The revision of the LULUCF Regulation: making Europe’s countryside ‘Fit for 55’

On 28 March 2023, revisions to two major climate regulations were adopted, keeping the Union on track to reducing its greenhouse gas (GHG) emissions to 55% of 1990 levels by 2030. In a previous post, I explored one of these reforms, that of the Effort Sharing Regulation (EU) 2018/842. However, it is worth shedding light on that of its less-known ‘sister’ Regulation (EU) 2018/841 on the inclusion of greenhouse gas emissions and removals from land use, land use change and forestry in the 2030 climate and energy framework, known as the LULUCF Regulation (an acronym of Land Use, Land Use Change and Forestry). Here we can see what the LULUCF regime does, what has changed, and how it supports (and is supported by) other environmental laws and policies of the Union.
The LULUCF Regulation has two main aims: promoting nature-based solutions to mitigating GHG emissions, and reducing the impact of land management and forestry practices on climate change (Böttcher et al, 2019).
As for the first, nature-based solutions are increasingly seen as the best way to help keep global warming well under 2°C, in line with the 2015 Paris Agreement. These are solutions that make nature our ally in the fight against climate change (IUCN, 2020). Indeed, while carbon capture and storage (CCS) technology is at best decades away from being deployed at scale (IPCC, 2022), nature already offers us an unbelievable diversity of ways to absorb carbon dioxide at relatively low cost: planting trees, of course, but also restoring wetlands (Dinneen, 2022), preserving desert ecosystems (Boyd, 2022), even protecting biodiversity like whales (Chami et al, 2019). Healthy soils, for example, can store a vast amount of carbon (Chabbi et al, 2022).
As for the second, just as nature can offer us climate solutions, so too can our use of nature worsen the climate crisis. Deforestation is an obvious example, even if it is relatively rare in Europe today. More generally, the conversion of natural or semi-natural areas to pasture, agriculture, infrastructure (i.e. ‘land use change’) can have long-term climate impacts. Instead, preventing land use change is one of the most cost-effective ways to reduce greenhouse gas emissions (IPCC, 2022, p. 38).
Emissions in Europe’s LULUCF sector have been increasing in recent times; indeed, it has become a GHG source instead of a carbon sink (Gensien et al, 2023). European soils have also been degraded, absorbing less carbon over the last decade (EEA, 2022).
The LULUCF Regulation seeks to reverse these trends by instituting both monitoring and reporting requirements and substantive obligations.
Under the regulation, Member States must account for their GHG emissions and removals attributed to natural and managed land. Due to the complexities and natural variations in this area, states report their net GHG totals in five-year cycles, not annually, as they do for their ESR and Emissions Trading System (ETS) emissions. The first LULUCF reporting period – 2021 to 2025 – had only just begun when the proposed revision was published, so the Commission opted to leave the rules for this first cycle unchanged. More substantial changes will enter into force in the second reporting cycle from 2026 to 2030.
In addition, the 2018 LULUCF Regulation sets out a substantive obligation: the ‘no-debit rule'. This requires states to ensure that any extra emissions from land use, land use change or forestry practises are offset by additional CO2 sequestration. In short, if a state’s territory is altered in a way that emits extra GHG or reduces its normal capacity to absorb carbon (like draining a swamp or clear-cutting a forest), this should be compensated by increasing the rate of carbon absorption elsewhere.
The complexity of this system lies in the fact that, in simple terms, it is concerned with ‘extra’ emissions and sinks, those that deviate from what would ‘normally’ be expected for land of a certain category. This requires using modelling to establish a baseline rate of GHG emissions/sinks in relation to each category of land in each state. For forested land, this baseline— called the ‘Forest Reference Level’ — is based on harvesting and regrowth rates under sustainable forest management practises adopted in a state between 2005 and 2009 (ISPRA, 2019). Other baselines are set for other land categories. However, this system has been criticised for leading to ‘hidden deforestation’ (Böttcher et al, 2022) and being too opaque.
