Annual Activity Report - European Commissionec.europa.eu/info/sites/info/files/activity-report... · The proposal for a 2030 climate and energy framework adopted by the Commission

2013

Annual Activity Report

DG CLIMATE ACTION

Ref. Ares(2014)995316 - 31/03/2014

clima_aar_2013_final 2

Foreword

Human usage of fossil fuels has become the main cause of climate change over the last 50 years. The resulting global warming of the Earth's surface, changes in the hydrological cycle, and changes in the frequency or intensity of extreme weather and climate events have severe consequences for our ability to feed a growing population. There is an increasing awareness that climate action is required at many levels, both to mitigate climate change and to adapt to it.

The United Nations Intergovernmental Panel on Climate Change (IPCC) presented its 5th report on climate science in September 2013. The report says it is unequivocal that climate change is occurring and confirms there is at least 95% certainty that human activities are the principal cause.

In its annual Emissions Gap Report of November 2013, UNEP says that countries' existing emission pledges, if fully implemented, will help reduce emissions to below the business-as-usual level in 2020, but not to a level consistent with the agreed international goal of holding global warming below 2°C limit, thus leaving a considerable and growing 'emissions gap'.

The EU acknowledges climate change as one of the major societal and ethical challenges of the 21st century. The need for urgent action is reflected clearly in the Europe 2020 Strategy and its 20/20/20 headline targets, i.e. to cut greenhouse gases by 20% (30% if the conditions are right), to meet 20% of energy needs from renewable sources and to reach 20% reduction in primary energy use compared with projected levels.

The proposal for a 2030 climate and energy framework adopted by the Commission on 22 January 2014 sets forth new targets for 2030: an ambitious 40% greenhouse reduction target compared to 1990 as the most cost-effective milestone in the path towards a low-carbon and climate-resilient economy in the EU and a renewables target of at least 27%. In this way, a clear signal is given that the EU aims to enhance Europe's competitiveness, to create stability for investors, to boost green jobs and to support the security of energy supply.


Table of Contents

INTRODUCTION 4

DG CLIMATE ACTION IN BRIEF .............................................................................................................................................. 4 THE YEAR IN BRIEF .............................................................................................................................................................. 4 EXECUTIVE SUMMARY......................................................................................................................................................... 6 KEY PERFORMANCE INDICATORS (5 MOST RELEVANT) ............................................................................................................... 6 POLICY HIGHLIGHTS OF THE YEAR (EXECUTIVE SUMMARY OF PART 1) ............................................................................................ 8 KEY CONCLUSIONS ON RESOURCE MANAGEMENT AND INTERNAL CONTROL EFFECTIVENESS (EXECUTIVE SUMMARY ON PART 2 AND 3). .... 12 INFORMATION TO THE COMMISSIONER................................................................................................................................. 13

1. POLICY ACHIEVEMENTS 14

1.1 ACHIEVEMENT OF GENERAL OBJECTIVES .......................................................................................................................... 14 1.1.1 CONTRIBUTION TO KEEP GLOBAL TEMPERATURE INCREASE BELOW 2°C IS NOT ON TRACK AS TEMPERATURE INCREASE IS ACCELERATING 14 1.1.2 CONTRIBUTION TO THE RECOVERY OF THE OZONE LAYER IS ON TRACK BUT THE PROCESS TAKES TIME ........................................ 20 1.2 ACHIEVEMENT OF SPECIFIC OBJECTIVES ........................................................................................................................... 22 1.2.1 ABB ACTIVITY 07 11 (TO PURSUE AMBITIOUS CLIMATE ACTION AT INTERNATIONAL LEVEL) IS ON TRACK TOWARDS A GLOBAL DEAL IN PARIS IN 2015 ................................................................................................................................................................ 22 1.2.2 ABB ACTIVITY 07 12 (TO ENSURE THE EU ACHIEVES ITS 2020 CLIMATE AND ENERGY TARGETS AND TO PREPARE THE TRANSITION TO A LOW CARBON ECONOMY BY 2050) IS PROGRESSING WELL..................................................................................................... 22 1.2.3 ABB ACTIVITY 07 13 (TO MAINSTREAM CLIMATE ACTION INTO RELEVANT POLICIES AND PROGRAMMES AND TO ADAPT THE EU ECONOMY TO INEVITABLE CLIMATE CHANGE SPECIFIC OBJECTIVE) HAS JUST BEEN STARTED .............................................................. 22 1.3 SPECIFIC EFFORTS TO IMPROVE 'ECONOMY' AND 'EFFICIENCY' OF SPENDING AND NON-SPENDING ACTIVITIES................................. 35 EXAMPLE 1: PREPARATION OF EXTERNALISATION OF THE CLIMATE ACTION SUB-PROGRAMME OF LIFE TO THE EXECUTIVE AGENCY EASME36 EXAMPLE 2: RECENTRALISATION OF LEGAL SERVICE PROVISION IN SUPPORT CELL........................................................................... 36

2. MANAGEMENT OF RESOURCES 37

2.1 MANAGEMENT OF HUMAN AND FINANCIAL RESOURCES BY DG CLIMA................................................................................. 37 2.2 BUDGET IMPLEMENTATION TASKS ENTRUSTED TO OTHER SERVICES AND ENTITIES. ................................................................... 44 2.3 ASSESSMENTS OF AUDIT RESULTS AND FOLLOW UP OF AUDIT RECOMMENDATIONS .................................................................. 45

3. ASSESSMENT OF THE EFFECTIVENESS OF THE INTERNAL CONTROL SYSTEMS 48

4. MANAGEMENT ASSURANCE 53

4.1 REVIEW OF THE ELEMENTS SUPPORTING ASSURANCE ......................................................................................................... 53 4.2 RESERVATIONS AND OVERALL CONCLUSION ON ASSURANCE ................................................................................................ 54

