultural land. This impact assessment will therefore look at using the increased potential of mitigation in LULUCF to address the issues of lower mitigation potential of agriculture.

Figure 4: Variable share of agriculture non-CO2 in the ESD, 2008-12.

Source: 2015 MS inventories

1.4.4.Absence of consistent governance framework for forest management

Under the baseline scenario, forest land would have a broadly neutral impact on the accounted sink due to the application of the projected forest reference level. However, this is sensitive to the chosen forest reference level (FRL) against which the performance of the forest management is assessed. Two hypotheses for post-2020 FRL illustrate the range of possible results. It may be expected that future forest reference levels would be between the outer boundaries (here named "strongest" or "weakest"). For this exercise, the "strongest" hypothesis assumed a continuation of current reference level values in EU legislation 41 . The "weakest" hypothesis was based on the preliminary projections used for the FRL under the period 2013-2020, aligning with a business as usual (BAU) projection.

The sensitivity analysis shows a range from -360 MtCO2 (accounted sink) 42 under lower forest harvest conditions, to +840 MtCO2 (accounted source) when a higher than business as usual (BAU) increase in harvests occurs.

Table 4: Estimated accounted sink (negative)/source (positive) for forest under KP, with different forest management scenarios and different reference levels

Notes: 1) FM 3.5% cap is applied at national level; 2) Emissions/source + (positive), Removals/sink – (negative); 3) Harvested Wood Products (HWP) not included in projections or reference

Source: EUCLIMIT and JRC modelling

The sensitivity analysis shows that the variation of the harvest levels within a range of +/- 10% leads to increases or decreases in GHG balance by some 400-600 MtCO2 of the activity through the period, for each reference level hypothesis. Reporting for 2013 and 2014 already shows around a 9% lower harvest than projected for the current Kyoto commitment period, implying an improved sink of around 30 to 40MtCO2 per year at EU 28 level (see Annex 5, Table 5.7). Indeed, some 80 to 100MtCO2eq potential credit is being potentially being generated for the first two years of the period. This may point to a lack of standardisation with respect to the methodology applied, particularly with respect to policy assumptions which drive harvest levels.

As stated in Section 1.2.1 above, there will be no international process for establishing forest reference levels under the Paris Agreement. The wide range of projected sink and source outcomes for forest land in the absence of concrete values for FRLs is a major justification for today not including credits from Forest Land as part of the flexibility mechanism towards the ESD. Consequently, a neutral impact of Forest Land is assumed in this impact assessment's analysis, and flexibility approaches with the ESD discussed in this and subsequent chapters will not include direct generation of credits from this land use category.

Should the wide range of uncertainty around the projected sink and source outcomes for forest land improve, the inclusion of credits generated from Forest Land as part of the flexibility mechanism could be re-considered. In particular, if Forest Reference Levels will have been established and adopted, and an assessment has shown that they are consistent with projected harvest rates, this option could be taken into account.

It has been assumed, however, in the baseline scenario analysis that Forest Land accounting in the sector is to be applied as under today's KP rules 43 . Removal units generated by forest management could still be used by Member States to balance out their national LULUCF accounts, and for LULUCF sector trading between Member States. Any accounted source from Forest Land would need to be offset by enhanced mitigation from other LULUCF activities. Where this would not be possible, additional emission reductions from other non-ETS sectors (i.e. compliance with the no-debit rule) would be needed.

In conclusion, a new process to enhance and strengthen the post-2020 process for establishing reference levels for forest land will be required, given the new governance framework of the Paris Agreement 44 . More analysis on this subject is provided in Chapter 5 and Annex 5.

1.5.Who is affected?

The projected growing share of agriculture and LULUCF in the EU's emissions budget could be considered a risk if these sectors do not achieve their cost-effective mitigation potential. In such a case, other sectors (transport, buildings, waste etc.) would need to reduce even more, which would come at a higher cost. This failure could affect a wide range of players and economic sectors.

In the absence of a proper accounting framework, the zero rating for biomass use (the assumption that the combustion of biomass does not produce emissions) could result in underestimating EU emissions associated with the production of bioenergy.

While farmers and foresters are key actors in the implementation of climate action on land, the preceding discussion has shown how the EU has previously successfully protected carbon stores and reduced emissions without directly regulating individual actors. The agriculture sector has historically shown its ability to decouple its decarbonisation process, maintaining overall stable production while simultaneously reducing emissions at the EU28 level.

Rather than the small and medium enterprises which comprise the millions of farm and forestry holdings across the EU, the proposed Regulation is addressed at Member States and to be implemented at national level. This is consistent with this past experience. Moreover, it builds on existing legislation which already takes this approach, in particular Decision 529/2013/EU.

In conclusion, the proposal maintains this path of further integrating LULUCF into the EU's domestic climate and energy framework, rather than introducing a system change.

2.Subsidiarity: Why should the EU act?

Climate change is a trans-boundary problem which cannot be solved by national or local action alone. The European Union competence to take action on climate change derives from Article 191 of the Treaty on the Functioning of the European Union. The reduction of greenhouse gas emissions and the development of renewable energy sources are among the top 10 priorities of the European Commission. As the EU addresses climate change commitments jointly, LULUCF also needs to be addressed in a coordinated manner.

The EU has adopted a common emission reduction target through its 2030 Climate and Energy Framework. The implementation of the overall policy framework and its sectoral building blocks require Union-wide legislation. The general problem analysis showing this has been done in the previous impact assessment on the 2030 Climate and Energy Framework.

Corresponding to the 2030 Climate and Energy Framework, the EU put forward an intended nationally determined contribution (INDC) under the Paris Agreement. The INDC emission reduction target is economy-wide and therefore includes emissions from agriculture and LULUCF.

This Impact Assessment and proposal is a direct response to the request of the European Council, in its 2014 October conclusions, to the European Commission to put forward policy on how to include Land Use, Land Use Change and Forestry (LULUCF) into the EU's 2030 greenhouse gas mitigation framework.

As the continuation of current Member State policies would lead to a gap of 7% compared to the necessary 2030 emission reductions of 30% in the non-ETS sectors, Member State action will remain crucial. Responsibility for progress up to 2030 will have to be shared, as is already the case in the current 2020 climate and energy package. The Effort Sharing Decision sets binding national targets, leaving it to Member States to decide how these are to be achieved, while fully respecting the principle of subsidiarity.

Similarly, the inclusion of LULUCF into the 2030 framework will provide a common framework on how the sector can be counted towards the EU's joint reduction target. The choice of action in pursuit of the various objectives related to LULUCF will be up to the Member States, thereby also fully respecting subsidiarity. The harmonised elements of such a common framework can ensure the functioning of a single market within the EU's agricultural and forest sector, minimizing any market distortions.

The proportionality of the proposed framework is ensured by striking the balance between the multiple objectives of the area, namely: the limited mitigation potential of agriculture, the need to ensure food security, protection of biodiversity and the long term objective of enhancing sinks on land in line with the aspirational target of balancing emissions, post-2050.

3.Objectives: What should be achieved?

3.1.General objectives

The general policy objectives of the initiative are:

–Contribute to the 10 priorities of the Juncker Commission – in particular the Resilient Energy Union with a Forward-Looking Climate Change Project by consolidating the enabling environment for the transition to a low carbon economy;

–Support progress towards the EU's objective to reduce domestic GHG emissions by at least 40% by 2030 compared to 1990, and more specifically, towards the 30% GHG reduction target in non-ETS sectors compared to 2005, while maintaining the environmental integrity of the targets.

–Uphold the fairness of the overall policy framework, with respect to the social and distributional effects of the measures.

–Reflect the EU's commitment to the long term vision for limiting temperature increase as outlined in the Paris Agreement, as carbon removals will play an increasing role on the road towards 2050.

3.2.Specific objectives

The specific objectives of this proposal are to:

–Maintain, streamline and improve standardised, internationally recognised monitoring and accounting approaches, thereby addressing the lack of governance created by the end of the Kyoto Protocol;

–Determine how agriculture and LULUCF will contribute to supporting the emission reduction objectives laid down by the European Council in October 2014 for the 2030 climate and energy framework, for the non-ETS sectors, particularly with respect to the limited mitigation available in the Agriculture non-CO2 sector;

–Ensure that there is no accounting gap relating to the use of biomass for energy in the absence of uniform international rules after the end of the Kyoto regime.

3.3.Operational objectives

The operational objectives of this proposal should:

–Take into account the specificities of the LULUCF sector, such as non-permanence, natural disturbances, legacy effects in forest management, removals related to existing land use and the need for further improvements related to monitoring and verification of emission reductions related to some LULUCF activities;

–Ensure consistency with related policies such as policies on sustainable forest management and protection of biodiversity;

–Explore the links between LULUCF and the lower mitigation potential in Member State's agriculture sectors, including in terms of flexibilities;

–Determine the least burdensome approach with respect to administrative effort for Member States, best aligned with other policies.

3.4.Consistency with other policies and the Charter for fundamental rights

A legal proposal for the inclusion of LULUCF into the 2030 EU climate and energy policy framework is a key part of the Commission framework strategy for a resilient Energy Union with a forward looking climate change policy, underpinning its decarbonisation dimension. In particular, the proposal is a key element needed to complete the integrated framework for climate and energy policies up to 2030 endorsed by the European Council in October 2014.

Sustainable use of biomass can – and must – make a positive contribution to reducing the EU reliance on fossil fuels, and the achievement of the EU's 2030 renewable energy targets. To that end, a robust LULUCF accounting system is required to ensure that the emissions from land use linked to the increased biomass use in the EU can be captured. This is all the more important as under KP accounting rules, biomass combustion counts as zero emissions.

Including LULUCF into the EU's 2030 climate and energy framework will be fully complementary and coherent with other related EU policy objectives, specifically:

–The EU has set the target to halt global forest cover loss by 2030 and to reduce gross tropical deforestation by at least 50% by 2020 (EU Deforestation Communication of 2008, reiterated in the 7th EAP).

–The Biodiversity Strategy emphasises the need for improved integration of biodiversity measures in forestry to support preventing the loss of species and habitats.

–The EU's Forest Strategy supports the principle of sustainable forest management throughout the Union.

–As the proposed policy primarily addresses Member States as institutional actors, it is consistent with the Charter for fundamental rights.

4.Policy options

Chapter 1 described the change in the international governance following the Paris Agreement, highlighting the need to develop LULUCF governance at EU level. It was recalled how the 2014 October European Council conclusions confirmed that LULUCF forms part of the non-ETS part of the overall 2030 policy package. It was also highlighted that a possible "accounting gap" could emerge if biomass use were further increased without a corresponding effect in the LULUCF accounts. In order to include LULUCF in a coherent way and to respond to the Council Conclusions the two most critical design issues that need to be assessed are:

–Choice and improvement of underlying accounting rules;

–The need and extent for flexibility towards the Agriculture sector in the ESD.

4.1.Improvement of accounting rules

The overall contribution of the LULUCF sector to the EU target in 2030 can only be measured once the accounting rules are defined. Accounts are used to determine the possible credits generated or debits incurred. The current rules of the LULUCF Decision are explained in detail in Annex 5.

These rules need to be improved with regard to three key elements were identified in consultation with key stakeholders and Member States (see Annex 2):

–choice of base year or period;

–streamlining the reporting and accounting systems and the move away from a KP-based system;

–governance of projected reference levels for forests and harvested wood products.

4.1.1.Alternative choice of base year/period

The base year used for the Kyoto Protocol is by default 1990. The level of emissions in this year is used as a reference to compare emissions or removals for major LULUCF categories (e.g. crop land) in a given accounting year. The use of a consistent base year facilitates comparability between commitments internationally 45 , and avoids the selection of a reference that may artificially influence accounting results.

Current INDCs annexed to the Paris Agreement 46 use a variety of dates. In the case of land use it is usually 2005 (for example, United States, Canada). 47

Also in contrast to the Kyoto Protocol, the EU Emissions Trading Scheme (ETS) and the ESD uniformly apply 2005 as the base year. However, the ESD applies a period average to determine the starting point of 2020 target trajectories, in order to avoid introducing random "winners and losers" through the selection of one single reporting year. A similar period approach might be suitable for the LULUCF base year.

Conceptually, the use of a more recent base year or period for LULUCF accounting would provide several significant advantages:

–Alignment with the Effort Sharing Decision;

–Enhance accuracy, and reduce the uncertainty of estimates 48 . Information on agricultural land was significantly enhanced as of 2005 due to reforms in the collection of spatial data on farms under the Common Agricultural Policy 49 ;

–Improvement in the assessment of which mitigation action related to cropland and grazing land is truly additional, rather than historical;

–Applying a period (e.g. 2005-2007) instead of a single base year would help addressing the issue of high inter-annual variability in LULUCF, while having little overall impact on the aggregated EU accounts.

Member states and other stakeholders frequently preferred the application of periods for technical reasons stated above.

Consequently, the following two options (Options B0 – B1) will be further assessed:

B0: status quo: 1990 Kyoto base year

B1: Applying a base period of 2005-2007

4.1.2.Streamlining of the reporting framework – land-based accounting

A significant issue for Member States imposed by the Kyoto Protocol is the requirement to maintain two systems for showing national GHG balances from LULUCF:

–the reporting and accounting framework of LULUCF under the Kyoto Protocol (carried out by so-called "Annex 1" developed Parties that ratified the Protocol), and

–the reporting obligations under the UN Framework Convention on Climate Change (UNFCCC) (to some degree carried out by every Party).

