Europaudvalget 2022-23 (2. samling)
EUU Alm.del Bilag 623
Offentligt
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Denmark’s position paper on an ambitious EU 2040 climate target and a cost-effective EU
climate architecture – a response to the public consultation on the European Commission’s
2040 Climate Target
Denmark’s main priorities for the 2040 Climate Target and implementing climate
architecture
2040 EU Climate target:
The EU’s 2040 climate target needs to be in line with the long-term goal of 1.5 °C and
ensure that the EU is on the right trajectory to reach climate neutrality by 2050 at the
latest and aiming to achieve negative emissions thereafter.
The proposal for a new 2040 target should also include an EU 2035 target in accordance
with the five-year timeframes for Nationally Determined Contributions decided at COP26.
Cost-effective EU climate architecture based on three main pillars:
An EU Emissions trading system for all emissions from energy consumption and industry
to ensure a cost-effective transition with a consistent CO
2
price signal across the
economy. This should include integration of negative emissions on conditions of credible
accounting, long-term storage and sustainability.
An agricultural pillar with a common EU target for agricultural emissions (including net
emissions from agricultural land), achieved to the greatest extent possible through
emissions trading and underpinned by EU-wide climate and environmental sectoral
regulation and an EU common agricultural policy with a greater focus on climate and
environment.
A forestry pillar with common EU regulation of emissions and removals from forests and
other land use.
Supported by:
An ambitious and coherent climate and energy framework with EU-wide enabling
sectoral standards that contributes to a cost-effective reduction effort and technology
development. This should include an assessment of existing regulatory instruments,
including whether the nature and extent of current national obligations and sectoral
targets are fit for adressing the EU’s challenges beyond 2030.
Strengthened leakage protection for emissions covered by emissions trading in the EU at
risk of leakage through measures such as the EU's carbon border adjustment mechanism
in full accordance with WTO rules.
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A 2040 EU GHG reduction target in line with the the long-term temperature goal of 1.5
°C and the EU’s climate neutrality objective
At COP26 in Glasgow in 2021, all Parties to the Paris Agreement resolved to pursue efforts
to limit the temperature increase to 1.5 °C. At COP30 in 2025, the Parties will communi-
cate new climate commitments for the period after 2030 through updated Nationally De-
termined Contributions. The latest assessment report of the Intergovernmental Panel on
Climate Change underlines the scale of the challenge. Global warming is set to bring and
intensify a number of adverse effects, including extreme weather events, droughts, flood-
ing and economic damages.
The EU must present a strong and credible response to the challenge and take on a lead-
ing role in keeping the goal of limiting global warming to 1.5 degrees within reach. The
need to combat climate change is more important than ever. We should therefore step up
EUs climate efforts and secure an ambitious EU 2040 target to put the EU at the forefront
globally. It is crucial that the EU sends a strong political signal to the European citizens and
the world that the EU leads by example to inspire and encourage other large emitters to
follow suit, as well as to ensure the necessary increase in global climate ambitions at
COP30.
This will require setting an ambitious EU economy-wide net greenhouse gas emissions re-
duction target for 2040 in line with the long-term temperature goal of 1.5 °C and which
ensures that the EU is on the right trajectory to reach climate neutrality by 2050 at the lat-
est and aiming to achieve negative emissions thereafter. To be in line with the five- year
timeframes for NDCs, decided at COP26, the Commission’s communication on an EU 2040
target should also include an EU 2035 target.
Along with a deep, rapid, and sustained effort to reduce greenhouse gas emissions, a sub-
stantial amount of removals of CO
2
from the atmosphere is needed as the EU approaches
climate neutrality. It is important that the EU’s climate effort is designed to incentivise this
in the most cost-effective way. The environmental integrity of removals should be ob-
tained by the right regulatory framework and credible MRV schemes.
Incentivise climate action in a feasible and cost-effective way
A higher climate ambition beyond 2030 requires a cost-effective EU regulation to ensure
that an ambitious transition is feasible and provides the right incentives to reduce emis-
sions of greenhouse gases across all Member States and sectors of the European econ-
omy. It is a key task of EU’s climate policy that all Member States are able to reap the ben-
efits of the green transition. EU can only lead by example if we continue to show our citi-
zens, enterprises and the world that the implementation of higher ambitions can be
achieved in a way that is economically sustainable, socially balanced and ensures cohesion
within our societies.
