6. Proposal for a revised Effort Sharing Regulation

placed at a disadvantage in international competition. Alternatively, a climate levy equivalent to the German aviation tax could be introduced to finance the SAF-quotas in aviation as proposed in the RefuelEU Regulation.

▪ The possibility to apply reduced taxation rates for public transport and rail: Member

States may decide to apply reduced taxation rates for public transport and rail, as long as they are not lower than the minimum rates for fuels used in agriculture, forestry etc.

6. Proposal for a revised Effort Sharing Regulation

The Effort Sharing Regulation (ESR), as adopted in 2018, sets national targets for emission reductions from road transport, heating of buildings, agriculture, small industrial installations and waste management. These sectors – which were not included until now in the EU ETS - currently generate about 60 % of EU greenhouse gas emissions. To meet the EU's overall emission reductions target by 2030, the Commission is now proposing to reduce emissions under the ESR by at least 40 %, compared to 2005 levels. This is an increase of 11 percentage points compared to the existing target of a 29 % emission reduction.

Furthermore, the Commission proposal keeps the existing architecture and scope of the Regulation, meaning that the ESR will continue to cover the road transport and buildings sectors, alongside their inclusion in a new emissions trading system.

Finally, the ESR proposal is closely interconnected with other fit-for-55 proposals, notably the Energy Efficiency Directive, Renewable Energy Directive, CO2 standards for cars and vans or Alternative Fuels Infrastructure Regulation to help Member States' to reach their targets under the ESR. At national level, these policies need to be complemented by government action to address market failures, such as infrastructure investment, support to the purchase of zero emission cars or support to building renovation in a cost-efficient manner.

Elements of the proposal that should be maintained:

▪ The principles of cost efficiency and fairness should guide the effort sharing.

▪ The flexibilities enabling Member States to reach their targets in a cost-efficient manner, such as the possibility to ‘bank and borrow' emission allocations, should be maintained.

▪ The proposal for the creation of an additional reserve for Member States based on ‘non-used' greenhouse gas removals generated in the EU should be supported.

Elements of the proposal that should be improved:

▪ Providing clarity and coherence regarding the interaction of the ESR and EU-ETS for the new sectors, buildings and road transport.