Although the revision of the LULUCF leaves the no-debit rule and accounting methods in place for 2021-2025, from 2026 it raises the bar. For one, instead of no-debit, the revision sets a Union-wide target of making the LULUCF sector a net carbon sink, removing 310 Mt of CO2 by 2030. Exactly how much each Member State must contribute to reaching this target will be determined by the Commission in a delegated regulation after the June 2024 European Parliament elections.
While this new target is noteworthy, equally important are the new provisions on how GHG emissions and removals will be calculated.
As mentioned, measuring GHG emissions for the LULUCF sector is far more difficult than for other emitting activities, such as industrial facilities or vehicles (Petrescu et al, 2020). These technical barriers are the reason use of baseline models and accounting methods, such as the Forest Reference Model, has been necessary. This is also why agricultural GHG emissions are split between the ESR and LULUCF sectors. Methane (CH4) and nitrous oxide (NO2) emissions from livestock, fertiliser use and rice cultivation, which account for about two-thirds of total GHG emissions from agriculture in Europe (EEA, 2022), are relatively easy to measure and are therefore reported under the ‘agricultural activities’ category in the ESR. However, about one third of agricultural GHG emissions are more elusive. Primarily in the form of CO2, they are produced by conversion of natural lands to cropland or pasture, disturbance of soils (tillage), decay of organic soils and agricultural burning. At the same time, agricultural soils can serve as carbon sinks (Commission, 2021). This fact has made it necessary to use LULUCF accounting methods and models to assess the net GHG emissions/sinks of croplands, which are thus accounted for separately under the category of ‘land use’ or ‘land use change’.
Thankfully, technological progress has significantly expanded the possibilities for accurately measuring GHG emissions from land. The revision of the LULUCF Regulation takes advantage of these developments to simplify reporting requirements. From 2026, Member States will report their actual GHG emissions and removals from LULUCF directly based on remote (satellite) and in-field data.
These technological advances have lessened the need to split agricultural emissions between the ESR and LULUCF accounts. At the international level, the IPPC and UNFCCC have adopted a single category of Agriculture, Forestry and Land Use (AFOLU) for both non-CO2 and CO2 agricultural sources (Verschuuren, 2022; IPPC, 2022). Some have suggested that the EU should follow suit (Verschuuren, 2022). In fact, the Commission’s initial proposal (COM(2021) 554 final of 14 July 2021) would have done this from 2031, setting a net zero target for AFOLU for 2031 - 2035 and a negative emissions target thereafter. This would have meant that all agricultural emissions needed to be offset or eliminated (e.g., conversion of manure to biogas with carbon capture and storage). However, there is a delicate balance to be struck between addressing AFOLU emissions and safeguarding the security and affordability of the food supply in Europe. The idea of creating a single AFOLU regime was rejected in inter-institutional negotiations, so the division of agricultural emissions between the ESR and LULUCF remains in place, at least for the time being. It is possible that proven success in making LULUCF a net carbon sink by 2030 will make the creation of a single AFOLU regime more feasible in the future.
The achievement of the Union’s LULUCF targets is supported by other initiatives to make the countryside of Europe cleaner, healthier and more sustainable.
‘Climate-friendly farming’, for one, is promoted in the 2023-2027 Common Agricultural Policy (CAP). With the monitoring required under the revised LULUCF, farmers will have more accurate data on the actual impacts of their ‘climate-friendly’ farms, in line with the Commission’s aspirations for 2028 (COM(2021) 800 final). This will also enable the next CAP to better target its environmental incentives. In addition, improving carbon sequestration in agricultural soils is one objective of an upcoming proposal for a soils directive. This directive, which follows on the 2021 Soils Strategy (COM/2021/699 final), could set targets for improving the quality of agricultural soils, which would also help States reach their new LULUCF targets.
The revised LULUCF Regulation is also linked to the proposed Nature Restoration Regulation (COM(2022) 304 final). This innovative law would set targets for Member States to restore at least 30% of terrestrial and marine habitats that are not in good condition by 2030. The potential benefits for the LULUCF sector are considerable: the same practices that promote biodiversity also make natural lands better carbon sinks, such as leaving dead wood in forested areas, restoring biodiversity on agricultural lands, and rewetting organic soils (croplands on drained wetlands).