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Denmark therefore encourages the Commission to provide in its communication an over-
all direction for how the EU’s climate regulation can be designed in a more cost-effective
way to be fit for a climate neutral future. European industry, business, citizens and Mem-
ber States are facing decisions on investments in new production facilities, energy genera-
tion, transportation modes, food production and infrastructure that will lay the founda-
tion for the EU’s ability to deliver greenhouse gas reductions towards 2040 and beyond.
Clarity and certainty on the post 2030-regulatory framework will be necessary to guide fu-
ture investments in green solutions and the necessary expansion of infrastructure.
An ambitious EU climate target backed by effective policies will also be crucial to safe-
guard EU’s resilience and energy autonomy, not least by incentivising a faster expansion of
renewables. EU's climate policy should contribute to EU's security and industrial policy
ambitions by strenghtening the EU's energy independence, security of supply and green
industrial production capacity. It will strengthen the competitiveness of EU’s industry and
the EU domestic development and manufacturing of net-zero technologies, putting the EU
at the forefront of the global race. In addition, it will also bring multiple benefits to EU’s
citizens such as cleaner air, reduced pollution, and future-proof employment opportuni-
ties in green sectors and industries.
The Fit for 55 package is a major step forward in the right direction…
The EU has taken an important and decisive step towards a more cost-effective climate
regulation architecture with the Fit for 55 package. The expansion of emissions trading
and EU-wide sectoral standards provide clear rules and a level playing field for businesses
across the EU and a high degree of certainty for delivering the needed reductions.
… but unresolved challenges remain
While carbon pricing and EU standards are set to drive cost-effective emission reductions
from fossil fuels and industry, new challenges are likely to mount towards 2040 not least,
if we follow the same path based on the existing regulatory architecture. Challenges,
which will be necessary to address in the EU’s post-2030 climate and energy regulation in-
clude:
The division of the EU ETS into two separate systems with a number of price-limiting
mechanisms reduces its overall efficiency, cost efficiency and reduction potential.
The EU climate regulation does not provide market-based economic incentives for car-
bon removal technologies.
Sectors regulated through national targets in the LULUCF and the Effort Sharing Regu-
lation have significant differences in the marginal reduction costs between Member
States, which makes the transition more costly than necessary. Nationally binding tar-
gets have so far been less efficient in delivering emission reductions and lack transpar-
ent and effective monitoring and compliance mechanisms compared to EU-wide regu-
lation.
The climate impact of the agricultural sector is only regulated through nationally dif-
ferentiated targets, which distorts competition, increases the risk of carbon leakage,
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creates discrepancies in reduction efforts across Member States and delivers limited
climate effects.
As the EU’s energy system decarbonises towards 2040 and the need to ensure EU’s
energy autonomy has become paramount new challenges arises. The necessary build-
out and integration of renewable energy resources at the scale needed requires a
more coherent and comprehensive EU approach to infrastructure, demand
management and energy storage as well as effective EU-wide energy markets fit for a
net zero energy system.
The Commission’s communication on the EU 2040 Climate Target provides an opportunity
to review the design and overall architecture of the EU’s energy and climate policy. Post-
poning this task will make the transition more costly, slow the green transition and jeop-
ardise our commitment to reach climate neutrality by 2050 at the latest.
A revised climate architecture fit for purpose
In Denmark’s view, the appropriate response to these challenges is to strengthen and ex-
tend carbon pricing to be the primary instrument for ensuring delivery and compliance of
the EU’s climate target. As it is already the case for the sectors in the current Emissions
Trading System (ETS), there is no need for unnecessary double regulation through nation-
ally binding targets in the Effort Sharing Regulation. This is neither beneficial for the cli-
mate nor the EU’s economy as a whole.
Denmark therefore strongly encourages the Commission to present an improved EU cli-
mate policy architecture with a coherent set of policies that can deliver a 2040 target in a
more cost-effective way, reflecting the following main elements:
A uniform price signal across Member States and sectors to ensure the most cost-ef-
fective reduction effort.