DECLARATION OF ASSURANCE 57

ANNEXES

ANNEX 1: STATEMENT OF THE RESOURCES DIRECTOR............................................................................................................ ANNEX 2: HUMAN AND FINANCIAL RESOURCES .................................................................................................................... ANNEX 3: DRAFT ANNUAL ACCOUNTS AND FINANCIAL REPORTS ............................................................................................... ANNEX 4: MATERIALITY CRITERIA ...................................................................................................................................... ANNEX 5: INTERNAL CONTROL TEMPLATE(S) FOR BUDGET IMPLEMENTATION (ICTS) ................................................................... ANNEX 6: IMPLEMENTATION THROUGH NATIONAL OR INTERNATIONAL PUBLIC-SECTOR BODIES AND BODIES GOVERNED BY PRIVATE LAW WITH A PUBLIC SECTOR MISSION (NOT APPLICABLE) ..................................................................................................................... ANNEX 7: AARS OF EXECUTIVE AGENCIES (INOT APPLICABLE) ................................................................................................. ANNEX 8: DECENTRALISED AGENCIES (NOT APPLICABLE)......................................................................................................... ANNEX 9: PERFORMANCE INFORMATION INCLUDED IN EVALUATIONS........................................................................................


INTRODUCTION

DG Climate Action in brief

DG CLIMA's mission is to lead the international negotiations in the areas of climate change mitigation and adaptation and the protection of the ozone layer; to develop and implement EU legislation to meet the 2020 key headline targets and beyond, including robust monitoring, reporting and verification systems; to contribute to the transition towards a low-carbon economy while ensuring a proper adaptation to the consequences of climate change; and the mainstreaming of climate action into other EU policies.

DG CLIMA was created relatively recently, in February 2010. It encompasses 3 directorates and 3 horizontal support cells employing as of 1 January 2014 144 officials and 32 external staff. It benefits together with DG Environment from the services of a Shared Resources Directorate (SRD). With more than 80 % of its staff working on policy development, monitoring of implementation, and enforcement of the legislative climate acquis, and with an overall budget (administrative plus operational) of a modest € 30 M in 2013, DG CLIMA is primarily a policy-making and not a spending DG. The climate –related projects under the LIFE+ programme, limited in size and number, are currently managed by DG ENV with the support of DG CLIMA. As from 2014, DG CLIMA will become a small spending DG as it will take up the management of the climate sub programme of the LIFE instrument 2014-20. This will be implemented partially through two financial instruments to be entrusted to the European Investment Bank (EIB) and partly delegated to the Executive Agency for Small and Medium-sized Enterprises (EASME).

Due to its limited size, the DG is compelled to call upon internal expertise (DG ESTAT, DG JRC, the European Environment Agency in Copenhagen) and fall back on external consultants and experts to complete its knowledge base, via the prescribed procurement procedures. The DG manages in-house the flagship market-based instrument which is the EU ETS (Emission Trading System), encompassing more than 11.000 installations emitting green-house gases. The risk of fraudulent cyber-attacks to the system is omnipresent. Despite many efforts deployed in cooperation with DGs DIGIT and HR/DS, the system remains critical and vulnerable in the fast-evolving IT environment.

The year in brief

The DG was not subject to any major changes or reorganisations in 2013. It has made considerable progress on its objectives in 2013.

In international negotiations at the UNFCCC (United Nations framework convention on climate change) summit in Warsaw, progress was achieved towards a global and binding climate deal to be agreed in 2015 at the COP (Conference of the Parties) 21 in Paris and to enter into force in 2020. Further implementation of the climate and energy legislation package of 2008/9 led to a steady decrease in greenhouse gas emissions which are down by 18 % in the EU in 2012


compared to 1990 levels, even as the economy grew by 45 % over that same period evidencing the decoupling of GHG emissions and economic growth. The EU is well on track to achieve its Europe 2020 headline target of a 20 % emissions reduction. The latest projections show that - with current policy - total emissions in 2020 will actually be 21 % below 1990 levels. A Green Paper launching a public consultation on a 2030 framework for climate and energy policies was adopted in March 2013. The European Council welcomed the Green Paper at its meeting on 22 May, and said it would return to the issue at its meeting in March 2014 after the Commission had come forward with a proposal for the new 2030 climate and energy package.

A proposal for an EU Climate Adaptation Strategy was submitted by the Commission. Adaptation to climate change needs to go hand in hand with continued reductions in greenhouse gas emissions. The adaptation strategy based on the White Paper of 2009 was presented by the Commission in April and was welcomed by the Council in June.

Three pieces of legislation about CO2 from cars; CO2 from vans and fluorinated gases were agreed in ordinary legislative procedure during the year.

In budget terms, an agreement was reached on the Life Programme (2014-2020) in December.

An agreement was reached with the Budgetary Authority on the objective of ‘at least 20% climate mainstreaming’ in the next EU multi-annual financial framework 2014-20. Currently, the rate of climate integration reaches an indicative 6 to 7 %.

In terms of implementation and enforcement of the climate acquis, the conformity checking of Directives remains a priority for the DG. For example, the Commission has asked 6 MS to take the necessary measures to fully transpose the EU Directive on the Carbon capture and l storage (CCS) into their national law and has closed infringement procedures against 10 other Member States as they have now communicated their implementing measures.


Executive Summary

Key Performance Indicators (5 most relevant)

Result/Impact indicator (description)

Trend Target (or milestones) Latest known results as per Annual Activity Report

Ultimate impact ☺ ☺

Transition(shift) to a low carbon and climate resilient economy in the EU 20% reduction of GHG emissions by 2020 (headline target EU 2020 strategy)

Decoupling of GHG emissions and economic growth Minus 16,9 % in 2011 Minus 18 % in 2012 (MS projections)

Most relevant KPI 1: Reduction of GHG emissions (EU 28) Source: EEA

☺


Most relevant KPI 2: Consumption of ozone depleting substances (HCFCs) in the EU Source: EEA

☺ UNEP defines "Calculated levels of Consumption" as "production plus imports minus exports of controlled substances. However, any export of controlled substances to non-Parties are not be subtracted in calculating the consumption level of the exporting Party (paragraph (c) of Article 3)". This explains the negative figures.

