The need for national flexibilities in the EU climate policy framework

To implement the EU's overall climate targets, they are generally broken down into more specific targets for economic sectors, individual Member States and specific years or time periods. This helps ensure a steady progression towards the overall target and a balanced and fair sectoral and geographic partition of efforts.

However, in practice, there may be deviations from these specific targets because of economic trends and national circumstances, as well as technological developments, disruptions and disturbances. For example, a Member State's greenhouse gas (GHG) emissions in a given year and sector may be higher or lower than original targets because of economic booms or recessions. A cold winter may lead to higher emissions related to the heating of buildings, or a faster than expected roll‑out of solar panels may reduce emissions from electricity generation. A drought may reduce hydropower output, leading to higher emissions from fossil power plants. Wildfires may cause forests to emit carbon, instead of removing it.

For this reason, EU climate legislation allows for flexibilities between time periods, sectors and Member States. National flexibilities provide Member States with more options to achieve the overall targets; it should not lead to a weakening of the overall ambition, so must be designed in such a way that the achievement of the overall EU target is not compromised.¹ National flexibilities do not necessarily lead to simplification: in fact, they may also introduce additional administrative complexity.

European Climate Law

The European Climate Law sets precise targets for 2030, 2040 and 2050. These concern the reduction of EU net emissions (gross emissions minus carbon dioxide removals) compared to 1990 levels: a 55 % decrease by 2030, 90 % by 2040 and 100 % by 2050. The use of a net emissions target, without separate, explicit targets for emissions or removals, offers greater flexibility in its achievement. However, to ensure that this reflects a genuine reduction of emissions, only 225 million tonnes CO₂ equivalent (Mt CO₂e) of LULUCF removals may be factored into calculating the net emissions for the 2030 target. For the 2040 target, at least an 85 % reduction of net emissions (in comparison to 1990 levels) must be achieved domestically in the EU. The other 5 % can come from high‑quality international carbon credits under Article 6 of the Paris Agreement. This is permitted via Article 4(5)a of the European Climate Law (as amended in 2026); the Climate Law mandates the Commission to establish rules and criteria for the use of the international credits. This will be included as part of the review of EU climate legislation in the upcoming climate package for the decade ahead, as outlined in the 2026 Commission work programme.

As the targets in the European Climate Law are EU‑wide, this creates an enforcement challenge. For this reason, the EU has chosen a soft governance approach based on the Governance Regulation and operationalises this 2030 target through the main pillars of the EU climate policy framework (last revised in the fit for 55 package). The ESR and the ETS aim to reduce emissions by 40 % and 62 %, respectively, compared to 2005 levels, while the LULUCF Regulation sets a 2030 target of 310 million tonnes of net CO₂ removals.²

Effort‑sharing Regulation

Regulation (EU) 2018/842 (ESR) sets out national targets for emission reductions by 2030, compared to 2005 levels, in sectors not currently covered by the EU ETS.³ The national targets range from 10 % to 50 % reductions, taking account of Member States' different capacities. In addition to the national 2030 targets, there are annual emission limits for the 2021‑2030 period, operationalised through annual emission allocations (AEA) for each Member State. Compliance with the ESR will be formally assessed in 2027 for the 2021‑2025 period and in 2032 for the 2026‑2030 period.

The ESR offers Member States certain flexibilities in the use of their AEAs.

Borrowing: If a Member State exceeds its AEA in a given year, it can borrow from its own AEA for the following year. For the years 2021‑2025, borrowing was limited to 7.5 % of the following year's allocation (Article 5(1)) and for the years 2026‑2029, the limit is 5 % (Article 5(2)).

Banking: If a Member State's emissions in a given year stay below its AEA, it may bank the surplus and use it in subsequent years, up to 2030 (Article 5(3)). The bankable amount for 2021 was limited to 75 % of the Member State's AEA for that year. For subsequent years, the bankable amount is up to 25 % of a Member State's cumulative allocations up to that year.

Transfers between Member States: For the years 2021‑2025, a Member State could transfer up to 10 % of its AEA for a given year to other Member States. For the years 2026‑2030, the limit is 15 % (Article 5(4)). Moreover, if a Member State's reviewed emissions for a given year are below its AEA, after taking account of other flexibilities, it may transfer the excess amount to other Member States (Article 5(5)). Transfers usually involve a payment, and Member States are advised to use revenues from the transfer of AEAs for climate action in the EU or third countries, but are not obliged to do so.

LULUCF flexibility: If a Member State exceeds its AEA under the ESR for a given year after having used any banked AEAs, it may use excess net greenhouse gas removals under the LULUCF Regulation to make up for the shortfall (Article 7), up to a limit set out in Annex III of the ESR and under the condition that the Member State meets its separate LULUCF targets. On the other hand, if a Member State had higher emissions than removals in the LULUCF sector over the 2021‑2025 period, its AEAs under the ESR will be reduced accordingly in the future (Article 9(2)).

Safety reserve: In addition to the above flexibilities, a safety reserve of 105 Mt CO₂e is available to low‑income Member States⁴ that over‑achieved their targets under the Effort‑sharing Decision (2013‑2020) but have exceeded their AEAs in the 2026‑2030 period, after making use of all flexibilities (Article 11). An eligible Member State can receive AEAs from the safety reserve. The amount of AEA received can correspond to the volume of excess emissions between 2026 and 2030, but no more than 20 % of its overachievement in emissions from the 2013‑2020 period. if the resulting collective quantity (of all eligible Member States) exceeds the volume of the reserve, the quantity for each eligible Member State is reduced on a pro rata basis. On the other hand, if the volume of the reserve exceeds the collective quantity, the remaining amount is distributed among eligible Member States proportionally to their remaining shortfall, but not exceeding it.

