Carbon sequestration in agricultural land as a regulatory tool for reducing emissions
As the European Commission says, if the EU wants to prevent climate change from reaching dangerous proportions, it must reduce greenhouse gas emissions as part of a wider international effort. In this context, the Commission has long initiated various surveys to continuously map the situation and assess recent, current or future trends. Read some of the reports and analyses that address these trends in relation to emissions, the potential for emission reduction through agriculture, the readiness of companies to implement emission reduction in their plans and an analysis of the state of the EU carbon market to date.
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EU ETS emissions fell during the COVID-19 pandemic
The coronavirus pandemic had a significant impact on carbon emissions in Europe. In 2020, emissions from stationary installations covered by the EU Emissions Trading System (EU ETS) decreased by 11.4% (surpassing the 9% decrease recorded in 2019). ETS emissions from aircraft operators fell by 63% as air traffic almost came to a halt during the pandemic. According to Member State projections, ETS emissions are expected to decrease by 41% to 48% by 2030 and by 55% to 62% by 2040 compared to 2005.
Most of this decline can be expected in the energy sector. According to the European Environment Agency’s (EEA) annual report, The EU Emissions Trading System in 2021: trends and projections, this is a slowdown compared to historical declines. The report analyses recent, current and future trends in emissions under the EU ETS, as well as the balance between supply and demand for emission allowances in the market.
According to the report, the impact of the COVID-19 pandemic led to such an unexpected drop in emissions in 2020 that even the latest projections do not yet fully reflect this reality. The report also notes that the number of available allowances has exceeded annual emissions for the first time since 2013, largely due to low demand. Carbon prices fell sharply in March 2020 but recovered by the end of the year. The report therefore stresses the need to take adequate measures to prevent a resurgence of pandemic-related emissions.
The potential of soil in reducing global emissions
Soil can be a source of CO2 emissions, but it can also remove them from the atmosphere. As soil stores significant amounts of carbon, a small increase could mitigate many global greenhouse gas (GHG) emissions. The Intergovernmental Panel on Climate Change (IPCC) scenarios show that limiting global temperature increases to 1.5°C or 2°C by the end of the century will not be possible without significant removal of CO2 from the atmosphere. “Soil carbon sequestration” (SCS), which occurs when the difference between CO2 removal and CO2 emissions is positive, can make an important contribution to this process.
The OECD report, Soil Carbon Sequestration by Agriculture, reviews the available practices for increasing net SCS in agricultural soils, summarises the evidence on the global mitigation potential of these practices and discusses options for their adoption. Studies estimate that net soil carbon sequestration on agricultural soils could offset 4% of annual global human-induced greenhouse gas emissions over the rest of the century, making a significant contribution to meeting the goals of the Paris Agreement.
The report also stresses that in order to realise this potential of the agricultural sector, a policy package is needed to increase global soil carbon stock. The available policy options for stimulating the uptake of clean SCS practices include, but are not limited to, market-based instruments that bring a wide range of policy measures, including instruments that directly or indirectly influence or shape the price of carbon, grants and access to credit.
Deloitte European CFO survey: cutting carbon means cutting costs
Twice a year, Deloitte conducts a survey of European CFOs asking for their views on the current economic and financial situation and related issues. In the autumn of 2021, The European CFO Survey focused on companies’ actions on climate change.
Europe is currently in the midst of a transformation to become more climate-friendly. Many decisions to reduce carbon emissions and combat climate change in other ways have cost implications, and CFOs are therefore involved in these decisions. The transformation required to reduce emissions is a challenge at every level and for all stakeholders, but it also offers new opportunities for cost savings and growth.
Currently, 56% of European businesses have a clear plan to reduce climate emissions, 37% do not. Moreover, 14% of companies with a plan are very slow to meet their targets and will not reach them until 2040 or later. It is clear that many companies need to formulate a carbon reduction strategy that will make it easier to measure what companies are achieving. They should be motivated by the fact that acting on climate change often offers direct cost-saving opportunities.
Final report on the EU carbon market finds no major flaws
In order to examine trading patterns and the potential need for targeted action in more detail, the European Commission asked the European Securities and Markets Authority (ESMA) for a first preliminary assessment and mandated it to analyse emissions trading by early 2022. ESMA published its Final Report on the EU Carbon Market on 28 March 2022.
ESMA’s report presents an in-depth analysis of trading in emission allowances and emission allowance derivatives based on available data collected from various sources. This analysis has shown that no fundamental flaws in the functioning of the EU carbon market have been found at present. Nevertheless, ESMA has made a number of policy recommendations to improve market transparency and monitoring.
ESMA’s report provides a factual and comprehensive basis for the European Commission, the EU Council and the European Parliament to determine whether they consider it necessary to introduce further measures to regulate the carbon market. Following this, ESMA states that it stands ready to assist, where appropriate, with implementing measures or additional data analysis or advice that could be useful in future considerations of the EU carbon market.