Most relevant KPI 3: Number of MS having adopted/implemented a climate adaptation strategy or plan Source: CLIMA-Adapt IT tool (EEA)

2017: all 28 MS have adopted 2020: effective implementation

End 2011: 10 End 2012: 13 End 2013: 16


Most relevant KPI 4: Proportion of climate related spending (mainstreaming) in the EU budget Source: DG BUDG reporting

2014: 13 (or more) % 2020: at least 20 %

2013: 7 to 8% (indicative)

Performance indicator DG- will be replaced by error rate per ABB activity as from 2014 AAR Most relevant KPI 5: Adoption and implementation of Anti-fraud strategy including action on Ethics and Integrity on EU ETS Source: internal assessment

☺

2014: - further implementation of anti-fraud strategy - all staff signs up to the annual reminder to attest their awareness of the ethical rules - all staff have attended dedicated training

2013: - adoption of anti-fraud strategy - adoption of specific Code of Ethics and Conduct in relation to insider training, fraud and disclosure of sensitive information

Policy highlights of the year (executive summary of part 1)

Despite a difficult political and socio-economic environment, DG CLIMA has delivered, with limited resources, on (almost) all items that it was in charge for in the Commission Work Programme (CWP) 2013.

International negotiations

The EU has continued to lead in international negotiations on tackling climate change, in an attempt to limit global temperature increase below 2°C. Good progress was made at the United Nations Framework Convention on Climate Change (UNFCCC) summit in Warsaw in November 2013, a step in a process towards a new international binding legal agreement to be agreed in Paris in December 2015 that would enter into force as from 2020. Key decisions adopted at this conference include decisions on further advancing the Durban Platform, the Green Climate Fund and Long-Term Finance, the Warsaw Framework for REDD1 Plus, the Warsaw International Mechanism for Loss and

1 REDD+ =Reduction of emissions from deforestation and forest degradation


Damage and other decisions.

In terms of protection of the ozone layer, a 'negative' consumption2 of ozone depleting substances (ODS) in support of the recovery of the ozone layer protecting was recorded. The ozone layer seems to be recovering. Fluorinated gases, a substitute for ODS but a potent GHG, are being tackled as well. The Fluorinated Gases Regulation that was adopted in ordinary legislative procedure at the end of 2013 will by 2030 reduce sales of HFC's (hydrofluorocarbons) in steps to one-fifth of today's level, as a phase-down measure banning the use of HFC's in some equipment.

Contribution to the shift towards low – carbon economy in the EU

The policy of reducing GHG emissions is delivering results. The EU's unilateral commitment to cut emissions to 20% below 1990 levels by 2020 includes emissions from international aviation Reports published by the Commission and the European Environment Agency show that - while the EU economy grew by 45% between 1990 and 2011–the 28 MS succeeded in cutting their greenhouse gas emissions by 16,9 % between 1990 and 2011, and that projections for 2012 indicate an estimated 18% reduction. With the help of the 2009 'climate and energy package' of legislation, the Union overachieved its first Kyoto emissions target as it cut back emissions by 14,9 %while the target reduction was 8% in 2008-12 compared to base year ,1990. The EU is well on track to achieve its 2020 headline target of a 20 % reduction. Latest projections show that total emissions in 2020 will be 21 % below the 1990 level.

The Green Paper on climate and energy adopted in March provided a long-term perspective on how the EU will move ahead from its 2020 targets to continue the trajectory towards a low-carbon economy through a comprehensive framework for the period up to 2030, covering greenhouse gas emissions, energy efficiency and renewable energy. The future climate and energy framework should be in line with the objective of 80-95% reduction in GHG emissions in 2050 compared to 1990, foster long term competitiveness, security of supply and sustainability, and provide a long-term perspective for investments until 2030.

The EU Emission Trading System (ETS) remains the cornerstone of EU climate policy. The registry ensures compliance with EU legislation of about 12000 installations (power stations and industrial plants) as well as airlines in 31 countries via a 'cap and trade' system. It also contains assets backing a carbon market currently worth around 40 billion Euros per year. Implementation of phase 3 proceeds successfully, in terms of auctioning of allowances, and free allocations to industry. Following the 'back loading' agreement to postpone auctions of 900 million allowances to 2019-2020, the first step towards a structural reform of the EU ETS has finally been taken.

Despite difficult international negotiations, an agreement was reached in Montreal by the UN Assembly responsible for International Civil Aviation Organisation (ICAO) to develop by 2016 a global market based mechanism (MBM) to tackle international emissions from aviation. The proposal to apply the EU ETS to a reduced scope until a

2 Consumption = production plus import minus export


global market-based mechanism (MBM) becomes applicable to international aviation emissions by 2020, has demonstrated again that the EU is committed to intentional climate action.

Other important legislation was adopted, with the CO2 and Cars and the CO2 from vans proposals (CWP 2013 item) securing the 95g CO2/km 2021 target for cars (and 147g CO2/km for vans), a reduction by one third from the mandatory 2015 target of 130g/km and limiting the use of super-credits, providing manufacturers of low-emission vehicles with additional incentives to produce cars with emissions of 50g CO2/km or less. Emissions in 2012 amounted to 132,2 grams/km and are continuing to decrease.

Carried forward from the 2012 CWP, the initiative foreseen on maritime emissions was adopted by the Commission in the second Q of 2013. The Commission agreed to a gradual approach, with establishing a monitoring, reporting and verification (MRV) system for maritime emissions as a first step. It proposed a legal proposal requiring as of 2018 owners of large ships using EU ports to monitor and report on the ships' annual carbon dioxide (CO2) emissions.

In terms of implementation, The Effort Sharing Decision was further implemented through the adoption by the Commission of national limits on non-ETS emissions for 2013-2020.

In December 2013, the new LIFE Regulation was adopted establishing the Environment and Climate Action sub-programmes of the LIFE Programme for 2014–2020. The total budget envelope of the dedicated Climate Action sub-programme amounts to € 865 M for the 7 years or € 123,5 M on average per year. To compare, under the current LIFE + programme, the Commission contributes about €34.6 million to 29 projects directly tackling climate change.

