Achieving cost efficiency with the 30% greenhouse gas emission reduction target of the EU

This working paper analyzes the greenhouse gas reduction targets of the EU up to 2020, focusing on the cost efficiency of the targets. Using scenarios calculated with the integrated assessment model TIAM-Nordic, three separate cases of possible targets for the EU ETS and non-ETS sectors are assessed. The results indicate that should the EU shift to a more ambitious emission reduction target of 30% from 1990 levels by 2020, a large majority of the cost efficient emission reduction potential that is required for reaching the more ambitious target lies in the ETS sector. The calculated scenarios also underline the need for increased flexibility for carrying out the emission reductions in the non-ETS. Without flexibility between Member States in the reduction efforts, cost efficiency would be reduced remarkably. Moreover, as the actual reduction potentials of ETS and non-ETS sectors in 2020 can not be predicted accurately, cost efficiency can not be reached by a careful setting of separate targets for the ETS and Member States. Instead, flexibility mechanisms between the ETS and Member States' non-ETS sectors should be introduced.