Thus, even if the most ambitious elements in the Commission’s proposal were rejected, this should not overshadow the significant progress that has been made. Together with these and other initiatives, the LULUCF Regulation has the potential to make the Union’s farms, fields, and forests more resilient and climate-friendly, keeping us on track to reach carbon neutrality by 2050.

The revision of the Effort Sharing Regulation: a key piece of the “Fit for 55” puzzle

The revision of the Effort Sharing Regulation (EU) 2018/842 (ESR) was adopted by the Council on 28 March 2023, after nearly 2 years of negotiations. This may seem like a long delay, but given the complexity of climate change and that of regional cooperation in Europe, it should be no surprise that the Union’s progress on tackling climate change has been slower than some would like. Nevertheless, the adoption of the revision of the ESR is well worth celebrating. Here we will see what it does and how its structure responds to the challenges of GHG mitigation at an EU level in pursuit our common goal: keeping climate change within planetary boundaries (Rockström et al, 2009; Herrington, 2022).
The Union has been an active participant in efforts to tackle climate change since the creation of the United Nations Framework Convention on Climate Change in 1992, increasing the ambition of its GHG reduction targets over time. In 2008, it set a target of reducing GHG emissions by 20% (compared to 1990 levels) by 2020. In 2014, on track to meet this target and on the eve of the 2015 Paris COP, it raised its ambition to 40% by 2030 and committed itself to climate neutrality by 2050. Only five years later, it adopted an even more ambitious goal: 55% by 2030, setting out a programme of reforms and new measures to achieve this target in the “Fit for 55” communication by the Commission (COM/2021/550 final).
Working out the details of the Fit for 55 reforms has taken several years. However, the adoption of the revised ESR (together with the reform of the Regulation on Land Use, Land Use Change and Forestry (EU) 2018/841(LULUCF)) is one critical piece of the puzzle.
The first Effort Sharing Decision (406/2009/EC) was adopted in 2009, replaced by the ESR (Regulation (EU) 2018/842) in 2018. From the start, the purpose of the effort sharing regime has been to set a GHG reduction target for the Union as a whole, then establish what each Member State must do to contribute to reaching the common goal.
The ESR applies only to certain sectors of activity, which together make up about 60% of the Union’s GHG emissions. These activities are road transport, heating of buildings, agriculture, small industrial installations and waste management. This may seem like a haphazard mix of activities, but they have one thing in common: reducing GHG emissions in these areas requires some form of public intervention. This makes ESR activities different from those falling within the Emissions Trading System (ETS) (such as electricity producers, large industrial installations and the aviation industry), where market forces should work to push operators to reduce GHG emissions over time, more or less effectively (Marcu et al, 2022).
What the ESR does is both simple and complex. It sets a specific GHG reduction target for each Member State of the Union (plus Norway and Iceland), which is then translated by a decision of the Commission into its annual emissions allocation (Decision (EU) 2020/2126 of 16 December 2020). The Member State is free to decide how to respect its AEA by using all of the regulatory and market instruments at its disposal: incentives, environmental taxes, GHG emission permits, land use regulation and planning, public campaigns, eco-labels, etc. Some of these instruments fall under other regulations or directives, such as energy efficiency for public buildings and houses, and methane emissions from agriculture (which, starting in 2026, will also be included in the LULUCF GHG targets), but not all.
There is an economic logic behind the choice to set an overall target for each Member State in the ESR, instead of specific targets for specific sectors. The idea is that Member States should use their limited resources wisely. Some types of mitigation actions cost little but reduce GHG emissions a lot; others have high costs and limited benefits. Economic efficiency requires that each state use its resources to do what is politically possible, cheap, and effective, so that they get the highest possible return on their investment, even if conducting a cost-benefit analysis on GHG mitigation is extremely difficult (Köberle et al, 2021). The flexibility offered by ESR allows states to adopt the mix of policy, market and non-market instruments that is best suited to their economic, social and political situation.