The Commission has been pro-active in terms of addressing the conclusions of the final evaluation report on LIFE + 2007-13 of December 20123 and the European Court of Auditors' special audit report on the implementation of LIFE+ Environment strand 2005-104 in the proposal for the new LIFE programme and the preceding ex ante impact assessment. The Commission took the findings and recommendations about more focus, EU added value, monitoring, indicators, targets and selection procedure into account in the design of the proposal for the new Regulation for the LIFE programme 2014-2020 and its performance framework.

To address the clear need for more strategic and targeted programming in the new LIFE Programme - as too may objectives lead to dissipation of invested funds- two distinct sub-programmes were created , one for climate change and one for the environment and it was proposed to elaborate the specific priority areas (project topics) under each sub-programme in the Multiannual Work Programmes. Indicative national allocations

3 http://ec.europa.eu/environment/life/about/index.htm#evaluation

4 http://www.eca.europa.eu/Lists/ECADocuments/SR13_15/QJAB13015ENN.pdf

http://ec.europa.eu/environment/life/about/index.htm#evaluation

http://www.eca.europa.eu/Lists/ECADocuments/SR13_15/QJAB13015ENN.pdf


hampering the selection of best projects were abolished in the new climate sub-programme. A serious effort was paid into the design of a performance framework comprising qualitative and quantitative objectives and indicators. Both DG ENV and DG CLIMA strive to improve the quality of the project selection and evaluation, the monitoring of the actions and the dissemination of results in close cooperation with external consultants and the Executive Agency EASME. In order to achieve the objective of LIFE acting as a catalyst for environmental and climate change, innovative features were introduced such as cross-cutting 'integrated projects' to create more EU added value, synergies and coherence with national, regional and local programmes and 'financial instruments' (loan, guarantee, equity) to lever other funds (public or private) in support of large scale projects.

Adaptation, climate mainstreaming and innovation

A new EU adaptation strategy (CWP 2013 item) was adopted by the Commission in April. The strategy’s overall objective is to make the EU more resilient to the inevitable impacts of climate change by anticipating and adapting to them. It sets out a framework and mechanisms for taking the EU's preparedness for current and future climate impacts to a new level; in a related measure, the Commission adopted a Green Paper on insurance in the context of natural and man-made disasters. Adaptation to climate change needs to go hand in hand with continued reductions in greenhouse gas emissions. The strategy aims to promote action by Member States, to climate-proof EU policies and spending by taking into account adaptation needs, and to improve decision-making related to adaptation. If by end of 2017 not all MS have adopted an adaptation plan/strategy, the EU will take a legislative initiative.

A new era has started with the commitment of the EU to mainstream climate action into the EU budget by spending at least 20% of the next Multiannual Financial Framework 2014-2020 on climate related activities. The total budget envelope for Climate Action mainstreaming would amount to 20 % of €960 billion, i.e. climate-related expenditure of €192 billion over seven years or around €27.5 billion per annum in potential investment support to Member States. It means a tripling of available resources for climate action under the EU budget alone. Many financial instruments such as the LIFE programme, Horizon 2020, the Connecting Europe Facility, the Regional Development and Cohesion Funds, the Common Agriculture Policy (CAP) and the Development and Cooperation Instruments will contribute to tripling the current 6% to 7% share. The system for tracking climate expenditure is based on the so-called "Rio markers" which were developed and convened in the OECD (0%, 40 % or 100 % climate related expenditure).

The NER 300 funding programme is a mechanism for the financing of the best possible Carbon Capture and Storage and Renewable Energy projects in the EU, covering 300 million allowances from the New Entrants Reserve of the ETS Directive. The second call for proposals was launched on 3 April 2013. Thirty-two projects were submitted by Member States and are currently being assessed. Awards will be funded in mid-2014 from the sale of the remaining 100 million allowances and unused funds from the first call. Furthermore, an amendment to the first award decision was prepared in 2013 and adopted by the Commission on 31 January 2014.


Communication campaign

The awareness raising campaign 'A world you like with a climate you like' promoting good practises for a low-carbon society was a major success including on social media.

Key conclusions on resource management and internal control effectiveness (executive summary on part 2 and 3). In accordance with the governance statement of the European Commission, DG CLIMA conducts its operations in compliance with the applicable laws and regulations, with high professional and ethical standards.

The Commission has adopted a set of internal control standards, based on international good practice, that support the achievement of policy and operational objectives. As required by the Financial Regulation, the Director-General has put in place the organisational structure and the internal control systems necessary for the achievement of the policy and control objectives, in accordance with the standards and having due regard to the risks associated with the environment in which the DG operates.

DG CLIMA has assessed the effectiveness of its key internal control systems during the reporting year and has concluded that the internal control standards are effectively implemented. Furthermore, DG CLIMA has taken measures to further improve the efficiency of its internal control systems in the areas reported on in Part 3.

In addition, DG CLIMA has systematically examined the available control results and indicators, as well as the observations and recommendations issued by internal auditors and the European Court of Auditors. These elements have been assessed to determine their impact on the management's assurance as regards the achievement of control objectives. Please read Part 2 for further details.

In conclusion, management has reasonable assurance that, overall, the DG's internal control system is effective; suitable controls are in place and are working as intended; risks are being appropriately monitored and mitigated; and necessary improvements and reinforcements are being implemented.

The Reservation on reputational grounds related to remaining significant security weakness identified in the Union Registry for the Emissions Trading System (EU ETS) issued in the AAR 2010, 2011 and 2012 is repeated in the AAR 2013. No reasonable assurance can be provided that the current security measures could successfully prevent a future attack. This security assurance is conditional to lifting the reservation.

However, despite the reservation, as overall, the DG's internal control system is considered effective, the Director-General can still provide reasonable assurance in his Declaration.


Information to the Commissioner

The Annual Activity Report is the management report of the Director-General of DG CLIMA to the College of Commissioners. It is the main instrument of management accountability within the Commission and constitutes the basis on which the Commission takes its responsibility for the management of resources and the achievement of objectives.

