Making the EU ETS and ESR legislation compatible with the Paris Agreement

In the 2015 Paris Climate Agreement, countries engaged “to limit temperature increase to 1.5°C above pre-industrial levels”, as going beyond that threshold would bring dangerous and irreversible impacts. Multiple assessments have made it clear that we are currently not on track to achieve this objective and are heading towards a 2.5°C temperature rise. Two important EU instruments to do this are currently being revised: The Emissions Trading System (ETS) governing emission reductions in the power and industry sectors by limiting emissions from around 10,000 major emitting installations; The Effort Sharing Regulation (ESR) which sets targets for each Member State to limit emissions not covered by the ETS (mainly in the agriculture, buildings, road transport and waste sectors). This paper looks at possible scenarios to bring the ETS and ESR in line with 1.5°C compatible carbon budgets.