The polluter pays the costs of climate change, while those who contribute to removal
of greenhouse gas from the atmosphere should be rewarded accordingly.
A level playing field to reduce the risk of carbon leakage within the EU.
Targeted support to vulnerable groups and businesses to adress possible negative
impacts of carbon pricing in a way that maintains incentives for a green transition.
The EU's climate efforts should be implemented within a framework of sustainable
economic policy and sound public finances. EU-level funding should contribute in an
effective and result-oriented way to achieve EU's climate goals.
To fulfil this purpose, Denmark suggests that a revised climate architecture could be de-
signed based on three main pillars:
1. Emissions Trading System
–
a uniform price signal across energy, industry and
transport sectors
The ETS has demonstrated its worth as the EU’s main climate policy instrument. The ETS
sets an effective carbon price, making it the most cost-effective instrument to deliver on
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the 2040 EU climate target and to incentivise market-driven deployment of low-carbon
technologies and phase-out of fossil fuels across the EU. It boosts green innovation and
applies the polluter pays principle in practice. In addition, it provides revenue that can be
used to support the green transition.
With the Fit for 55 revision, emission trading will be extended to cover approximately 80%
of EU’s total emissions. However, the division of the two ETS systems creates a barrier for
a cost efficient reduction effort across sectors. Denmark therefore strongly encourages
the Commission to merge the two ETS systems from 2030 at the latest to ensure a market-
based, uniform carbon price, sufficient liquidity as well as lower total reduction costs. Con-
sequently, the instruments introduced to limit the CO
2
allowance price in the new ETS for
road transport and heating in buildings with the Fit for 55 revision should be omitted.
The Fit for 55 revision of the ETS means that the last allowances in the existing ETS will be
issued by 2039 and in the new ETS for road transport and heating in buildings by 2044. If
further emissions should be allowed from these sectors, there will be a need to consider
new rules for issuing allowances. To create market-based incentives for delivering the EU’s
climate neutrality target, creation of additional allowances should be balanced by an equal
amount of removals.
Integrating negative emissions technologies in the ETS
To reach the EU’s objective of climate neutrality, a substantial amount of removals of CO
2
from the atmosphere is needed to counterbalance residual emissions. However, there are
currently no economic incentives in the EU’s climate regulation for scaling up and deliver-
ing negative emissions through technological solutions. The Commission should assess
policy options for further incentivising the development and deployment of carbon re-
moval technologies while retaining high ambition for conventional emission reductions.
This could include integrating negative emissions technologies in the ETS – for example by
allocating revenue to installations that generate negative emissions certified through ro-
bust and transparent carbon accounting. This should include a carbon management
framework to ensure that the creation of new allowances is based on physical carbon re-
moval, to prevent an increase of net emissions.
Ambitious and effective EU climate and energy regulation fit for a decarbonised energy
system
Applying an effective carbon price will not in all aspects be sufficient to achieve the reduc-
tions needed. In such cases, an ambitious and cost effective enabling framework with co-
herent EU-wide policies and standards is required. This includes, for instance, strengthen-
ing product standards in the energy and transport sector.
At the same time, a fully decarbonised energy system towards 2040 requires that we re-
think the existing EU regulatory set-up. We need to continue to ensure that the build-out
of the considerable amounts of necessary renewables at the European level is cost-effi-
cient and that sufficient infrastructure is available to create a flexible and integrated EU
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energy market capable of storing and delivering the necessary amounts of renewable en-
ergy to European consumers and businesses. This should also provide the necessary eco-
nomic incentives for Member States, which chooses to build out renewable energy with
the main purpose of exporting renewable energy across borders in the EU. The Commis-
sion is therefore encouraged to evaluate and modernise the EU’s energy regulation with
the aim of ensuring a coherent approach with the right incentives to tackle these key chal-
lenges toward 2040. This should include an assessment of whether the EU’s regulatory in-
struments, including the amount and nature of the existing national obligations and sec-
toral targets, are fit for this purpose.