The main elements of this report and assurance declaration, including the reservation(s) envisaged, have been brought to the attention of Commissioner Connie Hedegaard, responsible for climate action policies, on 26 March 2014.


1. POLICY ACHIEVEMENTS

1.1 Achievement of general objectives

1.1.1 Contribution to keep global temperature increase below 2°C is not on track as temperature increase is accelerating


Policy Area: CLIMATE ACTION Spending programme ⌧ Non-spending

Target (long-term)

Interim Milestone5 (short-term)

Current situation6 (as achieved)

indicate the target-year

(as foreseen) indicate the milestone year

Preferably in graphical format

5 For a definition of the term, please refer to: http://myintracomm.ec.europa.eu/corp/sg/en/spp/Documents/abm_glossary.pdf 6 For objectives of multi-annual programmes, where intermediate milestones are not available, services may consider presenting progress towards attainment of ultimate

objectives by showing the multi-annual trend.

http://myintracomm.ec.europa.eu/corp/sg/en/spp/Documents/abm_glossary.pdf


General objective 1: to contribute to keeping global average temperature increase below 2 degrees Celsius compared to pre-industrial levels

Impact indicator a: Global (land and ocean) average temperature increase compared to pre-industrial levels (1850-1999)

(EEA – CSI 012 –August 2013)

Stabilise increase below 2°C

Temperature rise of about 0.8°C since 1880 and accelerating


Impact indicator b : Global CO2 emissions (the most important greenhouse gas)

Replaced by atmospheric greenhouse-gas concentrations- (source: EEA – CSI 013 – February 2014)

- 50% by 2050

The value for global atmospheric concentration of carbon dioxide in 2012 is 392.64 ppm.


Global temperature rise (Source: EEA/IPCC)

No less than three independent long term records of global average near-surface (land and ocean) annual temperature show that the decade between 2003 and 2012 was 0.76°C to 0.81°C warmer than the pre-industrial average. Between 1990 and 2010, the rate of change (rise) in global average temperature has been close to the 0.2°C per decade. Global mean surface temperature rose rapidly from the 1970s, but has been relatively flat in the last decade mostly due to heat transfer between upper and deep ocean waters.

The best estimate for the further rise in global average temperature at the end of 21st century is between 1.8 and 4.0°C for the lowest and highest marker scenarios (IPCC or Intergovernmental Panel on Climate Change SRES model) under the assumption that no additional measures to limit emissions are taken. Taking into account climate model uncertainties, the likely range increases from 1.1 to 6.4 °C. The EU target of limiting global average temperature increase to 2 °C above pre-industrial levels is projected to be exceeded during the second half of this century and likely around 2050, for all six IPCC SRES scenarios. By 2100 the global average temperature is likely to increase by 3,7 °C.

Ambition gap and the 2°C limit (Source: Intergovernmental Panel on Climate Change or IPCC)

The IPCC report of September 2013 also shows that developing countries already account for about 60% of global emissions, which underlines that the world simply cannot fight climate change effectively without all economies committing their fair share.

In its (annual) Emissions Gap Report released in November 2013, the United Nations Environment Programme (UNEP) says that countries' existing emission pledges, if fully implemented, will help reduce emissions to below the business-as-usual level in 2020, but not to a level consistent with the 2°C limit, thus leaving a considerable and growing 'emissions gap'.

Atmospheric concentration of GHG gases (source: EEA, UNEP)

The global average concentrations of various greenhouse gases in the atmosphere continue to increase. The combustion of fossil fuels from human activities and land-use changes are largely responsible for this increase.

The concentration of all GHGs, including cooling aerosols that are relevant in the context of the 2oC temperature target, reached a value of 416 ppm CO2 equivalents in 2011


The concentration in 2011 of the six greenhouse gases (GHG) included in the Kyoto Protocol has reached 446 ppm CO2 equivalent, an increase of 168 ppm (around +60%) compared to pre-industrial levels.

The concentration of CO2, the most important greenhouse gas, reached a level of 391 ppm by 2011, and further increased to 393 ppm in 2012. This is an increase of approximately 115 ppm (around +40%) compared to pre-industrial levels.


1.1.2 Contribution to the recovery of the ozone layer is on track but the process takes time General objective 2: to contribute to the recovery of the ozone layer

Impact indicator a: Stratospheric ozone levels (Source: UNEP, ozone secretariat, The 2010 Assessment of the Scientific Assessment Panel

Recovery at the pre-industrial levels by 2050-75

The average total stratospheric ozone levels in 2006 - 2010 remained at the same level for the past decade

False-color view of total ozone over the Antarctic pole. The purple and blue colors are where there is the least ozone, and the yellows and reds are where there is more ozone. Measured in 12 September 2011


Impact indicator b: Global consumption of ozone depleting substances, replaced by % Reduction in Consumption and Production of ozone depleting substances (ODS) such as HCFC's hydrochlorofluorocar-bons compared to 1989 (source: UNEP, ozone secretariat, The 2010 Assessment of the Scientific Assessment Panel )

2030/40 Developed and developing countries (parties to the Montreal Protocol are scheduled to phase-out HCFCs in 2030 and 2040 respectively.

2015 All developingcountries ( parties) to phase-out methyl bromide and methyl chloroform and also achieve a 10 per cent cut in HCFC production and import at 2009/2010 levels.

Reduction achieved by some 98% compared to baseline cap (1989) Light blue= Non-Article 5 Parties (Developed Countries) Dark blue =Article 5 Parties (Developing Countries)


Ozone

Ozone forms a layer in the stratosphere, thinnest in the tropics and denser towards the poles. The amount of ozone above a point on the earth’s surface is measured in Dobson units (DU) – it is typically ~260 DU near the tropics and higher elsewhere, though there are large seasonal fluctuations. The total production and consumption of ozone depleting substances in EEA member countries has decreased significantly since the Montreal Protocol was signed in 1987 - nowadays it is practically zero. Globally, the implementation of the Montreal Protocol by the 197 Parties to the Protocol has led to a significant decrease in the atmospheric burden of ozone-depleting substances (ODSs) in the lower atmosphere and in the stratosphere. Whereas in 1987 production of controlled ozone-depleting substances exceeded 1.8 million ODP-tons annually, by the end of 2012 it had been reduced to some 42,000 ODP-tons (Source: UNEP).