ETS to ESR flexibility: Nine Member States⁵ listed in Annex II of the ESR may cancel a limited amount of ETS allowances that would otherwise be auctioned, and receive a corresponding amount of AEAs (Article 6). All of the eligible Member States, except the Netherlands, have decided to use this flexibility at some point since its inception (Sweden has only done so since 2025). The eligible Member States could revise the amount of allowances to be cancelled once in 2024 and can do so again in 2027. In 2024, Denmark and Luxembourg decided not to use this flexibility between 2026 and 2030.

LULUCF Regulation

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 (LULUCF Regulation), sets national targets for increasing net GHG removals⁶ in the land use sector. For the year 2030, the EU‑wide target for carbon removals is 310 Mt CO₂e.

Five‑year compliance periods: Because LULUCF emissions and removals depend on external circumstances such as sunshine, rainfall, pests and diseases, they can vary significantly from year to year. For this reason, the LULUCF Regulation uses multi‑year compliance periods, rather than annual targets. For the 2021‑2025 period, each Member State had to ensure that accounted emissions in the LULUCF sector are balanced by equivalent removals (the no‑debit rule).⁷ For the 2026‑2029 period, each Member State has a budget that specifies its allowable annual emissions/removals. For the year 2030, all Member States have specific targets that collectively add up to the EU‑wide target. Compliance with the regulation is assessed separately for the 2021‑2025 and 2026‑2030 periods. Banking of over‑achievements (in targets) between these two compliance periods is not allowed.

ESR flexibility: If a Member State had net accounted LULUCF emissions over the 2021‑2025 period, or exceeds its budget for the 2026‑2030 period, it may cancel an equivalent amount of its surplus AEAs under the ESR (Article 12(1) of the LULUCF Regulation).

Transfers between Member States: If a Member State achieved net LULUCF removals over the 2021‑2025 period, or stays below its budget for the 2026‑2030 period, it may transfer the difference (after the use of other flexibilities) to other Member States (Article 12(2)). In the same way as with AEA transfers, Member States are encouraged to use revenues from such transfers for climate action in the EU or third countries.

Managed forest land flexibility: This flexibility is available to Member States that failed to comply with the no‑debit rule in the 2021‑2025 period, despite proven early efforts to maintain or enhance the carbon sink of their forests (Article 13).⁸ To ensure environmental integrity, this flexibility can only be used if the EU as a whole complied with the no‑debit rule.

Accounting for natural disturbances: At the end of the 2021‑2025 period, Member States were able to exclude emissions from natural disturbances in managed forests (such as droughts, forest fires, pest outbreaks, windfall or diseases) from their emission accounts, if emissions from these disturbances exceeded the average emissions caused by natural disturbances in the 2001‑2020 period (Article 10). Subsequent removals on the land affected by disturbances were excluded from calculations for targets until 2025.

Land use mechanism: For the 2026‑2030 period, this mechanism allows Member States to offset shortfalls from their target (Article 13b), subject to various conditions. The total amount to be offset is limited to 178 Mt CO₂e and is only available if the EU achieves its 2030 LULUCF target.

EU emissions trading system (ETS)

The EU ETS is, by nature, a very flexible instrument. The quantity of emissions allowances is an EU‑wide cap. Only a limited and annually decreasing number of new emission allowances are issued each year, through auctioning and through free allocation.⁹ Allowances can be banked and used in later years,¹⁰ and can be traded among market participants. They are valid in any participating country¹¹ (which are the EU Member States and countries in the European Economic Area). The EU ETS covers the electricity generation, industry, aviation and maritime transport sectors. This set‑up allows operators maximum flexibility to reduce emissions in the most cost‑effective way.¹² The ETS implements the principle of technological neutrality to achieve economically efficient decarbonisation.

Conclusion and outlook

The flexibilities provided in the Effort‑sharing Decision (2013‑2020) functioned well, allowing the EU to achieve its overall targets in the effort‑sharing sector via banking and borrowing AEAs, and thanks to a few transfers between Member States. The use of the flexibilities for the 2021‑2030 period could prove more difficult, because some of them (for example, the managed forest land flexibility of the LULUCF Regulation) depend on the achievement of EU‑wide targets, or on the achievement of national sectoral targets. While this is necessary to ensure environmental integrity, it means it is impossible for a Member State to know in advance whether certain flexibilities will become available or not. The Commission's Climate action progress report of 2025 points out that some Member States will face difficulties in meeting their ESR and/or LULUCF targets without transfers from other Member States and highlights that national efforts must be kept up and reinforced to ensure that the overall EU targets in the ESR, LULUCF Regulation and European Climate Law are met.

The Commission's upcoming legislative proposal on national targets and flexibilities for the 2031‑2040 period, planned for Q4/2026, will need to balance the need for flexibilities with the requirement to achieve the 2040 target set out in the European Climate Law – while simultaneously safeguarding the competitiveness of EU industry. Article 4(5) of the Climate Law lists 20 elements to be taken into account in the post‑2030 climate policy framework, notably 'enhanced flexibility within and across sectors and instruments' and a 'realistic contribution of carbon removals' that acknowledges the uncertainties of natural removals (such as through forests or wetlands) and does not require other sectors to compensate for any shortfall in this area.