Small, but significant differences in the approaches make the conversion to and from these two systems complex. This requires Member States to maintain two parallel systems and thereby substantially increases the administrative burden.

In essence, the UNFCCC approach requires reports on the current land cover categories (forest land, grassland or cropland, settlements, etc.), whereas the Kyoto Protocol reporting and accounting is focused on activities (e.g. forest management) or uses (of Harvested Wood Products). Streamlining would require converting Kyoto activities into equivalent UNFCCC land categories. For example, the Kyoto activity of Forest Management would be replaced by the UNFCCC reporting category Forest Land remaining Forest Land. Similarly, the Kyoto activity Afforestation would be replaced by the UNFCCC reporting categories of Land converted to Forest Land. 50

The adoption of the UNFCCC so-called "land-based" accounting approach would present several advantages:

–Reporting would be streamlined and simplified, as only one system would need to be managed by Member States and reviewed by the Commission;

–The change would be wholly consistent with the change of the base period 2005-7, thereby discounting the historical effects of land management more than 30 years before the start of the 2030 framework period;

–It would dismiss the static approach whereby land "afforested" or "deforested" under Kyoto rules continues to be categorised as such indefinitely;

–It would ensure more accurate data collection, which would be aligned to the approaches applied for land at EU level, such as LUCAS 51 , the Common Agricultural Policy payment systems IACS 52 , and land monitoring under the COPERNICUS programme 53 ;

–Forest land area under Kyoto accounts must continuously decline, as it is never replenished after deforestation. This complicates the monitoring of the sector, since the labelling of an area of land will increasingly not correspond to its current land cover, or even land use. Under a land-based approach this is avoided.

–Since few – if any – other international parties plan to continue with the Kyoto-style activity-based approach, land-based accounting would provide better comparability with third countries.

At the same time, streamlining would have an impact on the potential to generate LULUCF credits. Land use change categories under UNFCCC reporting transform, after a 20 year transition period 54 , to their destination land category. This is in contrast to Kyoto reporting and accounting, where these areas remain labelled with the activity indefinitely. Specifically, land planted with trees (i.e. afforested) since 1990 under Kyoto remains labelled Afforestation even beyond 2030 and even if it undergoes harvesting, and land labelled Deforestation remains so even if it is replanted.

The adaptation of Kyoto Protocol rules to the "land-based" UNFCCC reporting systems has been discussed with Member States and is generally considered practicable (see Annex 2). One question to explore further could be the length of period over which afforested land would be considered as such, before it moves into the forest land category.

The 20 year transition period is the default under UNFCCC reporting, and it is appropriate for accounting for land conversion in general. The application of the UNFCCC default would reduce the number of credits from historical afforestation action sharply. By the end of the Kyoto Protocol, the period actually applying to afforestation will be 30yrs (2020 – 1990). Consequently, the application of a 30-year transition period – instead of the IPCC default 20-years – could also be considered for this category 55 , if appropriately justified. A 30 year period may be appropriate for certain Member States because of systematically longer rotation periods, for instance when forests continue to sequester large amounts of carbon during slower forest growth conditions.

The following three options (Options R0 – R2) are therefore assessed in Chapter 5:

R0 - status quo: continuation of the two concurrent systems of reporting under UNFCCC and Kyoto;

R1: land-based UNFCCC reporting with 20yr transition period for Afforested Land;

R2: land-based UNFCCC reporting with 30yr transition period for Afforested Land.

4.2.The need for flexibility towards agriculture in the ESD

When examining flexibility options, the problem analysis pointed to two key concerns that need to be taken into consideration:

The lower mitigation potential of the agriculture sector: The 2014 October European Council established a link between the lower mitigation potential in agriculture and LULUCF, in particular afforestation.

Environmental integrity of the non-ETS emissions reduction target: Allowing unlimited use of LULUCF credits in the ESD could significantly weaken incentives for emissions reductions across all ESD sectors, thereby putting the environmental credibility of the ESD as a whole at risk.

In Chapter 1, it is shown that the potential credit generation under the continuation of the Kyoto Protocol rules could be as much as 2000MtCO2eq in the period 2021-2030. In a next step, the potential credit need of agriculture's lower mitigation potential, and how to link this with LULUCF mitigation, must also be identified, and how the improved accounting rules would affect this overall amount needs to be explored.

4.2.1.First screening of flexibility options

The Communication on "A policy framework for climate and energy in the period from 2020 to 2030" and its impact assessment 56 identified three principal flexibility options:

–A0: self-standing pillar for LULUCF ("status quo"), i.e. with no flexibility of credits; this is the current baseline, assuming the application of Kyoto rules;

–A1: merge agricultural (non-CO2) emissions with those from LULUCF in a combined land sector pillar;

–A2: integrate LULUCF together with agricultural (non-CO2) emissions into the Effort Sharing Decision (ESD).

A first screening highlights significant risks related to an unlimited flexibility between LULUCF and Agriculture under the ESD. In particular, the following arguments speak against option A1:

–Option A1 received the least support by the stakeholders in general; it was the least favoured approach in each of the stakeholder groups (governments, non-governmental organisations, business and sectoral organisations). This approach would also oblige Member States to combine sectors rather than flexibility remaining optional.

–Overall, the existing ESD delivers the intended outcomes for agriculture efficiently. The ex-post evaluation of the Effort Sharing Decision 57 shows that individual Member States, and the EU as a whole, currently perform well against their annual emission limits under the ESD. Bearing in mind the positive result of this evaluation, changing the ESD scope (i.e. by removing agriculture non-CO2 emissions from the ESD) could be a negative step, reducing overall policy coherence and efficiency.

–Reduced Integration, overall: Although Option A1 would facilitate a more integrated approach of landscape management, and could better reflect the sectors' specificities (e.g. permanence, long time-cycles, inter-annual variability, integrated action for mitigation and adaptation), it would lack the advantage of flexibility between agricultural emissions and other sectors within the overall ESD.

–Increase in administrative burden: The ESD was found to have resulted in limited additional administrative burden at Member State level. 58 Given the substantial structural change option A1 would entail, it would almost certainly increase administrative burden for Member State authorities.

The main arguments against retaining option A2 with broad, unlimited flexibility between the LULUCF and Agriculture non-CO2 sectors are the following;

–Allowing unlimited flexibility, in terms of LULUCF compensating for any volume of emissions by any of the ESD sectors, is not foreseen in the 2014 October Council conclusions. Instead, Council guidance points to the need to acknowledge the multiple objectives of agriculture and land use and ensure policy coherence, through optimisation. Stakeholders, especially governments and agriculture sector organisations also emphasized this point in a number of submissions during the stakeholder consultation.

–Risk of undermining the environmental ambition of the "at least -40%" reduction target: It is also evident that there are serious concerns among stakeholders regarding the impact of LULUCF credits on the overall ambition of the ESD. It was pointed out in many submissions that unconstrained flexibility from LULUCF would risk reducing the environmental ambition of the "at least -40%" reduction target. Forestry organisations also warned of what they perceived as a risk that emissions in other sectors could be offset by measures in forestry. Finally, many environmental NGOs were strongly opposed to providing any flexibility by using LULUCF credits in the ESD, arguing that this would effectively undermine the credibility of the EU's emission reduction efforts.

–Option A2 would increase complexity of the ESD and raise methodological issues, including concerns related to environmental integrity and technical compliance issues, which would have to be specifically addressed (e.g. potentially large annual fluctuations in removals and emissions, or combining accounting of removals from LULUCF with emissions of other non-ETS sectors).

In conclusion, neither option A1 nor A2 seems fit for purpose. At the same time, exploring different levels of flexibility points towards a hybrid architecture, combining features from options A0 and A2. Under such an approach, a stand-alone LULUCF policy pillar would continue to be utilised, along with a full range of flexibility to all other non-ETS sectors justified on the need derived from the agriculture sector share for each Member State in the ESD.

4.2.2.Design of flexibility options towards ESD

Political guidance from the October 2014 European Council Conclusions clearly links flexibility from LULUCF to the lower mitigation potential of the agricultural sector. Stakeholders, in particular governments and agriculture sector organisations emphasized this link during the stakeholder consultation. At the same time it is evident that there are serious concerns among stakeholders regarding the impact of LULUCF credits on the overall ambition of the ESD. Many submissions point out that unconstrained flexibility from LULUCF could reduce the environmental ambition of the "at least -40%" reduction target. As a consequence, the maximum amount of LULUCF credits that could be used in the other non-ETS sectors should therefore be limited in function of the emission reduction effort required in the agriculture non-CO2 sector of the ESD.

As shown in the ESD IA, the Reference Scenario points towards achieving around -16% reductions in 2020 compared to 2005 for the ESD as a whole. This is projected to continue and reach around -23% in 2030. This performance is due to the long term impacts of numerous existing policies such as transport and the Energy Performance standards for buildings, whose influence will continue to be felt in the ESD even after 2020. As shown in Figure 6 , the Reference 2016 scenario projects only a modest reduction of agricultural non-CO2 emissions to around -2.4% by 2030 compared to 2005.

An assumed 20% reduction in the agriculture non-CO2 greenhouse gas emissions would require an emission reduction of nearly 425 MtCO2eq between 2021 and 2030, compared to the reference projection. Such a -20% reduction of non-CO2 emissions from agriculture was examined in the EcAMPA study, concluding that the impacts on production would be significant and substantial emission leakage could occur (see Box 1 in Chapter 1).

To adjust this effort and avoid adverse impacts on the agriculture sector, flexibility from LULUCF could be envisaged from between around half to the full level of this assumed reduction for the period. Flexibility could be determined for each Member State, in accordance with a need justified by its agriculture non-CO2 sector. Use of flexibility by the other non-ETS sectors would be further enabled throughout the period through banking, under options F1, F2 and F3. As illustrated in Figure 6 , the following four options should be analysed:

F0: No flexibility ('status quo'): agricultural non-CO2 emissions would have to be reduced by 20%; no contribution would be provided by LULUCF;

F1: Low flexibility: Around half of the assumed agricultural emission reduction effort could be undertaken through reductions in the LULUCF sector, i.e. 190 Mt between 2021-2030;

F2: Medium flexibility: Up to two thirds of the assumed emissions reductions could be undertaken in the LULUCF sector, i.e. 280 Mt between 2021-2030;

F3: High flexibility: Emissions reductions equivalent to a reduction of non-CO2 agricultural emissions by -20% could be undertaken in the LULUCF sector, i.e. 425 Mt between 2021-2030.

Figure 6: Four options of trajectories for Agriculture non-CO2 reduction between 2020 and 2030 without and with flexibility (F3 follows the trajectory of Reference 2016)

Source: own presentation

4.2.3.Options for credit generation in LULUCF and technical conditions

Various options exist regarding the range of activities 59 that could be used to generate credits and deliver flexibility. The possible eligible activities, the following could be considered: are:

–Net balance of afforested and deforested land: greenhouse gas fluxes from the direct human-induced conversion of land through planting, seeding, etc.

–Net balance of agricultural land: emissions and removals resulting from the management of cropland and grassland, and the associated land use change to and from other land uses.

Credit generation from forest management for compliance under the ESD has been excluded because of the high level of uncertainty and the range of variability, as explained in section 1.

Moreover, environmental integrity always needs to be kept in mind when considering options allowing the enhanced use of flexibility. Mitigation activities in LULUCF should result in additional, measurable and sustainable enhancement of carbon sinks.

Accuracy should be enhanced through a continuous process, and assured through two minimum technical conditions. As a safeguard for compliance, LULUCF sector credit generation should only be permitted:

(1)When a Member State's total LULUCF account produces enhanced mitigation, i.e. it has an overall balance with more potential credits than debits, and

(2)In Member States where monitoring and reporting meet the technical conditions laid down by EU legislation (see Chapter 7.2) and the Paris Agreement 60 .

Figure 7: Improving accuracy and coverage in the LULUCF sector in accordance with IPCC guidance

Source: own presentation

Principles for these conditions may include:

–Monitoring, reporting and accounting should provide transparent and full coverage of significant sinks and sources; removals may only be accounted for after a complete, comparable and consistent coverage of land categories.

–The adoption of international accounting rules as applicable to EU Parties, in accordance with guidance adopted by the Conference of the Parties;

–The parameters chosen to apply these accounting approaches, such as base years, business as usual projections, and the data needed to determine these parameters, are determined in accordance with IPCC guidance for higher level tiers and approaches (e.g. Tier 2 and above) as illustrated in Figure 7 ; 

–The adoption of applicable best practice solutions, to enhance accuracy and environmental integrity of accounts, developed under the LULUCF Decision and agreed between Member States in technical guidance.

4.3.Forest land: Future governance of the projected forest reference levels

As explained in Chapter 1.2.1, the international framework governing climate mitigation policies from 2021 to 2030 will not be the same as under the Kyoto Protocol. This will also apply for the treatment of emissions and removals from LULUCF in general and the criteria for the determination of projected forest reference levels in particular. The latter will be of critical importance for sound forest and biomass GHG accounting.