Many of the ODS are also potent greenhouse gases in their own right, some of them are up to 14 000 times stronger than carbon dioxide (CO2), but as they are governed through the Montreal Protocol, they are not separately regulated under the UN Framework Convention on Climate Change (UNFCCC). Thus the phasing out of ODS under the Montreal Protocol has also avoided global greenhouse gas emissions. In 2010, it has been estimated that the reduction of greenhouse gas emissions achieved under the Montreal Protocol was 5 to 6 times larger than that which will result from the UNFCCC's Kyoto Protocol first commitment period, 2008-2012.

1.2 Achievement of specific objectives

1.2.1 ABB activity 07 11 (To pursue ambitious climate action at international level) is on track towards a global deal in Paris in 2015

1.2.2 ABB activity 07 12 (To ensure the EU achieves its 2020 climate and energy targets and to prepare the transition to a low carbon economy by 2050) is progressing well 1.2.3 ABB activity 07 13 (To mainstream climate action into relevant policies and programmes and to adapt the EU economy to inevitable climate change specific objective) has just been started


ABB activity: 07 11 01

Spending programme ⌧ Non-spending

Target (long-term)

Current situation (as achieved)

(Source: UNEP, Ozone secretariat, 2010 Assessment of the Scientific Assessment Panel)

(indicate the target-year)

Specific objective 1: To pursue ambitious climate action at international level by influencing the process and taking the lead

Output indicator a: a comprehensive global legally binding framework to reduce global greenhouse gas emissions (source: UNFCCC website)

By 2015 an agreement within UNFCCC on an ambitious and comprehensive legally-binding framework applying no later than 2020

The Warsaw summit of November 2013 keeps governments on a track towards a 2015 climate agreement - Agreement on a roadmap towards an ambitious result in 2015 - Implementation of former agreements and new decisions adopted on further advancing the Durban Platform, the Green Climate Fund and Long-Term Finance, the Warsaw Framework for REDD Plus cutting emissions from deforestation, the Warsaw International Mechanism for Loss and Damage and other decisions.

ABB activity: 07 12 01

Spending programme ⌧ Non-spending


Specific objective 2: To ensure

the EU achieves its

2020 climate and energy targets and to prepare

the transition to a low carbon economy by

2050.

Result indicator a: Reduction of EU-28

greenhouse gas (GHG) emissions

compared to base year (1990) trends

(source: EEA – CSI

10/11- May 2013/Commission

report October 2013)

-20 % by 2020


Result indicator b: Compliance with the emission cap under the EU ETS Source: Annual report on the European Union's progress towards meeting its Kyoto Protocol target for reducing greenhouse gas emissions

100% compliance (to meet the target of - 21% in EU ETS sector emissions) below 2005 verified emission level

Compliance rate: 98% of the installations that submitted their verified emission on time were in compliance.


Result indicator c: Projected gap to 2020 targets for non-ETS sectors and gap between the 2012 emissions and the non-ETS 2013 target (effort sharing decision) . Negative and positive values respectively indicate over-delivery and shortfall in percentage of 2005 emissions Source: Annual report on the European Union's progress towards meeting its Kyoto Protocol target for reducing greenhouse gas emissions

-10 % by 2020 compared to 2005

First annual compliance check of 2013 emissions by MS in 2015. Negative and positive values respectively indicate overdelivery and shortfall in percentage of 2005 emissions


Result indicator d: Average emissions of CO2 / km of new cars (source: EEA report)

130 grams by 2015 95 grams by 2020

Currently 132,2 grams/km (2012 final figures)


Result indicator e: EU consumption of Ozone Depleting Substances (ODS) in EEA-32 (defined as production plus imports minus exports of controlled substances under the Montreal Protocol) (source source: EEA report - CSI 006- Jan 2013)

End 2019: ban on all imports and exports of HCFC and ban on all production of HCFC’s


Result indicator f: Emission of Fluorinated Gases –(HFCs) Hydrofluorocarbons (source: EEA report, CLIMA indicator 048, report April 2013)

By 2030: Reduce F-gas emissions to a third of 2010 levels: By 2030 emissions (outside agriculture) should be reduced by 72-73% compared to 1990 or 60% compared to 2005


Output indicator g: Awareness / knowledge of EU citizens about climate issues and the opportunities of moving to a low-carbon economy (source : Eurobarometer survey)

Output indicators: The communication campaign “A world you like with a climate you like” which ended 31/12/2013: - The campaign was nominated for the European Excellence Awards 2013 for outstanding accomplishment in the field of communications and PR in the category of Government Agencies and Parties. - 1,9 million views of the campaign web site. - 600.000 unique visitors of the campaign web site. - More than 70.000 followers on Facebook. - More than 3.000 followers on twitter. - More than 230,000 online votes cast in the EU wide challenge with 269 submissions (1 August-6 September 2013). - 1.200 features in European media. - Five billboard campaigns in the capitals of the winners in the focus countries. Results of the Eurobarometer survey end of 2013 : - 80 % of people in the EU recognise that fighting climate change and using energy more efficiently can boost the economy and employment today. This is slightly higher than in the last poll, in 2011, when 78% agreed. - 90 % of Europeans consider climate change a serious problem. A large majority - 69% - believe it a 'very serious' problem and 21% a 'fairly serious' problem On a scale of 1 (least) to 10 (most), the seriousness of climate change was ranked at 7.3. This compares with scores of 7.4 in 2011 and 7.1 in 2009. - Climate change is considered a very serious problem facing the world after poverty and the economic situation. In 2011 climate change had been in second place, after poverty, hunger and water but ahead of the economy.