Not only do the costs of actions to reduce GHG emissions differ among Member States, but so too do their capabilities and their historical contributions to climate change. The principle of ‘common but differentiated responsibilities’ (Zhang and Zhang, 2022) requires us to take into account the capabilities of each state when deciding who will do what to face a common problem. The fact that different targets are set in the ESR can be understood as a compromise to respect this principle within the European Union’s climate strategy (Steininger et al, 2022).
We can also find this principle at work in the revision of the ESR, which increased Member States’ targets to different degrees. For some Member States, the targets adopted in the revision represent a major increase: Bulgaria, for one, has a GHG reduction target for the first time, even if it is only 10%. Italy’s target was raised from 33% (which it actually met in 2020) to 43.7%. Several Northern European states’ targets are now 50%, although a glance at the table of targets shows that for them, this was proportionately much smaller than the increase for Baltic and Eastern European states, some of which saw their targets more than double.
Since the outset, the Effort Sharing Regulation has included flexibility mechanisms to help states meet their targets. The revision has expanded these mechanisms, while also attempting to prevent them from being used to undermine the Union’s overall 40% GHG reduction target.
First, if a state overperforms in one year (that is, its GHG emissions are below its AEA), they can take advantage of this in two ways. First, they can ‘bank’ the excess and use it in a subsequent year. The previous ESR allowed states to bank 100% of their excess for 2021, and 30% from 2022 to 2029, which the revision reduced to 75% for 2021 and 25% for 2022 - 2029 (however, the Parliament had sought a much stricter limit of 5% and 10%.)
Instead of banking unused AEA, Member States can also transfer part of their unused allocation to another state, up to a maximum of 10% of their excess AEA from 2021 to 2025 and 15% from 2026 until 2029. Thus, a state that has been especially ‘virtuous’ in one year can use that to their advantage. To date, allocation transfer agreements have not been made.
On the contrary, if a Member State emits more than its AEA, the ESR offers it several possibilities. For one, as mentioned, it makes use of its ‘bank’ of unused AEA or acquire that of another state. In addition, certain states (not including Italy) can issue fewer ETS permits, or even cancel existing permits, to cover the gap. Thus, a state that was making good progress in shifting to renewable sources of electricity or green steel production could use this to compensate for a part of their ESR shortfall. Also, states can count some removals through carbon sinks (afforestation, rewetting organic soils) against their AEA. How these removals are calculated falls under the LULUCF regulation and is one of the reasons these two instruments are so closely linked as to be revised together (Romppanen, 2020).
If a Member State is unable to cover its excess emissions with one of these flexibility mechanisms, it must submit an action plan to the Commission setting out, in detail, how it will meet its targets in the future. The revision of the ESR gives greater detail on what this action plan must include and makes them open to public scrutiny. Strategic planning instruments like this are an important regulatory tool found in EU environmental law and can be effective, with sufficient data and oversight at a European level (Braaksma, 2021). Besides drafting an action plan, the Member State also has to make up for the gap in the following years. In fact, the shortfall will be taken away from its future AEA, plus 8%.
One could see the ESR as a top-down solution for climate change: emissions targets established in Brussels, imposed on Member States according to opaque political criteria. At the same time, the momentum behind ‘Fit for 55’ began not in grand halls with round tables, but in the piazzas and on the steps outside the halls of power back in 2018. Citizens of Europe have been calling upon both the Union and their national governments to do more, even taking them to court for their failure to adequately address climate change (Setzer and Higham, 2022). Increasingly, activists have been using strategic litigation against companies and financial institutions (Milieudefensie et al v. Shell, and the pending suit against BNP Paribas), putting pressure on insurers to deny coverage of climate litigation risks (Hodgson, 2022). No doubt this trend will continue.
Some wanted the reform of the ESR to expressly include an article on access to justice, which would have stated that citizens may sue Member States’ governments for failing to meet their targets under the ESR. This proposal, which was advanced by the Parliament (see Amendment 42), was not approved in the final text. Thus, the Commission remains the sole body tasked with enforcing the ESR. This is no surprise given the delicate political questions at stake, including the need to ensure that climate policy is fair and socially equitable (Heyen et al, 2020). However, even if the revised ESR is more ‘top-down’ than ‘bottom-up’, both types of solutions must work together in guiding the Union towards climate neutrality for 2050.