Alternatives to the projected forest reference level approach have been considered – and applied – in the past 61 . In the first commitment period, the reference level was set at zero; in other words, parties could account for the actual reported net emissions (or removals) in each year of the commitment period without comparing it with a base year (so called gross-net accounting). Nevertheless, this approach was subject to much criticism; during the preparation of the Durban COP Decision, there was general agreement on the need for improvement. To address this, an alternative approach was discussed where the annual level of net emissions (or removals) is compared to the historical reference (so-called net-net accounting). This was finally rejected in favour of the projected reference level, combined with a cap (Box3), representing a compromise solution between gross-net and net-net accounting. Based on these considerations and the feedback in the stakeholder consultation, there is a strong rationale for continuing this approach in the post-2020 period, while improving transparency and comparability across Member States' FRL.

In view of determining forest management reference levels for the period between 2021 and 2030, two elements are relevant:

–the criteria upon which projected forest reference levels would be based, and

–the governance mode for the setting of forest reference levels.

The criteria for the setting of projected forest management (and HWP) reference levels for the second commitment period of the Kyoto Protocol have already been the basis for determining today’s domestic legislation 63 . In essence, and irrespective of the governance approach, the criteria for setting FRL would remain the same as under current rules (see Annex 5), and will address the following points regarding Member States' reference levels and the assumptions used for setting them:

–consistency with the goal of achieving a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century as defined in the Paris Agreement Article 4.1;

–reflect on how to treat: forest management practices before the start of the accounting period, assumptions on the future impact of policies and markets, and projected harvest rates with existing infrastructures, current technical capacity and economic viability;

Clarifying the role of policy assumptions in the establishment of FRL and by adding the long-term goal defined in Paris, would have several benefits for forest land accounting:

–it would help avoiding the generation of "business-as-usual" removal units from forest management, which, based on the early evidence from the second commitment period, is a likely result if loose assumptions on future policy and market impacts are factored in the FRL;

–it would appropriately reflect – and balance – the biogenic emissions of the zero-rated energy feedstock in the full, economy wide accounts;

–it would take national characteristics into account, including national policies preceding the cut-off date (31/12/2009) determined in current international rules, for sustainable forest management, and ensure the establishment of FRL that would nor create undue "business-as-usual" removal units nor undue debits in case of good forestry practices based on sustainability principles.

In terms of possible sink and source scenarios, appropriately established FRLs would likely result in the accounted sink being in between the "strongest" and the "weakest" FMRL scenario described in Table 2. In a model case, it would generate close to zero removal units/debits in the absence of significant change in the forest harvest practices (unless such change is justified by the age-class structure and other national forest characteristics).

The Kyoto Protocol governance for the setting and review of forest reference levels, however, will discontinue and therefore a new system has to be specified in the legal proposal. Most Member States, as well as other stakeholders, call for the review of the governance process and support the further standardisation of methodologies and enhanced consistency of implementation. The following governance options for determining forest reference levels post 2020 (Options G0 – G2) have therefore been reviewed and their impact will be assessed in Chapter 5:

G0 - Status quo: An independent body shall check compliance of the forest reference levels submitted by Member States with existing UNFCCC/IPCC guidance (i.e. technical assessment).

G1: The Commission, with the support from experts from Member States, shall check and review that forest reference levels 2021-2030 submitted by Member States are in line with EU guidance on the methodology for forest reference levels.

G2: The Commission shall check and review that forest reference levels 2021-2030 submitted by Member States are in line with EU guidance on the methodology for forest reference levels.

4.4.Summary of options

Table 5: Overview of options considered in this Impact Assessment

5.What are the impacts of the different policy options and who will be affected?

5.1.Introduction

This chapter presents an analysis of the impacts related to the options selected in Chapter 4, in line with the specific objectives of this proposal as outlined in section 3.2:

–Environmental impacts will be evaluated in terms of the extent to which the options will enhance the existing LULUCF sink, ensure overall environmental integrity of the EU climate framework, and the long-term stability of carbon pools (forests, soils);

–Economic impacts will be assessed with respect to the impact of different flexibility options on production volume and mitigation costs of mitigation options available in the Member States;

–Social impacts will be reviewed in light of employment and the impacts of extra burden for the SMEs (specifically farms and forest holdings).

5.2.Modelling framework

The quantitative assessment presented here has been undertaken using the multi-component economic modelling framework EuCLIMIT, utilised for the entire non-ETS sector 64 . No single model exists that would combine agricultural commodity markets, agricultural land, forestry and the energy sector together with associated greenhouse gas cycles. Instead a cascade of models has been applied ( Figure 8 ):

–Population projections, GDP and the continuation of current policies are included in the reference scenario, simulated with PRIMES.

–Links between greenhouse gas targets and agricultural commodity markets are assessed using CAPRI.

–The sector effects related to forestry measures are assessed with GLOBIOM.

–The potential credit generation from modelled emissions and removals for different LULUCF activities are assessed through a LULUCF accounting tool implementing the alternative accounting rules outlined in chapter 4.

5.3.Sensitivity analysis is carried out to demonstrate robustness of the modelling tools. Improving LULUCF accounting rules

5.3.1.Impact of the alternative choice of base year/period

As outlined in section 4.1.1, the default base year under the Kyoto Protocol is 1990. Updating the reference against which emissions and removals from agricultural (and other) land will be assessed will change the amount of removal units (internal to the LULUCF accounts) and consequently the credits (or debits) that could be generated and used for flexibility.

Table 6: Impact of the base year change on the potentially available LULUCF RMUs for the EU28 from agricultural land, 2021-2030, including additional mitigation enhanced at a carbon price of €20/tonne, in MtCO2, negative value is credits

Source: EUCLIMIT modelling

Figure 8: Overview of EUCLIMIT modelling components used for the assessment of impacts related to agriculture and LULUCF

Source: own presentation

Table 6 shows the potential number of removal units (RMUs) under the two base year options B0 (status quo, 1990) and B1 (base period 2005-2007). A carbon price similar to that applied to other ESD sectors (i.e. €20/tonne) 65 – in particular the optimal value when flexibility is available for the Agriculture non-CO2 sector – has been used in the projection to determine the projected mitigation beyond reference on Afforested, Deforested and Agricultural land. Changing the base year to a more recent period will increase the accuracy of the estimates due to the more recent datasets used to compute the net emissions and removals. It will also reduce the EU28 potential availability of RMUs from agricultural land (i.e. cropland and grassland) from 645 MtCO2 to 437 MtCO2 for the period 2021-2030, helping determine more precisely the additional effort occurring in the period 2021-2030. Both considerations are important with respect to the environmental integrity of the accounting. Lastly, the overall amount in both options still exceeds the highest option of required flexibility of 425 Mt (Option F3) that will be considered.

Table 7: Impact of base year/period change on the potential credit generation (removal units) for agricultural land, in MtCO2eq per year (negative numbers represent removals, positive numbers emissions)

Source: 2015 Member State inventories, EUCLIMIT modelling

The impacts on individual Member States may be more substantial and have some distributional effects. Table 7 shows the distributional effect per Member State per year of the base year change, in relation to the projected potential LULUCF accounts in 2030. While most Member States would see minor differences in relation to their accounts, SE, FR, BG, would benefit the most from the adoption of option B1 (base period 2005-7). The most significant reductions following this option in potential for credit generation would be in LT, IT, PT, UK and ES. 66

In conclusion: The overall application of a more recent base period would allow for a clear, accurate and robust assessment of the additionality of potential credits, enhancing environmental integrity of the accounts. For the purposes of estimating potential credits for the period 2021 – 2030 (presented in the section 5.3.3 and the following chapters), option B1 (base period 2005-2007) will be used as a base period.

5.3.2.Impacts of streamlining the reporting framework

As outlined in sections 1.3.1.1, the streamlining of the current dual reporting framework (UNFCCC and Kyoto Protocol) to the one mandatory in the post KP period (UNFCCC) would be a substantial simplification for Member States and the Commission.

With respect to EU28 greenhouse gas accounting results for Agricultural Land, the move to the land-based reporting for accounts (Option R1) will have no significant effect. This applies indeed to all KP activities that are accounted using a comparison to a reference year or level 67 , known as the net-net accounting approach 68 .

Even though the KP Deforestation activity foresees a temporal integration over several years in the accounting of emissions, this is not substantially affected by the use of the transitional period under UNFCCC land categories. No impact is identified for the rule transposition of this category, and emissions from Deforested Land over the period 2021-2030 are projected at 277MtCO2eq.

For Afforested Land, the main difference is that instead of an indefinite period as under the KP Afforestation activity (R0), a transition period of 20 (option R1) or 30 years has been utilised (option R2). As shown in Table 8 , Option R1 reduces potential credits sharply, by 464Mt over the full period. Option R2 reduces potential credits by 171 Mt, or around one-fifth for the period 2021-30. In both options the remaining amount of credits still exceeds the total amount of credits required for the high flexibility option (F3).

Table 8: Impact of streamlining framework different accounting rules on credit generation potential for Afforested Land (RMUs in MtCO2eq) EU28 2021-2030 including additional mitigation enhanced at a carbon price of €20/tonne, negative value is credits

Source: 2015 UNFCCC Inventory data and EUCLIMIT projections

The aggregate impact on EU28 level under the "Option R2, 30yr transition" variant would be approximately 20% reduction in RMU generation potential. Looking at individual MS impacts, it appears that nine Member States (BG, CY, DK, LU, MT, NL, PL, HR, SE) would slightly increase their RMU generation potential. Seven Member States would experience proportionate impact, i.e. a reduction of RMU generation potential in the range of 20% or less: AT, CZ, DE, FR, HU, IT, LT.

Twelve Member States would be expected to experience more than 20% reduction in their RMU generation potential. Four of them (EE, ES, EL, SK) would see a change above 33%, i.e. losing one-third or more of the potential. Eight others (BE, FI, IE, LU, RO, SI, UK) would be affected within a range of 20-33%.

On the other hand, the potential of Member States to generate credits (RMUs) under the cap applied for credits from forest management (Box 3) would hardly be affected: Table 10 shows that EE, ES, EL and SK could achieve their maximum credit generation potential under all options at low costs (20€/tonne CO2 eq). The same is true for PT, SI, RO and FI; the UK would achieve its maximum potential under both F1 and F2. The only cases with a difference are LU, IE and BE.

In conclusion, using a land-based UNFCCC accounting approach and applying a 30 year moving window for Afforested Land (Option R2) could potentially deliver credits of 730MtCO2 from this LULUCF activity for the 2021 to 2030 period. Almost all Member States are expected to generate credits based on the currently projected afforestation rates. The credit generation potential from afforestation could further increase with additional support measures. For the purposes of calculations presented in the section 5.3.3 and the following chapters, the accounting methodology based on the UNFCCC land categories will be used.

Table 9: Impact of streamlining the framework different accounting rules on Member States' credit generation potential for Afforested Land (RMUs in MtCO2eq), 2021-2030 per Member State, negative numbers represent removals, positive numbers emissions including additional mitigation enhanced at a carbon price of €20/tonne

Source: 2015 UNFCCC Inventory data and EUCLIMIT projections

5.3.3.Impact of improved rules: Estimates of the credit generation for afforestation and agricultural land

The accounting rule changes for agricultural land and afforestation would have an aggregate effect on the overall credit generation potential from LULUCF. This needs to be compared to the existing rules under the Kyoto Protocol (status quo). In the case of the continuation of current Kyoto rules, the accounted credits (RMUs) for the two land categories in LULUCF in 2021-2030 could reach up to nearly 1300 MtCO2eq over the ten-year period.

The total RMUs available for credit generation applying the alternative rules (Options B1, R1) outlined above ( Table 10 ) would be slightly below 900 MtCO2eq for 2021-2030. Potential credits at this level would still be more than twice the maximum flexibility of 425 MtCO2eq to be considered under the high Flexibility Option F3.

Importantly, these rule changes would enhance the environmental integrity of the LULUCF credits generated, because they would diminish the legacy of historic action and improve the accuracy of accounting. In practice, much of this land use change policy (such as afforestation) and the corresponding investment will have to be driven by a clear and deliberate policy support from Member States. Much will depend on the commitment of Member States to deliver additional measures and programmes, in support of mitigation action related to afforestation and agricultural land.

Table 10: Estimates of total potential credit generation (for RMU's) EU28 for the period 2021-30, under existing Kyoto rules and alternative rules (30 year transition for afforestation, base period 2005-2007 for agricultural land), in MtCO2eq

Notes: Afforested land is shown net of projected deforestation. Agricultural land mitigation is shown net of enhanced mitigation potential at a carbon price of €20/tonne. Totals are net of possible debits within the Agricultural land and Afforested land categories.

Source: EUCLIMIT Ref 2016 modelling.

For illustration, Table 11 below shows the projected LULUCF credit generation potential (for RMUs) from Afforestation and Agricultural land per Member State, for the years 2020, 2025, 2030 and the total period, at a cost of €20 per tonne of CO2. According to the projection, the possibility to generate RMUs would be broadly constant in the EU across the period at around 94-96MtCO2/yr, or some 959MtCO2 over the entire period. However, there are differences between Member States. Some show the potential as increasing over time while others see it decreasing.