ABB activity: 07 13 03 Spending programme ⌧ Non-spending


Specific objective 3: To mainstream climate action into relevant policies and programmes and to adapt the EU economy to inevitable climate change

Result indicator a: Number of Member States (MS) which have adopted an adaptation strategy (source: Clima-adapt database hosted in EEA)

By 2017 all MS

end 2011: 10 MS end 2012: 12 MS end 2013: 16 MS: Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Netherlands, Malta, Poland, Portugal, Spain, United Kingdom, Sweden, Ireland, Lituania

Result indicator b: Level of mainstreaming of climate action in other EU programmes and policies (source: Source: European Commission, Draft General Budget of the European Commission for the financial year 2014, June 2013)

At least 20 % in the Multi-annual Financial Framework 2014-2020

In the MFF 2007-2013 an indicative 6-7% could be identified as climate-related spending Projections for 2020 below –draft budget 2014

PS. No data available for the 2nd adaption indicator shown in the MP 2013: "List of EU sectoral policies integrating climate change adaptation considerations". This indicator now has become superfluous as the 20 % mainstreaming indicator has absorbed these data and is a lot more relevant and measurable.


Progress Report towards Kyoto and 2020 targets7

The Commission's annual progress report on EU greenhouse gas emissions contains the latest GHG data (2011 inventory data + approximated 2012 data + 2020 MS projections).

Reduction of GHG emissions:

The EU -28 is on track towards the 2020 target

EU emissions continue to follow the downward trend seen since 2004. While EU GDP grew by 45% between 1990 and 2011, total emissions from the 28 member states, including emissions from international aviation, were 16.9% below 1990 levels in 2011 and an estimated 18% below 1990 in 2012.

The EU's unilateral commitment to cut emissions to 20% below 1990 levels by 2020 includes emissions from international aviation. With the help of the 2009 'climate and energy package' of legislation, the Union is well on track to achieve its 2020 target. Member states' latest projections show that total emissions in 2020, including international aviation, will be 21 % below the 1990 level.

The EU has overachieved its First Kyoto commitment

The report shows that the 15 EU Member States at the time the Kyoto Protocol was ratified have over-achieved their joint reduction commitment for the first period of the Protocol, which ran from 2008 to 2012.

While their commitment called for an annual 8% reduction below base year levels (1990 in most cases), averaged over the period, the actual cut achieved through domestic reduction measures alone is expected to be 12.2%.

The 11 other Member States that have individual emission reduction commitments under Kyoto's first period are also expected to meet their targets.

For the second Kyoto period, which runs from 2013 to 2020, the EU has committed to achieve an average 20% reduction below base year levels annually over the period. The EU intends to fulfil its commitment jointly with Iceland.

CO2 and cars

Carbon emissions of the average car sold in the EU fell 2.6 % between 2011 and 2012, cutting the EU average to 132.2 grams of CO2 per kilometer (g CO2/km). This is close to the 130 g target for the average new car sold in 2015. The average car sold in the EU is now over 20 % more efficient than a decade ago, which is clearly good news. All the main carmakers have met their 2012 targets for vehicles' average carbon dioxide (CO2) emissions, according to the European Environment Agency (EEA). However, most will need to sell increasingly efficient vehicles to meet targets in 2015 and beyond.

7 Report from the Commission on the Progress towards achieving the Kyoto and EU 2020 objectives, Brussels, 9.10.2013, COM(2013) 698 final


Carmakers' rate of progress suggests that future objectives are certainly attainable.

Each manufacturer has a different target, based on the average mass of their fleet, which is gradually phased in, meaning that in 2012 only 65 % of each manufacturer's fleet needed to meet the target, increasing to 100 % of cars in 2015. By 2020, current legislation states that the average car sold in the EU must not emit more than 95 g CO2/km.

Compliance rate of EU ETS

The EU ETS covers more than 12 000 power plants and manufacturing installations in the 27 EU member states, Norway, Iceland and Liechtenstein. From 2012 it also covers emissions from airlines flying between airports in these countries and to closely connected areas.

Companies' level of compliance with the EU ETS rules was again high. Less than 1% of the participating installations did not surrender allowances covering all their 2012 emissions by the deadline of 30 April 2013. These installations are typically small and together account for less than 1% of emissions covered by the EU ETS.

Progress made in reduction of Fluorinated gases (F-gases)

Context: Fluorinated greenhouse gases (F-gases) covered by the UNFCCC’s Kyoto Protocol comprise hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). These F-gases typically have very long lifetimes in the atmosphere and high global warming potentials (GWPs). The gases are mostly produced for use in products and equipment in the refrigeration and air conditioning sector, foams, fire protection etc. Emissions take place mainly due to leakage during the use phase or due to failure to fully recover the F-gases at the end of the product/equipment lifetime. Future F-gas emissions are thus largely determined by (i) present day consumption of F-gases and (ii) measures to prevent leakage and encourage recovery.

Since 1990, EU-27 F-gas emissions have experienced significant growth, more than offsetting an intermittent decrease between 1997 and 2001. While PFCs and SF6 emissions have been reduced to a significant degree, a major rise is observed for HFCs emissions which have tripled since 1990.

In addition to domestic EU production and sales of F-gases, significant amounts of F-gases are also imported and exported. Imports generally increased over the period 2007–2011, while EU production has stabilized at levels that are around 20 % lower than those reported in 2007. When expressed in metric tons, data for the reporting year 2011 show a decrease in production (-5 %), import (-6 %) and intra-EU sales (-12 %) of F-gases compared to the previous year.

Adaptation

An adaptation strategy aims to increase society’s resilience to climate change. It is a framework for managing future climate risk, prioritizing and coordinating action. It offers the potential of reducing future economic, environmental and social cost. A number of EU Member States have already prepared national adaptation strategies.


However, integrated, coordinated EU adaptation action to complement national, regional and local efforts is required since lack of preparedness or inaction in one Member State may have negative consequences for neighboring countries. Many of the adaptation measures required have cross-border dimensions (e.g. for river basins and bio-geographic regions). At the end of 2013 16 of the MS have adopted an adaptation plan or strategy.