2. Agricultural pillar with a common EU reduction target- incentives for effective, cli-
mate-friendly, and competitive agricultural production
Total EU agricultural greenhouse gas emissions have been stable since 2005. In addition,
efforts to reduce emissions from agriculture vary between Member States. National ef-
forts to regulate emissions from agriculture that impose costs on producers, come with a
significant risk of carbon leakage internally in the EU and higher costs than necessary. Ag-
riculture will account for an increasing share of EU emissions as the rest of the EU econ-
omy decarbonises. The ETS for road transport and heating in buildings leaves agriculture
as the largest emitting sector of greenhouse gas without effective EU level regulation.
Therefore, a new approach is needed. In Denmark, the government is aiming to present
proposals for domestic pricing of agricultural greenhouse gas emissions to contribute to
Denmark’s 2030 climate commitments. We also need more cost-effective measures in the
EU to ensure that the agricultural sector contributes to the EU’s climate targets. Denmark
therefore proposes a new, more targeted approach with an EU-wide reduction target
combined with ambitious and effective EU-level regulation with emissions trading as the
central instrument. This would create a level playing field, increase cost-effectiveness and
would improve incentives for farmers to reduce emissions and increase removals of green-
house gasses. It could drive innovation and cost reductions in mitigation technologies and
promote efficient and climate and environmentally sustainable food production in the EU.
Denmark therefore strongly supports introducing emission trading for agriculture. An ETS
for agricultural emissions would not only price greenhouse gas emissions in accordance
with the polluter pays principle, it would also ensure that mitigation effort is being taken
at the lowest marginal cost, to the benefit of both farmers and consumers.
The scope of the agriculture ETS should be as wide as feasible; in theory, the most cost-
efficient approach would cover all on-farm emissions and removals. This includes emis-
sions and removals taking place on agricultural soils reported in the LULUCF sector; an in-
tegration of agriculture-related LULUCF CO
2
fluxes with the methane and nitrous oxide
emissions reported in agriculture would allow for a much more integrated policy frame-
work. It could be considered to use revenue generated through emission trading to sup-
port a sustainable transition of the sector.
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At the same time, Denmark acknowledges the possible practical challenges involved in es-
tablishing an all-encompassing greenhouse gas pricing scheme in the EU due to data limi-
tations and concerns about administrative burdens and costs. The climate efforts in agri-
culture could therefore be supported by EU-wide sectoral regulation such as standards for
fertilisers, feed and farm facilities. The Commission is therefore invited to analyse options
for how the EU Common Agricultural Policy in the future could contribute to a larger ex-
tend to the EU’s climate and environment efforts, for example by incentivising climate-
friendly farm practices.
Common EU regulation would significantly level the playing field for European farmers.
This would concurrently contribute to fulfilling three purposes:
1. Eliminate the unfair internal competition between farmers across Member States with
differentiated reduction targets in the Effort Sharing Regulation;
2. Lower the costs of the green transition to society as a whole while ensuring efficient
use of the Common Agricultural Policy; and
3. Reduce the risk of carbon leakage among Member States.
As is the case with all EU climate policy, an ETS for agriculture comes with a risk of carbon
leakage to third countries. Denmark encourages the Commission to explore options for
mitigating such a risk, including by possibly expanding the scope of the CBAM in full re-
spect of WTO trade rules.
3. Separate sector for forestry with a common EU target for net removals.
To reach climate neutrality and net negative emissions in the future, the EU should ensure
a consistent, long-term and sustainable contribution from our forests. Regulating emis-
sions and removals from forestland in a separate forestry sector would allow for a more
focused approach and ensure an appropriate balance between short-term and long-term
climate benefits. A similar approach to the agricultural sector as set out above should be
explored, in which a common EU net removals target is implemented through EU level
regulation rather than differentiated national targets for Member States. As for agricul-
ture, such an approach would enable a level playing field.
Denmark supports looking into options for designing incentives for individual forest own-
ers to increase long-term net removals of carbon from the atmosphere. The EU certifica-
tion framework for carbon removals could turn out to be a valuable tool in this regard, for
example by paving the way for efficient results-based payment schemes and by facilitating
private finance for ecosystem services. Therefore, it is of high importance to ensure the
implementation of a robust and trustworthy certification framework well before 2030.
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