Table 11: Projected credit* generation potential (for RMUs) for Afforestation and Agricultural land per Member State in 2020, 2025, 2030, and total 2021-2030, including additional mitigation enhanced at a carbon price of €20/tonne, in MtCO2.

Source: EUCLIMIT modelling. * Potential credit values are net following the application of the no debit rule, and assuming a neutral impact of managed forest land accounting.

Applying these improved rules for afforestation and agricultural land and assuming low mitigation costs on agricultural land (20€/t CO2 eq.) most Member States would deliver significant credits (without Forest Management) after having ensured that their LULUCF accounts would be a sink. Only a few Member States (LV, FI, LU, MT) would have to implement additional mitigation action (beyond BAU) if they wish to deliver flexibility potential in the LULUCF sector. This could be through a reduction of deforestation rates which are still projected to be high for instance in LV and FI in the early part of the period, increased afforestation rates, developing forest management sink to offset deforestation, increasing the HWP pool, or additional measures related to enhancing the sink for agricultural land.

In conclusion: While the overall distribution is varied, the projections overall show a positive picture for the EU with respect to the strong potential to deliver cost-effective enhanced mitigation in the LULUCF sector, through afforestation and agricultural land management.

5.4.Forest Land estimates: governance

As described in section 1, credit generation from forest management and HWP for compliance under the ESD has been excluded because of the high level of uncertainty, the lack of agreed reference levels and the range of variability. Nevertheless, the accounting of forest activities is crucial for the successful implementation of policy and a new system of governance has to be specified in the legal proposal (Section 4.3).

Forest reference levels have been identified as the best approach to account for emissions and removals from EU forests and harvested wood products. In order to ensure environmental integrity it will be decisive that common criteria for the setting of reference levels are applied by Member States in a coherent and comparable way. Sensitivity analysis in presented in Section 1.4.4. and Annex 5 shows that already today a substantial difference between methodology applied – in particular harvesting rates around 10% lower than that modelled in accordance with policy assumptions – may lead to an overestimate of the projected sink by 300 to 350MtCO2 in the period 2021-2030, if current trends continue. Correctly incorporating domestic policies in accordance with Kyoto Protocol guidance, namely the limitation of policies to those in force pre-2010, would help in reducing this divergence between projection and implementation.

An improved governance procedure, implementing current rules in a standardised manner, will also be necessary for the review and adoption of nationally determined reference levels. This process should respect the existing conditions already applied by Member States under Kyoto Protocol guidance, in particular with respect to the impact of policy assumptions.

The starting point for the assessment is to maintain the current status quo (Option G0). Under Kyoto Protocol rules, an independent body has to check compliance of the forest reference levels with the 2013 Kyoto Protocol Supplement, and relevant CMP decisions (2.CMP/6, 2.CMP/7). In practice the UNFCCC secretariat composes expert teams from parties who carry out a technical assessment of the submitted reference levels. However, in the absence of internationally agreed rules for LULUCF for the post 2020 period this option does not exist and can therefore be discarded.

A second governance option (Option G1) would be to set up a joint and independent review body. In such an EU body the Commission could be supported by experts from Member States. They would have to assess jointly whether or not the Member State reference levels comply with the common criteria, and possibly adjust them. This governance option would ensure that LULUCF experts from Member States participate in the review of nationally determined reference levels. The costs for this option would be slightly higher (more costs for travel and per diems), but these higher costs could be justified by the fact that it would ensure a review that includes a wider range of expert. This would encourage peer review and increased transparency among Member States, while ensuring consistent application of common criteria.

A third governance option (Option G2) for setting forest reference levels would be to ask the Commission to check and review that forest reference levels are calculated in a consistent way and based on the same criteria. The Joint Research Centre (with other EU scientific organisations) has already supported Member States in the current period in calculating their reference levels. Administratively this option would be the least cost option, as it would not be associated with any additional costs. This would contribute to harmonising EU modelling standards for forest reference levels, based on data collected and processed by the Member States, over a common reference period, and in a consistent manner.

In conclusion: In order to ensure a common and consistent application of existing and agreed international criteria, option G1 would be preferred and will be utilised to develop the new governance process for forest reference levels. Justification for choosing the option with slightly higher cost is the advantage of using wider expertise, providing additional transparency and facilitate knowledge-sharing and capacity-building between Member State experts.

5.5.Impact of flexibility options

5.5.1.Distribution of credit potential between Member States

The final step is the assessment of the impact of different degrees of flexibility. Section 3 outlined that the flexibility options F1, F2 and F3 require a limitation of credits at 190MtCO2eq, 280 and 425, respectively. Not only will such an upper limit need to be applied at EU28 level, but also allocated to each Member State reflecting their maximum needs based on the lower mitigation potential of the agriculture sector (see section 1.4.3). While the mitigation options in agriculture are limited across Europe, Figure 3 highlights that the share of agriculture non-CO2 emissions in the ESD varies significantly. Member States which have a higher share of agricultural emissions in the ESD are particularly affected by the limited mitigation potential in agriculture. They may therefore need higher access to the use of LULUCF credits.

If flexibility was allocated to Member States on an equal basis (e.g., 5% of agriculture non-CO2 emissions), the allocation would not respond to their different needs. Ranking the Member States by share and allocating pro-rata would create an allocation key extremely sensitive to inventory recalculation and measurement accuracy.

To avoid such issues in this analysis, Member States are allocated to one of three groups representing their need related to the relative importance of agricultural emissions in their national emission profile. The upper and lower groups contain approximately one-quarter of agriculture non-CO2 emissions of the ESD, while the middle group contains half. The attribution to each group is based upon historical ESD share of agriculture non- CO2 in 2008-2012. Member States with a 25% ESD share of agricultural emissions or more are allowed to use LULUCF credits of up to 15% of their agriculture non-CO2 emissions, i.e. they would get a 15% flexibility; those with over 14% to 24.9% would get flexibility of up to 7.5% of their agricultural emissions; less than 14% are given a 3.75% flexibility. This flexibility key is then multiplied by the average annual 2008-2012 agriculture non-CO2 emissions to generate a national cap. This approach also guarantees that every Member State may potentially generate LULUCF credits.

Table 12: Distribution of LULUCF credit limit for the ESD on the basis of share agriculture non-CO2 in the ESD, for Option F2.

Source: Table based upon distribution key of proportion of ESD using National inventories (Mar 2016)

This distribution and the ranked allocation by Member State is shown in Table 12 , for the option F2. Under the medium flexibility option, a Member State with a high share of the agriculture sector in the ESD would be permitted to generate up to maximum 15% of their agriculture non-CO2 emissions as LULUCF credits.

For the F2 option (280Mt), the highest beneficiaries of access to LULUCF credits are IE, LT, DK and LV because of their high shares of agriculture emissions. These Member States potentially are allowed to apply the equivalent on average per annum of around 4% or more of 2005 ESD emissions, with IE having a limit of the equivalent of 5.6% of 2005 ESD emissions. By contrast, the group with low agriculture shares would potentially be allowed to bring the equivalent per annum on average of less than 0.5% of ESD emissions.

Table 13 shows the distribution of LULUCF credits to Member States using the same distribution mechanism, but for all three flexibility options.

5.5.2.Environmental impacts of flexibility options F1, F2 and F3

In the previous section a possible allocation of an EU cap on LULUCF credits between Member States based on historical data was presented. In a next step, it needs to be asked to which extent Member States are likely to actually meet their individual cap for the use of LULUCF credits based on current projections. These projections have to estimate to which extent the LULUCF activities that would be allowed to generate credits, i.e. agricultural land and afforestation, would actually deliver additional removals and hence credits.

This is done in the following section first by assessing the projected credit generation potential for the period 2021–2030 individually for each MS and then aggregating it to show the overall impact on EU level using the preferred accounting rules as identified in previous sections.

Table 14 shows therefore the projected 2021-2030 69  delivery of absolute credits by the LULUCF sector for that Member State, when restricted by the limits (the Member State specific cap) defined in Table 13.

The credit generation potential through the period is mostly constant, due to the relatively high (compared to the cap) potential generation (see Table 11 ). The availability of credits is mainly driven by the cap and not by the available potential of LULUCF enhanced mitigation. It can be noted that the policy options selected have usually constrained the potential, even at Member State level.

The low flexibility option F1 provides for a limited possibility of up to 190Mt to use LULUCF enhanced mitigation against the need to address the limited mitigation potential of the Agriculture Non-CO2 sector. As shown in Table 14 , all but three Member (MT, LU, CY) States would be able to generate LULUCF credits, with 187 MtCO2eq being delivered when mitigation is enhanced at 20eur/t CO2eq.

Table 13: Distribution per Member State of LULUCF credit limit (cap) for the ESD for all three flexibility options (low, medium, high) in MtCO2eq for the period 2021-2030. Negative numbers represent removals.

Source: Table based upon distribution key of proportion of ESD using National inventories (Mar 2016)

Table 14: Distribution of potential credit generation under the cap, for Options F1, F2 and F3 in MtCO2 for the period 2021-2030 (figures in bold illustrate when the cap will not be reached)

Source: EUCLIMIT modelling

The medium flexibility option F2 provides for a limited but somewhat higher possibility (280Mt). Table 14 shows the delivery of credits possible under the projected scenario with enhanced mitigation action for Afforested Land and Agricultural land (at 20eur/t CO2eq). Up to 269MtCO2eq of accounted mitigation would be available for credit towards the Non-ETS target compliance, slightly below 70 the cap for EU-28 of 280MtCO2eq. At these low mitigation costs, an additional four Member States (FI, IE, BE and DK) are not forecast to be able to fully utilise the medium flexibility at a carbon price of € 20 per tCO2. In order to fully utilize the upper limit to use LULUCF credits, these Member States would have to invest in additional mitigation action in the LULUCF sector.

In absolute terms, the Member States with the absolute highest credit generation potential from Afforestation and Agricultural land would be FR (58MtCO2), Spain (29), Ireland (25), Germany (22), and Poland (22).

In addition to the new flexibility from LULUCF to ESD, Member States would still generate sufficient credits to balance the LULUCF sector as a whole and in order to comply with the no-debit rule. This would be assured through the remaining accounted sink in the sector of an estimated 609MtCO2 (see Table 10 ), or a little over 25% of the expected reported sink. The fairly constant and large buffer above the cap would also provide further statistical protection and therefore stability with respect to inter-annual variation of the LULUCF sector.

Under the high flexibility option F3, a total maximum flexibility of 425 MtCO2 would be enabled over the ten-year period 2021-2030 compared to the Reference (see section 4.2).

As shown in Table 14 , in this case the cap could increase most significantly for Member States with less need of flexibility in the agriculture non-CO2 sector. In absolute terms, the Member States with the absolute highest credit possibilities under this option are FR (88MtCO2), Spain (44), Germany (34), Poland (33), and Ireland (25). However, the effect on credit generation is more heterogeneous because not all Member States would be able to generate the full number of credits permitted by the cap. Indeed, at the modelled carbon cost of €20/tonne, only some 373MtCO2eq of flexibility would be realised. In order to fully utilise the Member States specific credit limit (as shown in Table 11) FI, LU, CY, IE, BE and DK, the UK and NL, would have to implement additional mitigation action in the LULUCF sector.

In conclusion: Under these options the LULUCF sink would be enhanced by two principle incentives: i) need for each Member State to ensure that the overall LULUCF sector is in balance and does not generate "debits" against accounting rules (i.e. it complied with the no debit rule); ii) the option for each Member State to utilise additional credits from agricultural land and/or afforestation. Under a medium flexibility option, Member States would have to initiate significant new Afforestation action and extra sequestration on Agricultural land. Even with this new option of utilising LULUCF to address the limited mitigation potential of agriculture in the ESD, the LULUCF sector as a whole would remain in balance as required through the no-debit rule.

Other environmental impacts

Without specific intervention, environmental impacts of all options on soils are expected to be varied. European agricultural soils are consistently losing carbon due to management, although estimates vary as to the speed of this process. This could be reversed with improved mitigation action on agricultural land 71 .

Allowing agricultural land to generate credits can incentivise Member States to promote additional action to protect or enhance soil carbon. Recent estimates of this have been using a Tier 1 approach and LUCAS data by the JRC 72 , focusing on the trends under the baseline projection. While the reference projection shows no substantial change in emissions for soils, land use conversion (especially conversion of organic soils) is considered the major driver of soil emissions in the EU28. Mitigation actions to address this will therefore be beneficial to soil organic carbon and potentially biodiversity. The JRC studies identify a number of effective mitigation actions to reduce direct and indirect (through land use change) emissions.

5.5.3.Economic impacts: abatement costs and production impacts in the Agriculture sector

Table 15 illustrates the direct abatement costs for the different levels of flexibility between LULUCF and the ESD sectors (F0, F1, F2, and F3), resulting from the GAINS/GLOBIUM model framework. Table 16 assesses economic (production, trade) impacts derived from a different modelling framework, CAPRI. It should be noted that differences in compliance costs estimated by the different modelling approaches result to some extent from differences in the models used (GAINS and CAPRI used in EUCLIMIT framework; CAPRI used in ECAMPA) as well as the assumptions on the availability and costs of mitigation technologies over the period 2021-2030 applied.

Under the GAINS modelling framework, in option F0 (no flexibility) agriculture non-CO2 emissions would have to be reduced by 78MtCO2eq in 2030, assuming a 20% reduction in 2030 compared to 2005. The options F1 to F3 show a progressive decrease in the mitigation cost in the agriculture non-CO2 sector, with the corresponding increase in flexibility. Under flexibility options F1 to F3, an increasing share of this reduction would be delivered by the land use and forestry sector.

Without flexibility, a carbon price of €78.6/tonne CO2eq was modelled to meet the Agriculture non-CO2 sector emission reduction of just over 78MtCO2eq (a 20% reduction in 2030 compared to 2005.). The annual (direct) costs of this would be €2.071bn in 2030, as computed by the GAINS modelling framework.

Table 15: Direct impact of different levels of flexibility between LULUCF and ESD on GHG abatement costs in the agriculture non-CO2 sector (annual costs in 2030 in € 2013) and assuming a 20% reduction in 2030 compared to 2005

Source: GAINS model/GLOBIUM for LULUCF based on AR4 Global Warming Potentials and using Reference 2016. * assuming a linear increase of mitigation between 2021 and 2030.

As a consequence of allowing increased rates of flexibility (Options F1, F2, F3), the marginal cost of mitigation in the agriculture non-CO2 sector fall to half (€32.5/tonne) under the Low flexibility option F1, 1/10th (€7.3/tonne) for the Medium (F2) and zero for the High (F3) flexibility options. This decrease is due to the availability either of LULUCF credits or by provision of mitigation options in the agriculture non-CO2 sector modelled (in the GAINS model) at zero cost.

Examples of mitigation measures taken into account in the GAINS model at zero cost are: breeding/genetic enhancement, anaerobic digestion for larger farm sizes (typically above 500 LSU for cattle and pigs) and a ban on burning agricultural waste.

As modelled under the Medium Flexibility option F2, agriculture non-CO2 mitigation would still need to deliver emission reductions in the order of magnitude of 25 MtCO2eq. In the GAINS model these can be achieved by mitigation options which, while not free from up-front costs, have no or little net cost, for instance because they are associated with efficiency improvements. One such important mitigation option that would result in such efficiency gains is breeding of cattle focussed on health and fertility improvements. However, if these options are considered not to be available at zero cost, the benefit in the marginal cost reduction is weaker (column F2 no breeding) as, this would result in the need of more costly mitigation options in agriculture increasing overall mitigation costs (see in Table 15 column F2 Medium flexibility with no breeding).

Table 16 below presents the production, consumption and net trade (competiveness) impacts modelled using the EUCLIMIT framework for the agricultural and forestry sector for the three options assuming a 20% reduction in non-GHG emissions in agriculture. The modelling is based on the 2016 Reference projection, and uses the CAPRI model for agricultural non-CO2 emissions, applying AR4 global warming potentials 73 and the GLOBIUM model for the LULUCF part.

The Option F0 (no flexibility) broadly confirms the findings of the ECAMPA study, although at a different scale. Without flexibility, a carbon price of €120/t CO2eq would be needed to achieve a 20% reduction in emissions in 2030 (or 84 MtCO2eq). In the modelling framework, which inflexible implements this reduction target, this would increase prices for some agricultural commodities (e.g. of meat and dairy products) and could negatively impact on consumption, production, and net trade.

Under the low flexibility option (F1) access to LULUCF credits is restricted to 35Mt in 2030. Assuming that the full amount of credits would be used, the agriculture non-CO2 reduction needed would be around 49 MtCO2eq (84 minus 35 Mt) in 2030 at marginal cost of €42/tonne. As a result, price increases would be much more limited than without access to LULUCF credits. Consumption reductions would be smaller, production losses would be smaller and (net) trade losses would be smaller.

Under the Medium flexibility option, the pressure to reduce agricultural emissions would be sharply decreased. Given the limited reduction needed by agriculture non-CO2 emissions (31 MtCO2eq) price increases for agricultural commodities would be much more limited, and consequently production and consumption changes would be very modest and generally below 1% (and as low as 0.1% for dairy products and meat). Net trade effects would be below 1% except for meat (which nevertheless decreases by just 5%, compared to over 25% under the reference). Compared to the reference run, the overall effects would be very limited.

Granting high flexibility under Option F3 (i.e. up to 425MtCO2), and using LULUCF credits to offset the entire expected reduction of Agriculture non-CO2, would further reduce the impacts on consumption, production and (net) exports of agriculture as no reduction beyond baseline would be expected in the Agriculture non-CO2 sector.

Sensitivity analysis shows the following. Assuming the baseline delivers no accounted LULUCF sink, the carbon price required to meet the non-CO2 reduction in an efficient way would be around €33/ton. The impacts would be less strong than case F1 for meat and dairy but somewhat higher for wheat, grain and oil seeds.

Studies, specifically EcAMPA 2 (see Box 1) 74 , and Meta-review study of mainstreaming climate action (see Box 2) 75 show that only a limited level of mitigation of emissions from agriculture is feasible without impacting production. Support from flanking policies such as Rural Development Programmes under the CAP is also a means of limiting impacts. The studies highlight in particular the need for further applied research, capacity building, innovation and scaling up of the enabling environment for technology diffusion in the farm and forestry sectors. Linking use of LULUCF flexibility to the need of the agriculture sector is a rational approach to limit potential economic impacts of reduction targets.

Table 16: Economic impacts in 2030 (% change compared to baseline) based on an assumed 20% reduction in agricultural non-CO2 emissions

Source: CAPRI and GLOBIUM/G4M models using Reference 2016.

5.6.Administrative, monitoring and reporting costs and who would be affected

LULUCF accounting is done at national level, but often with the technical support from research institutes or agencies. Changes to the accounting framework as a consequence of including LULUCF into the EU's domestic 2030 reduction target, and any related needs to adjust monitoring and reporting, may potentially introduce impacts. These impacts are likely to be most felt by Member State administrations 76 responsible for GHG inventories, the Commission services and the European Environment Agency responsible for coordinating and verifying the information. It is not expected that private actors would face additional data requirements.

By far the most significant proposed change is to streamline the two existing parallel reporting systems into a single system. This will reduce administrative burden and costs for Member States and at the EU level. As the administration of the Kyoto system at the level of the UNFCCC is fully paid by the few Kyoto Parties, also these costs will fall away after 2023 when the compliance of the 2nd commitment period of the Kyoto Protocol will have been finalised.

The additional administrative impacts of the three proposed post-2020 changes is expected to be minimal, because the relevant accounting rules have already been set up as a consequence of LULUCF Decision 529/2013/EU. Member States are thus already providing information on accounted emissions and removals for LULUCF activities. They are also developing enhanced systems to account for emissions and removals for agricultural land – and other elected land categories – in order that they more accurately include emissions and removals in the national GHG inventories, and thus be compliant with existing legislation. The current Community registry system will have to be expanded to fully capture the LULUCF sector and the new transactions because of new flexibility.

Most importantly, administrative costs will not differ under the three options F1-F3 as accounting rules are assumed to be the same in all cases.

5.7.Distributional, social and employment impacts

Distributional and social impacts depend on the approach chosen by Member States in policy implementation to fulfil the ESD and LULUCF obligations. The 2030 climate and energy package does not stipulate a specific mitigation target for agriculture at EU or national, regional level. Hence, it is not the EU but Member States who will decide about the distribution of the overall national mitigation ambition across the sectors concerned, including agriculture.

As cited above, the EcAMPA 2 study looked at the cost-effective mitigation potential in EU Member States' agriculture non-CO2 sector, including scenarios with payments for environmental services to incentivise the adoption of agricultural mitigation measures. EU wide scenarios simulating emission reductions for agriculture non-CO2 of between 15% and 25% in 2030 as compared to 2005 were tested, distributed between Member States based upon cost-effective mitigation.

According to the report, a 20% mitigation target for EU agriculture, if implemented without subsidies, would lead to slight aggregate welfare increases, mainly driven by higher income due to increased prices for agricultural goods. However, agricultural production, notably for the beef sector, would decrease, followed by a leakage of production from the EU into other parts of the world and increase in total related emissions, assuming that those other parts of the world would not (yet) follow an equivalent mitigation ambition.

Such decrease in EU output could primarily be avoided by incentivising the adoption of cost efficient agricultural mitigation technologies. With these incentives, such technologies and measures 77 could reduce agricultural non-CO2 emissions without negatively impacting production and food security. The level of competitiveness, modernisation, quality of work, and sector income in agriculture would rise. However, the overall welfare effect would be slightly negative, given that the "tax payer" (economic actors outside agriculture) would have to finance agricultural subsidies.

Employment effects would be driven by the decline in agricultural production: they would be highest in a scenario without flexibility between LULUCF and agricultural emissions under the ESD. However, there also could be positive employment effects originating from the implementation of additional mitigation measures, such as anaerobic digestion plants.

Moreover, in reality the negative employment effects of mitigation action in agriculture have been smaller than projected by economic models, because a significant share of the additional costs has been compensated by subsidies originating from the CAP. Model results also tend to under-estimate dynamic effects: mitigation measures have been a driver for higher resource efficiency and have helped to decouple agricultural production from emissions (see Figure 3 ). Mitigation action also helped to increase the competitiveness of European farming, which helps to safeguard jobs, and not vice versa.

Increasing access to LULUCF credits and hence flexibility would therefore further reduce the negative employment impact related to non-CO2 agriculture estimated by models. The flexibilities would have positive impacts on employment mainly since they have a positive impact on output in agriculture (compared to a no flexibility scenario). By contrast, the expected impact on employment in forestry is rather small.

Table 17: Impacts on employment in 2030 in agriculture & forestry (change compared to reference + 20% reduction in agricultural non-CO2 emissions

Distributional and social impacts will depend on the approach chosen by Member States in policy implementation to fulfil the ESD and LULUCF obligations. The 2030 climate and energy package does not stipulate a specific mitigation target for agriculture at EU or national / regional level. Hence, it is Member States who will decide upon the distribution of the overall national mitigation ambition across the sectors concerned, including agriculture.

In conclusion, employment effects related to emission reductions in the non-CO2 agriculture sector could be negative, if mitigation measures would be implemented with the flexibility provisions and with cost-compensating flanking support through the CAP. The flexibilities offered have a positive impact on employment. Mitigation measures which improve overall resource efficiency could also contribute to long-term enhanced competitiveness. Moreover, some mitigation measures provide new and additional business opportunities to farmers such as afforestation or the production of renewables.

6.Comparing the Options

6.1.Introduction

Various options related to the inclusion of agriculture and LULUCF into the EU's climate and energy framework for 2030 have been analysed in this Impact Assessment.

This section will first synthesize the comparison of the various accounting rule improvement and flexibility options, proceed with the screening of the main options on policy architecture, and finally conclude on selecting the combination of options needed to best meet the policy objectives.

6.2.Comparison of rule improvements and flexibility options

6.2.1.Comparison of accounting rule improvements

With the current LULUCF accounting rules originating from the Kyoto Protocol as a baseline, various improvements and up-grades were all evaluated positively in Chapter 5, resulting in substantive improvements/benefits with no or few implications for additional costs (even, savings):

–B1: Application of a base period of 2005-2007 for net-net accounting of relevant non-forest land categories;

–R2: land-based UNFCCC reporting framework for accounts, with an optional 30yr transition period for Afforested Land;

–G1: Governance of the forest reference level assured by the Commission together with Member States experts;

In conclusion, these modified accounting rules are used therefore in the analysis of different levels of flexibility between LULUCF and agriculture within the ESD (Options F0 to F3), since they showed reduced credit availability, higher accuracy and hence credibility and environmental integrity of the credit generation potential from LULUCF.

6.2.2.Comparison of options with different levels of flexibility between LULUCF and Agricultural emissions in the ESD

This impact assessment also examined which LULUCF activities could generate sound and robust credits. Credits from forest management were discarded early on because of a wide range of projected outcomes for this activity and the lack of approved and standardised reference levels. Allowing the use of credits from forest management towards compliance under the ESD would therefore be associated with various risks. However, such removals could be used to balance emissions from other activities within the LULUCF sector up to a certain cap.

By contrast credits generated from afforestation and agricultural land would be more sound, particularly if coupled with improved accounting rules. Quantitative analysis indicates that each Member State would be able to generate additional yet limited credits from agricultural land and/or afforestation.

In a next step, three options with different degrees of flexibility between LULUCF and agricultural emissions in the ESD were assessed. The baseline Option (F0) is to grant no flexibility from LULUCF towards agricultural non-CO2 emissions under the ESD. Because of the limited mitigation potential in agriculture, there is a risk under this option that ESD compliance is threatened, or that agricultural production is placed under too high pressure. A specific further risk of this option would be that production leakage may occur, thereby substantially negating any accounted climate benefits of the reductions in the sector. Furthermore, employment effects of an option without flexibility between LULUCF and agricultural emissions under the ESD could be negative, particularly without cost-compensating support measures from the CAP. Consequently, a number of disadvantages for this option are evident (see Table 17 ).

The next three options (F1, F2, and F3) assessed different levels of optional, limited flexibility of LULUCF credits that would be allowed to compensate for the lower mitigation potential of agriculture under the ESD.

The first option F1 introduces low flexibility with a maximum of 190 MTCO2eq over the period 2021 to 2030 available to the ESD. The effect on actions to enhance mitigation in LULUCF would be negative as even cost-effective mitigation from land use and forestry will be overlooked, and increasing performance compared to baseline would not be incentivised. Furthermore, since there would be little incentive for Member States to generate additional credits, the development of better, more accurate monitoring and reporting systems for LULUCF would not be incentivised. Consequently the pathway to important, additional, cost-effective potential related to land use and forestry would be left blocked.

Under Option F2 a Medium level of flexibility (a maximum of 280 MTCO2eq over the period 2021 to 2030) was assessed allowing a limited amount of LULUCF credits to enter the ESD sector. This would place the effort needed from the agriculture non-CO2 sector in the ESD to be in the range closer to scenarios which had limited negative impacts on the sector, while at the same time incentivising additional action in the LULUCF sector. Nevertheless, the LULUCF sector would probably not generate debits, due to the relatively low number of credits that would be used for ESD compliance.

Table 17: Comparison of the options for flexibility between LULUCF (with improved accounting rules) and agricultural emissions in the ESD

Source: own presentation

An important argument in favour of the Medium flexibility option F2 is the importance of a landscape approach in tackling climate action. By being relevant to the implementation of policy at a farm or holding level, a hybrid approach would give some flexibility and synergies of finding cost-effective mitigation between all activities related to agriculture and land use (including afforestation, deforestation reduction, forestry, soil management, etc.).

Finally, a High flexibility option F3 (a total of 425 MTCO2eq over the period 2021 to 2030) was assessed. A similar option – with unrestricted flexibility and including forest sink – was already considered in the context of the 2012 Impact Assessment for the inclusion of LULUCF into the 2020 climate and energy framework. In that assessment, the option was rejected mainly because it was seen as diluting ambition due to LULUCF rules defined in the 1st Commitment Period of the Kyoto Protocol.

The High flexibility variant assessed in this Impact Assessment shows some improvements but the effects on environmental integrity still remain a concern. The option F3 fully alleviates pressure on the agriculture non-CO2 sector; it would exempt this sector from further emission reductions in contrast to all other sectors in the economy. This would be in contradiction with the agriculture non-CO2 sector's steady progress towards decarbonisation.

Furthermore, the potential utilisation of such a high level of LULUCF mitigation could place the compliance of the LULUCF sector itself at risk, due to the high inter-annual variability of the sector. This is underlined by the projected fulfilment of only 373Mt of the potential 425Mt cap under option F3, at carbon prices similar to those applied to other ESD sectors (i.e. €20/tonne).

In conclusion, the assessment of the flexibility between LULUCF and agriculture shows that from economic, environmental and sector-specific points of views the best option forward would be an option with medium flexibility (i.e. option F2).

6.2.3.Selection of level of improved rules and flexibility level between LULUCF and agriculture emissions in the ESD

As a result of the impact assessment and analysis, the best way forward for the inclusion of agriculture and LULUCF into the 2030 climate and energy framework would include two main elements:

(1)An updating and streamlining of accounting rules for the determination of emissions and removals from land use and forestry. Various options have been identified (B1, R2, G1) which would increase the robustness and environmental integrity of the accounting principles for the LULUCF sector. Including this sector into the 2030 framework based on these up-dated accounting rules would simplify the system and increase the credibility of the EU in the international negotiations.

(2)Allow limited flexibility (Option F2 medium flexibility) between LULUCF and agricultural emissions under the ESD. This option would provide additional incentives for further mitigation action related to the land use and forestry sector, while not unduly increasing compliance risk for the LULUCF sector. It would address the limited mitigation potential of the agricultural sector, and thereby ensure that other objectives such as food security can be met. At the same time, the agricultural sector would still have incentives to contribute to the overall reduction target for the non-ETS sectors.

6.3.Selection of options

Overall, the proposed way forward is that the legal framework for the inclusion of agriculture and LULUCF into the 2030 framework builds on the current policy architecture. Limited adjustments would be made to LULUCF accounting rules, and the design of two-way flexibility between LULUCF and the ESD would provide additional incentives to improve and optimize the mitigation potential from LULUCF.

The preferred option would be underpinned utilising the following options assessed in Chapter 5 and compared above:

–B1: Application of a base period of 2005-2007 for relevant non-forest land categories;

–R2: land-based UNFCCC reporting framework for accounts, with a 30yr transition period for Afforested Land;

–G1: Governance of the forest reference level will be assured by the Commission together with Member States experts, who shall check and review that forest reference levels were set in a transparent manner and in line with EU guidance;

–F2 - Medium flexibility: Up to 280 Mt between 2021-2030 could be transferred to the ESD through credits generated by net afforestation and agricultural land.

In conclusion, under this approach, a stand-alone LULUCF policy pillar would continue to be utilised together with the no-debit rule. A limited degree of flexibility between LULUCF and the ESD would be enabled, justified on the need derived from the agriculture sector share for each Member State in the ESD. This option would be compatible with food security and biodiversity objectives and would not result in negative employment effects. Such a hybrid option would limit changes of the overall architecture and would thereby minimize administrative burden and red tape while maximising the contributions to the overall achievement of the EU's 2030 targets. The inclusion of LULUCF on the basis of such a hybrid option would also incentivize additional mitigation action in the land and forestry sector and hence be fully compliant with the long term vision for limiting temperature increase as outlined in the Paris Agreement.

7.How will monitoring and evaluation be organised?

7.1.Introduction – international framework

Compliance assessment under the current LULUCF Decision relies on an already existing, comprehensive framework of monitoring and reporting. Information on GHG emissions and removals need to be submitted every year by each Member State as part of the UNFCCC and Kyoto Protocol greenhouse gas inventory process (MMR Article 7 (1) c)-d). Decision 24/CP.19 of the UNFCCC stipulates that in preparing their annual inventories under the Convention due in the year 2015 and beyond, developed country Parties should apply the 2006 IPCC Guidelines for National Greenhouse Gas Inventories: Agriculture, Forestry and Other Land Use. The Guidelines are the culmination of three years of work by the IPCC National Greenhouse Gas Inventories Programme, to update its own previous guidance in response to the invitation by UNFCCC Parties in 2002.

7.2.Quality assurance

In accordance with the MMR Article 6(1), a Union Inventory system is established to ensure the timeliness, transparency, accuracy, consistency, comparability and completeness of national inventories with regard the Union GHG inventory. To this aim, a team of technical experts lead by the EEA performs the Quality Assurance / Quality Control (QA/QC) of all individual countries’ GHG inventories, which involves many technical exchanges with Member States. The Commission (through the Joint Research Centre) is responsible for the QA/QC of the Agriculture and LULUCF sectors, and also supports specific projects and workshops to help Member States in applying correctly the agreed IPCC methodologies for determining their GHG emissions.

7.3.Obligations for Member States

As regards the LULUCF accounted emissions and removals, most Member States are only obliged to complete their accounts at the end of the Kyoto Protocol second commitment period. The compliance assessment is done under Kyoto Protocol procedures, involving an international team of experts coordinated by the UNFCCC. It should be noted that three Member States (DK, HU, FR) chose annual accounting for LULUCF in the first commitment period. Decisions by Member States for the second commitment period are not available yet.

Only a minority of Member States have elected to account for cropland and grazing land management in the second commitment period. 78 Those who did not elect these activities under the Kyoto Protocol are required, prior to 1 January 2022, provide and submit to the Commission "initial, preliminary and non-binding annual estimates of emissions and removals" under the LULUCF Decision. Final estimates – for each year of CP2 – must be submitted by 15 March 2022. For the accounting period starting 1 January 2021, for which estimates would normally be delivered by 15 March 2023, full accounting for these two activities is foreseen by the LULUCF Decision.

Chapters 4 and 5 introduced and assessed the planned improvements to the reporting and accounting framework, involving the streamlining of the parallel KP and UNFCCC reporting systems. The changes proposed would not only lead to simplification and reduced administrative burden, but would also enhance data accuracy by relying on more recent datasets in Member States.

7.4.Compliance cycle

For LULUCF to be integrated with the other sectors in the Non-ETS, reporting and accounting obligations would need to be aligned ESD compliance cycle. For Member States which elect an accounting compliance cycle matching that of the ESD this question is resolved. However, a longer period for LULUCF accounting compliance would normally not only be statistically preferred, but would also reduce administrative overhead for Member States. This is reflected in the Stakeholder consultation, where many submissions expressed a preference for less frequent than annual accounting, partly in the light of the relatively high inter-annual variation in LULUCF, partly to keep administrative burden at a lower level (see Annex 2).

International obligations under the UNFCCC framework will mean that the reporting exercise remains annual. For reasons outlined in Annex 5, however, accounting of LULUCF actions are best enabled over longer periods. LULUCF accounting as discussed in the proposal would be implemented over the full period (2021-2030), as under previous Kyoto Protocol commitment periods. Nevertheless, the use of a full ten-year period would imply that clear data on the generation of flexibility (for use with the ESD) would only be available in early 2032. To facilitate this, a compliance assessment could be done at the mid-point and at the end point of the ten-year period, providing two five-year compliance cycles (1 January 2021 to 31 December 2025, and 1 January 2026 to 31 December 2030).

Credits remaining with a Member State account at the midpoint compliance assessment would be banked. Trading between Member States of Removal Units, including flexibility within the LULUCF sector, will take place at the end of the compliance cycle. A five-year compliance cycle remains in line with many of the stakeholder views. This arrangement would enhance consistency with the ESD compliance cycles, and would also make an overall progress check possible during the period, thereby reducing the risk of non-compliance at the end of the period.

7.5.Need to monitoring progress towards the EU Non-ETS target

Progressive reporting and accounting information is necessary to monitor the progress not only towards the individual national targets but also towards the EU common target. The Commission aggregates the reporting and (when applicable) accounting information received from Member States every year and includes it in its progress report pursuant to article 21 of the MMR. This would continue to occur also for LULUCF information and thereby support the monitoring of progress towards the EU Non-ETS target.

In order to enable the EU to participate effectively in the stocktaking process laid down in Article 14 of the Paris Agreement, a review of the level of ambition is recommended to be performed in timely manner, expected to be in 2023 or soon thereafter.

ANNEXES to LULUCF Impact Assessment

Contents

Annex 1: Procedural information concerning the process to prepare the impact assessment report and the related initiative, including external expertise and contracts

Annex 2: Stakeholder consultation on "Addressing greenhouse gas emissions from agriculture and LULUCF in the context of the 2030 EU climate and energy framework"

Annex 3: Who is affected by the initiative and how

Annex 4: Analytical models and model-based scenarios used in preparing the impact assessment

Annex 5: Accounting rules

Annex 6: Synthesis of Member States Report on LULUCF Information Action (Article 10 of Decision 529/2013)

Annex 1: Procedural information concerning the process to prepare the impact assessment report and the related initiative, including external expertise and contracts

Organisation and timing

Preparations of the Impact Assessment formally started in January 2015, following the 2014 October Conclusions of the European Council on the 2030 climate and energy policy framework for the European Union and the adoption of the Commission Work Programme for 2015. This IA builds significantly on the impact assessment for the Commission proposal for a policy framework for climate and energy in the period from 2020 up to 2030. 79  

An Inter-service Steering Group (ISG) on climate change aspects of agriculture and land use, land use change and forestry was established in January 2015, which steered the work on the IA up to its finalisation.

The ISG met 8 times for the purposes of discussing and preparing this IA. After discussions in the ISG, a roadmap for the initiative "Addressing greenhouse gas emissions from agriculture and LULUCF in the context of the 2030 EU climate and energy framework" was adopted in March 2015. The final draft IA was submitted to the ISG group on 20 April 2016.

Chaired by the Secretariat-General (SG), the impact assessment work was led by DG Climate Action (CLIMA). Given the many links of the dossier with agriculture and land use, DG AGRI made substantial contributions to the work of this ISG. Furthermore, as a result of various Administrative Arrangements on LULUCF and JRC's high level of expertise on many of the very technical issues, JRC ISPRA provided at various times valuable input to the discussions in the ISG with thematic slide sets.

Moreover, the following DGs and services were invited to the Steering Group: Legal Service (SJ), Competition (COMP), Economic and Financial Affairs (ECFIN), Energy (ENER), Environment (ENV), Internal Market, Industry, Entrepreneurship and SMEs (GROW), Mobility and Transport (MOVE), Regional Policy (REGIO), Research and Innovation (RTD), Taxation and Customs Union (TAXUD), Trade (TRADE).

Consultation of the Regulatory Scrutiny Board

In light of the Regulatory Scrutiny Board's Positive Opinion, and comments communicated on 02 June 2016, the following improvements were made to the Impact Assessment report:

The need for early and timely regulation was strengthened, noting the context and timing of the international action and placing the proposal more specifically in the context of the follow-up to the Paris Agreement and the Commission's 2050 Low Carbon Economy Roadmap. This explanation underscores the longer term step-wise process, needed to align the inclusion of Land Use, Land Use Change, and Forestry sector (LULUCF) in EU climate policy as a result of the Paris Agreement outcome.

The explanation and description of problem/driver/solutions logic was re-structured to ensure that the reader will more effectively access the narrative of the problem hierarchy. Additionally, more explanation was given of why the focus and emphasis of the report is on the functioning of flexibilities between LULUCF and the reduction commitments for the non-ETS sectors.

The sections of the report on problem-drivers have been strengthened to demonstrate that the key issue needing to be addressed concerns the gap created by lack of Kyoto Protocol governance post-2020 and the subsequent risk of unbalanced implementation.

The description and explanation of baseline information was also improved to better facilitate the understanding of which elements would be drawn from the existing Kyoto Protocol framework.

Further explanation was given to clarify that the primary basis for dimensioning the flexibility options assessed is the proportion of the agriculture non-CO2 emissions in each Member State's non-ETS emission profile; by contrast it has been highlighted that flexibility options are not limited to use by that sector.

The chapter on objectives, and consequently the analysis of options, was adjusted and improved, taking into account remarks from the Board concerning the need for these to be more related to the specific and operational aspects of the proposal.

Evidence and external expertise used

The quantitative assessment of future impacts in the EU is consistent with the analysis undertaken for the 2030 framework proposal. The Commission contracted the National Technical University of Athens, IIASA and EuroCare to model EU scenarios. The energy system and CO2 emission modelling is based on the PRIMES model. The non-CO2 GHG emission modelling is based on the GAINS model. Agricultural non-CO2 emissions are assessed with the CAPRI modelling framework. The modelling of LULUCF emission related to forests is based on the GLOBIOM-G4M models. See Annex 4 for more detail on the modelling framework.

List of other contracts examined for the purposes of the Impact Assessment

DG CLIMA

ClimWood2030 (Climate benefits of material substitution by forest biomass and harvested wood products: Perspective 2030)

The project will provide reliable data and analysis on the overall climate change mitigation potential associated with the use of forest biomass in the EU. The analysis will take into account the renewable energy policy targets and the role of carbon in general in harvested wood products (HWP). The timeframe of the study will be 1960-2030, in order to inform EU and Member States' policies related to climate change mitigation in relevant activities.

EU CLIMIT II (Development and application of EU economy-wide climate mitigation modelling capacity)

The objective is to update and improve quantitative tools used for the assessment of scenarios and policy options for further developing the Climate and Energy package and other climate relevant policies in the medium (up to 2020/2030) and long term (up to 2050), including economic, environmental and social impacts, both for the EU and individual EU Member States and candidate countries. The models include PRIMES, CAPRI, GAINS (non-CO2) and GLOBIUM-G4M (LULUCF). The models can be used for assessment of the impacts of measures of policy options in the 2030 climate and energy framework. (See Annex 4 for more details.)

Effective performance of tools for climate action policy - meta-review of CAP mainstreaming

Effective performance of tools for climate action policy - meta-review of Common Agricultural Policy (CAP) mainstreaming. Specific contract number 340202/2014/688088/SER/CLIMA.A.2 implementing Framework Contract CLIMA.A.4/FRA/2011/0027

Tool for Cropland and Grazing land accounting/number management

This service request covers the inception, design, prototyping and implementation of a data analysis tool for compiling and exploring historical datasets, incoming data, trends and future scenarios of the AFOLU sector.

Agriculture and LULUCF in the 2030 Framework

Assessment of the impacts of the Paris Agreement on LULUCF and the Agriculture sector in the 2030 Framework: Specific Contract No 340202/2015/715996/CLIMA.A.2 (Implementing Framework Contract CLIMA.A4/FRA/2011/0027)

LULUCF Accounting

This project, carried out in 2013-2014 by the JRC under an Administrative arrangement with DG CLIMA, is divided into two lots:

•Lot 1 – Assistance to Informal Dialogue and support to the SBSTA/ADP analysis

•Lot 2 – Cropland and Grassland management data needs.

 LULUCF 2030

The aim of the project is to support the EC on the following two issues:

1)    Implementation of the EU LULUCF Decision 529/2013, especially with regard to evaluating the estimates reported by MS on carbon stock changes in Cropland Management and Grazing land Management, and recommendations to help MS on the gradual improvement of reporting of emission estimates for these activities.

2)    Contribution to specific elements of the IA on the inclusion of the land use sector in the 2030 EU climate and energy policy.

Report publication reference: JRC102498

Biomass supply and demand

Overarching study on the provision of data and analysis on biomass supply and demand by the JRC on a long-term basis.

DG AGRI

EcAMPA (Economic assessment of GHG mitigation policy options for EU agriculture) and follow-up project (EcAMPA2)

The aim of the project is to apply the CAPRI model to provide quantitative analysis of GHG mitigation policy options for agriculture. In the frame of the project a workshop will be organised on technological GHG emission mitigation options in agriculture.

Reference:Pérez Domínguez, I., T. Fellmann, F. Weiss, P. Witzke, J. Barreiro-Hurlé, M. Himics, T. Jansson, G. Salputra, A. Leip (2016): An economic assessment of GHG mitigation policy options for EU agriculture (EcAMPA 2). JRC Science for Policy Report, Publications Office of the European Union, Luxembourg, EUR27973 EN, doi:10.2791/843461.

CAPRESE (Carbon preservation and sequestration in agricultural soils – Options and implications for agricultural production)

The project reviewed potential climate change mitigation actions in relation to agricultural soils across the EU and assessed their potential impact in relation to organic carbon levels in agricultural soils at MS and EU level. The impact of selected measures on production patterns for different agricultural products in terms of a shift of overall production and regional changes (at EU and national level) were analysed.

Reference: CArbon PREservation and SEquestration in agricultural soils – options and implications for agricultural production: Report of Task 6: Policy options and monitoring tools for carbon preservation and sequestration in agricultural soils. (JRC88294)

Author(s): Arwyn Jones, Vincenzo Angileri, Francesca Bampa, Marco Bertaglia, Andrej Ceglar, Maria Espinosa, Sergio Gomez y Palom, Giacomo Grassi, Adrien Leip, Philippe Loudjani, Emanuela Lugato, Luca Montanarella Stefan Niemeyer, Guna Salputra, Benjamin Van Doorslaer

AVEMAC (Assessing agriculture vulnerabilities for the design of effective measures for adaptation to climate change)

The study provides a literature overview of vulnerabilities and adaptation measures in agriculture. Based on a biophysical model, levels of production were projected for priority crops under future climate change scenarios. The vulnerability of EU agricultural systems to climate change was assessed and mapped. Future resource inputs affected by climate change (in particular water availability), production and output characteristics were identified. Proposals for follow up actions in support of decisions for selecting policy measures for adaptation were made.

    http://ec.europa.eu/agriculture/external-studies/avemac_en.htm  

Medium-term prospects for EU agricultural markets and income

This annual report presents the medium-term outlook for the major EU agricultural commodity markets (arable crops, biofuels, meat and dairy products) and agricultural income in the next decade. This analysis is based on expert opinions and an agro-economic model used by DG AGRI. It is accompanied by an uncertainty analysis in order to quantify potential variations of the results stemming in particular from fluctuations in the macroeconomic environment and yields of the main crops.

Agrifood2030

Developing strategies for the agri-food sector and supporting policies to cope with these challenges are strongly depending on the future context such as the overall development of the global economy, but also specific aspects society will focus on. The AgriFood2030 project, building on initiatives analysing these questions at global scale such as AgMIP (von Lampe, 2014), draws on a foresight approach for the European agri-food system where narrative stories describing in a qualitative way coherent future development paths are mapped into quantitative scenarios for (bio)-economic simulation modelling. The specific contribution of the AgriFood2030 project to the global studies is twofold. Firstly, it complements a broader global view provided by these initiatives with a detailed one for Europe, especially with regard to regional detail. Secondly, it analyses in detail possible sectoral EU policies and initiatives fitting to the narratives.

Report on Sustainable Forest Management Criteria and Indicators

The Communication on a New EU Forest Strategy COM(2013)659 states that the Commission, in close cooperation with Member States and stakeholders, should identify by the end of 2014 "objective, ambitious and demonstrable sustainable forest management (SFM) criteria that can be applied in different policy contexts such as climate change, bioenergy or bioeconomy, regardless of the end use of biomass". The corresponding indicators should be applicable for the purpose of different EU policies when there is a need to refer to sustainable forest management and its means of evidence. This approach would ensure that assurances of sustainability for all forests and their products (including forest biomass), could follow a coherent set of requirements and use the same evidence base regardless of end use. The work is connected to the energy and climate change policy framework in the horizon of 2030 in so far as the identification of indicators for the sustainable management of forest is required under these policies.

The starting point for this exercise are the existing criteria and indicators of Sustainable Forest Management (SFM) as e.g. provided for by work carried out under FOREST EUROPE and other relevant policies, regulations and tools in place, and the analysis of their application in the EU. The outcome of this WG will be a report by June 2015 that will be discussed in both the Standing Forestry Committee and the Advisory Committee on Forestry and Cork.

Annex 2 Stakeholder consultation on "Addressing greenhouse gas emissions from agriculture and LULUCF in the context of the 2030 EU climate and energy framework"

Profile of respondents

Between March and June 2015, the European Commission conducted a public consultation on how best to address emissions from agriculture, forestry and other land use in the context of the 2030 EU climate and energy policy framework, following its endorsement by the European Council in October 2014. It sought input on the impact of existing policies in terms of reducing emissions from the land use, land-use change and forestry (LULUCF) sector and three potential policy options for integrating LULUCF into the climate and energy framework.

The consultation was open for 12 weeks, from 26 March to 18 June 2015. Most stakeholders used the online questionnaire to submit views. In total, 138 contributions were received.

Table A2.1    Respondents’ profile

Replies were received from public authorities in AT, BE, CZ, DK, EE, ES, FI, FR, HU, IE, IT, LV, MT, NL, NO, PL, PT, RO and UK. In the case of several countries, responses were received from a number of public authorities, including regional entities.

The majority of non-governmental organisations were environmental NGOs, but replies were also received from organisations working on food safety, farming and youth issues.

Respondents in the ‘business/trade association’ group fell into five broad categories: agricultural producers, forest producers, forest product users, bioenergy (biogas and biomass) associations and other industry representatives.

All responses, except for a few where the respondents asked for confidentiality, were published on the consultation website:    
http://ec.europa.eu/clima/consultations/articles/0026_en.htm

Analysis by stakeholder group

An analysis was carried out on the basis of the stakeholder categories, focusing on the three largest categories of respondents: governments/public authorities, NGOs and business associations.

Governments and regulatory authorities

Almost all answers emphasised the (geographical, biophysical, historical, economic, etc.) differences among Member States, which are considered more significant for agriculture and forestry than for other sectors. Many Member States gave constructive answers regarding mitigation measures in agriculture, though recalling the ‘lower mitigation potential’ (October 2014 Council conclusions) and stressing the need to incentivise climate action via supportive policies under the common agriculture policy (CAP).

Several Member States believed that setting national targets for LULUCF would be very challenging, with a few proposing possible criteria for differentiation. Some expressed a preference for having an EU-level target only.

Accounting is seen as key by many. There is broad satisfaction with the current rules, but many Member States expressed openness to discussing improvements (e.g. land-based accounting, base years).

Flexibility typically received support, though some Member States expressed concerns as regards the level of ambition in other sectors and/or the environmental quality of LULUCF credits.

Many Member States had yet to settle on a preferred option. Those that expressed a preference tended more towards option 1 (four Member States) and option 3 (five). One Member State could support either option 1 or 3. Three Member States expressed more interest in option 2. All underlined that these choices are preliminary and that they needed more information.

Agriculture, forestry trade/business associations

This was the most varied group of stakeholders; it included agricultural producers, forest producers, forest product users, bioenergy (biogas and biomass) associations and other industry representatives. Our analysis identified a few common themes and looked at views specific to the sub-categories within this stakeholder group.

Stakeholders predict that food and energy issues will gain in importance by 2030, but this is not reflected in an expectation of an increased share of GHG emissions. Nevertheless, there is considered to be no need ‘for multiple objectives to compete’; rather, the challenge is to maximise outputs and integrate bio-economy chains more effectively. Forest and agricultural producers call for increases in wood mobilisation/agricultural production.

Mitigation measures mentioned explicitly include active forest management and better nutrient management in agriculture, with the caveat that support would be needed to incentivise action.

Producer associations express the opinion that strong regulation on efficient countries would be ‘unfair’ and that reduction targets should therefore not be linked to absolute emissions but to carbon efficiency (per unit of output). Early action was mentioned several times as a factor to be taken into account.

A number of stakeholders consider that the EU’s role should be to disseminate best practice on greenhouse gas (GHG) mitigation in forests, leaving stakeholders to decide what specific action to take and what tools to use. Others argued that legislation should be ‘material neutral’ and should not prescribe specific materials or technology to achieve objectives. A considerable number of submissions are categorical in stating that CH4 and N2O emissions are ‘biological’ and thus ‘unavoidable’. EU policymakers are warned to avoid leakage/relocation of production outside the EU.

Forest producers believe that high costs for their industry already limit opportunities to compete in the market against other materials; combined with a lack of incentives, this means wood is not being mobilised and the full mitigation potential of forests is not being exploited. Forest management reference levels should, in the view of some, ‘be set nationally’. LULUCF rules are considered ‘unfair’ on (forest) biomass producers, because they focus too much on maintaining the forest sink, thereby limiting the use of wood.

On options, forestry interests seem most aligned with option 1, with a perceived risk that options 2 and 3 mean that ‘emissions in other sectors could be offset by measures in forestry’ and would limit use of wood products. One farmers’ union also clearly preferred option 1. Agricultural producer and bioenergy organisations often prefer option 2, with refinements, and a smaller but still significant grouping see option 3 as the way to reduce administrative burden.

Non-governmental organisations

NGOs emphasise as principal objectives the conservation of carbon stocks and biodiversity, and enhanced mitigation in agriculture. Bioenergy/biomass is often seen as a driver of emissions. Some urge stronger sustainability criteria, while others would simply cap bioenergy production/use. Leakage and indirect land-use change are also brought up by some. In general, stakeholders in this group call for more definitive EU policy on climate change mitigation in agriculture and forestry, and on soils.

The CAP receives widespread and strong criticism from this stakeholder group. According to some, it does not provide sufficient incentives for mitigation, while others see it as ‘the main obstacle’ to mitigation measures in agriculture (e.g. due to untargeted subsidies, thereby driving overproduction) and suffering from weak environmental provisions.

A number of NGOs explicitly call for binding national targets for LULUCF. Many are opposed to flexibility between LULUCF and other sectors, arguing that it would weaken ambition in the latter, and question the environmental integrity and additionality of LULUCF credits.

Option 1 is the most popular (13 replies), mostly due to fears on the flexibility issue. Those who do not choose option 1 often mention that it does not provide sufficient incentives for sustainable forest management and the enhancement of sinks.

Analysis of responses to highlighted questions

Many respondents identified accounting rules as key to the environmental integrity of the scheme. This crosscutting issue was clearly highlighted in the stakeholder questionnaire. The section below contains more detailed analysis of answers to question 6 (How could the present rules be improved?) and responses as to the preferred policy option (question 8).

Responses on accounting rules (question 6)

For some Member State respondents, the rules in Decision No 529/2013/EU provide clear incentives and policy signals for investment in mitigation. The Decision should be the starting point for the new framework, which should account for all LULUCF activities.

With the current net-net accounting approach for cropland and grassland management, credits often relate more to land-use change than to actual carbon stock evolution on the land parcel. Moreover, the outcome in terms of credits and debits in the commitment period is largely determined by areas of cropland and grassland in 1990, rather than changes in soil carbon content during the period. Some respondents suggest that this should be reviewed to eliminate any potential adverse effects. A reference period based on a five-year average and a more recent period around 2005 could be used (rather than a single reference year), while taking into account relevant past mitigation efforts.

In forest management, some forestry organisations argue that the complicated accounting rules resulting from the Kyoto negotiations should be replaced by a simpler and more transparent approach reflecting biophysical conditions, so that accounting rules do not allow forest sink to generate debits. Others are generally satisfied with the current approach of using projected forest management reference levels, although this will need to be confirmed in coming years, when the projected levels can be compared with actual emissions/removals. Forest management reference levels would need to be updated for the 20212030 period.

Other respondents consider that Member States should account for all anthropogenic emissions and removals from a historical base year or period (not from projected reference levels, as is currently the case in forest management). The idea of accounting against a commitment period (not annually) received wide support.

With accounting becoming mandatory for cropland and grazing land management from 2020 in the EU, some NGO respondents would like accounting rules also to become mandatory after 2020 for other non-forest LULUCF activities, especially wetland drainage and rewetting (currently voluntary).

For some respondents, LULUCF and agriculture should be treated coherently to reflect key linkages between the sectors and improve cost-effectiveness. Monitoring and reporting of LULUCF and agriculture should be enhanced by introducing benchmarks for performance and harmonised rules to improve comparability and verification. For example, criteria could be put in place to ensure that carbon sequestration does not undermine other objectives such as biodiversity. Environmental criteria could act as thresholds, i.e. if the environmental criteria are not met, a credit cannot count. Coordinated planning, reporting and presentation of information under the LULUCF Decision and the Monitoring Mechanism Regulation could promote longterm policy coherence between linked sectors (e.g. agriculture and waste).

Another possible improvement could be to switch to a land-based approach in line with the United Nations Framework Convention on Climate Change (UNFCCC), rather than an activity-based approach as under the Kyoto Protocol (KP). This could ensure more comprehensive coverage of emissions and removals, simplify reporting and accounting, and increase the comparability of accounting data with those of nonKP countries. In any event, any proposed changes to the existing rules should take account of developments regarding international agreements and accounting options.

Responses on the preferred policy option (question 8)

There was a certain amount of interest shown in all options, and also in combinations of options. Roughly half of the respondents in each stakeholder category expressed no clear preference for any option.

Table A2.2.    Preferred options

Some respondents chose a specific option, but underlined conditions under which they would consider it truly acceptable. Others pointed to a combination of options as a way of specifying conditions or a mix of approaches that would make a specific option acceptable. Respondents’ assumptions on the crosscutting issues (accounting, targets and flexibility) are critical to understanding what approach they prefer. As a consequence, simply identifying how many stakeholders favoured which option can be misleading. Also, a review of responses to this consultation does not provide a statistically representative picture of the EU – some Member States and sectoral organisations were over- or under-represented.

Option 1 — the LULUCF pillar: Maintain non-CO2 agriculture sector emissions in a potential future effort-sharing decision and further develop a LULUCF sectoral policy approach separately

Slightly over a third of the respondents were in favour of keeping LULUCF as a separate pillar within the climate and energy framework, which makes option 1 the preferred option for those respondents that replied to this question. Option 1 received strong support from the majority of the environmental and climate NGOs and from the forestry sector and is also the option preferred by some agriculture organisations and at least four Member States. It was also supported to some extent by other interest groups, including one research institute and one SME.

One of the main advantages put forward by these respondents is that option 1 would ensure continuity with the approach followed to date to reporting and accounting for LULUCF emissions and removals and is therefore the most easily operational option in the short term. It would allow the LULUCF sector to be addressed independently, taking into account the specificities of the sector, thereby enabling the development of sectorspecific policies, targets and accounting rules.

Some respondents indicate that the annual accounting cycle that applies to sectors covered by the effort-sharing decision (ESD) would not be appropriate for the LULUCF sector, as it could lead to errors in the annual accounts.

Several respondents, including NGOs, one agricultural organisation and one Member State, consider that option 1 would contribute best to maintaining environmental integrity. These respondents deem it important that the current carbon sink represented by LULUCF is not used to offset emissions in other ESD sectors.

Respondents from all interest groups also indicated a number of disadvantages of option 1. It would involve maintaining a divided approach to emissions/removals from agriculture and other land uses. For some respondents, it would thus have limited policy coherence. A number of respondents from various interest groups (sector organisations, academics, Member States) assumed that there would be no flexibility between the LULUCF pillar and other ESD sectors. According to some respondents, this would entail higher marginal abatement costs in the LULUCF sector and/or in the ESD.

Beyond the potential implications for marginal abatement costs, some NGOs fear that option 1 would not provide actors in the LULUCF sector with sufficient incentive for enhanced mitigation.

Option 2 — Land-use sector pillar: Merging LULUCF and agricultural nonCO2 emissions into one new independent pillar of the EU’s climate policy

Slightly under a fifth of respondents who identified a preferred option were in favour of merging LULUCF and agricultural non-CO2 emissions into a separate pillar. This option is more often supported by stakeholders in the agriculture sector. It is also supported by three Member States (subject to certain conditions) and a few individual businesses and research institutes.

The advantages put forward by respondents in favour of option 2 underline the integrated and holistic approach for agriculture and the forestry sector. Option 2 could promote the development of a coherent mitigation policy and a longterm policy vision. For agricultural activities, the merger of all emissions/removals into one pillar could ensure better alignment with existing agricultural policies and facilitate the use of the CAP as a means of promoting climate mitigation action in the sector. This in turn could improve the visibility of the issue and encourage farmers/foresters to maximise carbon stocks on their land.

According to some farmers’ organisations and Member States with limited agriculture mitigation potential, option 2 would enable the implementation of cost-effective solutions. On the other hand, other respondents, notably environmental NGOs, argue against this flexibility/trade-off.

Option 2 would also have several disadvantages. It would require a substantial overhaul of current EU climate policy. A number of Member States, NGOs and industry respondents anticipate that targetsetting for the agriculture and forestry sectors, especially establishing an ex ante target, would raise considerable difficulties given the complexity of merging two different emission sources. This could also result in major accounting uncertainty. As with option 1, some Member States, researchers, agricultural and industry sector respondents note that, in principle, the creation of a sector-specific target reduces flexibility between sectors and therefore the potential cost-effectiveness of mitigation measures and actions.

Other issues raised include the fact that the withdrawal of agricultural emissions from the ESD could be criticised as a retrograde step in the EU’s commitment vis-à-vis the international community and that removing non-CO2 agricultural emissions from the ESD could lead to the loss of close links between the agriculture and waste sectors under the ESD.

Option 3 — Effort sharing: Include the LULUCF sector in a potential future ESD

Overall, approximately 10 % of respondents were in favour of integrating the LULUCF sector in a future ESD.

Option 3 is considered by a wide range of respondents to constitute the most coherent approach to GHG reduction targets, since it would integrate all relevant sectors under the ESD. In addition, it is the only option that would consider agricultural and wood supply chain emissions together. For some respondents, this should encourage a more integrated and systemic approach to climate mitigation in these supply chains.

Some Member States and researchers suggest that option 3 could constitute a good approach to the issue of accounting for biomass use for energy. Under Intergovernmental Panel on Climate Change (IPCC) rules, CO2 emissions from biomass combustion are not added to energy emissions, on the assumption that related carbon stock changes are captured in the LULUCF sector by a respective decrease in carbon stocks. For several respondents, this is seen as leading to major gaps in biomass emission accounting and option 3 would be a means of creating the necessary linkages.

Option 3 is considered by many as providing the greatest flexibility to achieve the ESD target. Some Member States are of the view that the combined treatment of ESD and LULUCF would offer them the flexibility they need to achieve their overall target in the most cost-effective manner.

For other respondents, one of the main disadvantages associated with option 3 is the risk that the carbon sink represented by the LULUCF sector would be used systematically to offset emissions in other ESD sectors, thereby undermining the general objective of the climate and energy framework.

Respondents from the forestry sector are typically concerned that option 3 would put additional pressure on forests to play a carbon sequestration role in the EU. This would constrain the development of the forestry sector in terms of wood production for biomass.

For some respondents, it would be detrimental if the LULUCF target under option 3 were to be calculated according to the current ESD criteria (GDP per capita), as this would not reflect the real potential contribution of LULUCF at Member State level.

Some also highlight that option 3 could create a greater level of uncertainty in view of the variability in emissions observed in the LULUCF sector and the absence of a robust and stable accounting system for forestry in particular. Respondents from all groups (researchers, Member States, NGOs, sectoral organisations) further stress the substantial methodological and accounting issues posed by option 3.

Stakeholder responses suggesting a combination of options

A number of respondents proposed a combination of options as their preferred approach.

Respondents in favour of a combination of options 1 and 2 stress the need to address LULUCF independently. While option 2 is appealing in that it would embrace different aspects of agricultural land management, respondents recognise the technical challenges of such an approach.

The combination of option 1 with option 3 is deemed to combine the advantages of option 1 — mitigation policy measures and action and specific accounting rules adapted to LULUCF — with those of option 3, especially the flexibility and the cost-effective mitigation solutions expected to come from the incorporation of LULUCF in the ESD target.

A few environmental and climate NGOs believe that, under all options, it is forest management that raises most difficulties. Accordingly, they believe that forest management should be separated from other LULUCF sectors and dealt with independently, while nonCO2 emissions from agriculture and the remaining LULUCF activities (cropland management, grazing land management and wetland drainage and rewetting) should be integrated into the ESD.

Summary of the ‘Agriculture and LULUCF in the 2030 EU Climate and Energy Framework’ stakeholder workshop (Brussels, 14-15 September)

The workshop took place in a positive atmosphere, with substantial debate on outstanding issues. There was a very high turnout of registered participants and several last-minute arrivals, including Member State permanent representations, ministries and other regulatory agencies (AT, BE, CZ, DE, DK, EE, ES, FI, FR, HU, IE, LT, LV, LU, MT, NL, PL, PT, RO, SE, SK, UK + CH, NO); forestry and farmers’ associations (EU state forests, EU forest owners, COPA-COGECA, etc.); business associations (European Paper Industries, European Biogas Association, Cement Association, etc.); environmental NGOs (Climate Action Network, EEB, etc.); think-tanks and academia.

Some key messages emerging from the workshop were:

There was broad agreement that accounting rules are strongly linked to environmental integrity. Particularly intense discussion took place on forest management and on the risk that it may flood non-ETS sectors with credits unless stringent reference levels are determined;

Significant support was voiced for simplification, modernisation and land-based accounting. There was general acceptance of current accounting rules for harvested wood products and agricultural non-CO2 gases. Policy design should increase transparency on how carbon/biomass is moved between sectors and Member States;