Mainstreaming into the EU budget

At least 20% of the entire European Union budget for 2014-2020 will be spent on climate-related projects and policies. This is on top of climate finance from individual EU Member States. Climate action will now be integrated into all the main spending areas. This underscores yet again Europe's leadership in the fight against this crucial challenge as the EU is the first region in the world to mainstream climate action into its whole budget. The 20% commitment triples the current share and could yield as much as €180 billion in climate spending in all major EU policy areas over the seven-year period. This budget marks a major step forward in transforming Europe into a clean and competitive low-carbon economy and helping developing countries adapt to the impacts of climate change.

The system for tracking climate expenditure is based on the so-called "Rio markers" which were developed and convened in the OECD (0%, 40 % or 100 % climate related expenditure).To facilitate the accounting, at aggregated level, a requirement has been integrated in the Programme Statement (2014-20) of each financial instrument by DG BUDG. A bottom-up data collection process will be set up involving Member States, Commission policy DGs, DG BUDG with DG CLIMA in a consultative role. For shared management, guidance documents will be drafted and shared with the MS.

Support from the European Environment Agency in Copenhagen

In 2013, the EEA continued to deliver solid support on the implementation of legislative reporting requirements related to GHG inventories, projections, cars and vans, fluorinated gases and ozone depleting substances. On the ESD implementation, the EEA contributed to the scoping and preparations for the ESD reviews in 2015-2016. The EEA also continued the development of the Climate-ADAPT platform and supported the Commission in the first stages of the implementation of the EU Adaptation Strategy, in particular on the draft Adaptation Preparedness Scoreboard and publications. The EEA also provided expert support for the Commission in preparing the implementing/delegated acts under the Monitoring Mechanism Regulation 525/2013

NER 300

The first NER 300 project, the Italian bioenergy project "BEST", entered into operation in 2013. DG CLIMA participated in the inauguration on 9 October 2013. The project is awarded with a NER 300 funding of 28 million euro and should produce 1.4 TWh renewable energy in the first 5 years of operation. It concerns the design, construction and operation of an integrated biofuels demonstration plant in Crescentino, Italy. The project envisages second generation technology conversion of lignocellulosic biomass from selected energy crops into ethanol.


Policy Outputs

ABB Activity 07 02/07 11.

• Clear progress was achieved towards a global and binding climate deal to be agreed in 2015 at the COP (Conference of the Parties) 21 in Paris. Key decisions relate to further advancing the Durban Platform, the Green Climate Fund and Long-Term Finance, the Warsaw Framework for REDD Plus and the Warsaw International Mechanism for Loss and Damage

• Proposal for ratification of the Kyoto Protocol II

• Proposal for Regulation on international credit entitlements

ABB Activity 07 12

• Proposal of Green Paper on climate and energy measures 2030 followed by preparatory work for the 2030 framework for climate and energy for a competitive, secure and low-carbon economy

• Adoption of the LIFE Regulation 2014-2020 in co-decision

• Adoption of the Monitoring Mechanism Regulation (MMR)in co-decision

• Adoption of the Land Use, Land Use Change and Forestry Regulation (LULUCF)

• Agreement of the new F-gas Regulation

• Agreement on the post 2020 targets for CO2 and Cars/Vans

• Implementation of the Effort Sharing Decision: adoption by the Commission of national limits on non-ETS emissions for 2013-2020.

• Implementation Benchmarking Decision: Decisions on National Implementation Measures for transitional free allocations

• Proposal for 'back loading' of 900 million allowances

• Proposal to apply the EU ETS to the European regional airspace until a global market-based mechanism (MBM)

• Proposal on monitoring, reporting, verification of maritime emissions

ABB Activity 07 13

• Adoption of EU Climate Adaptation Strategy

• Agreement by the Budget Authority on the target of achieving 'at least 20 % climate mainstreaming in the EU budget 2014-2020"

1.3 Specific efforts to improve 'economy' and 'efficiency' of spending and non-spending activities.


According to the Financial Regulation (art 30), the principle of economy requires that the resources used by the institution in the pursuit of its activities shall be made available in due time, in appropriate quantity and quality and at the best price. The principle of efficiency concerns the best relationship between resources employed and results achieved.

The respect of these principles is continuously pursued through the implementation of internal procedures. These procedures ensure that activities are executed in an efficient manner (e.g. the different workflows contribute to efficient cooperation between staff, units, etc.) and according to the principle of economy (e.g. the procurement rules ensure procurement in optimal conditions).

DG CLIMA is continuously fine-tuning its internal arrangements in order to improve the efficiency and economy of its operations. The following initiative shows how these principles are implemented in DG CLIMA:

Example 1: Preparation of externalisation of the Climate action sub-programme of LIFE to the executive Agency EASME As from 2014 DG CLIMA will become responsible for the management of the Climate Action sub-programme under Regulation 1293/2013 that establishes a new "Programme for the Environment and Climate Action (LIFE)" with a budget for the Climate Action sub-programme amounting to € 864 M for 2014-2020.

This is a new and additional core activity for DG CLIMA as the DG has not until now managed any LIFE grants and staff working in-house on the programme management of LIFE are doing this on top of the policy making tasks.

In 2013, the DG, in accordance with the Commission's commitment to simplify the management of future financial programmes 2014-20 (including LIFE), agreed to externalise management of implementation to an existing Executive Agency. Significant preparatory work has been done in 2013 to facilitate a smooth delegation to the Executive Agency for Small and Medium-Sized Enterprises (EASME): contribution to a series of documents such as the cost-benefit analysis for the externalisation conducted by an external consultant, comparing in-house and externalisation scenarios, and its validation by the Commission, and significant input to the preparatory work for the adoption of the delegation act and its annexes.

Around 70% of the Climate Action part of LIFE will be allocated to action grants (projects) to be managed by EASME. The remaining part of the budget will be used for financial instruments managed by the EIB.

Example 2: Recentralisation of legal service provision in support cell As the administrative and legal support cell was building up its capacity, it broadened its portfolio of activities. While at first focusing on complaint and infringement management and handling of access to documents requests, the two legal officers now provide legal advice to operational units on issues like for ex. Intellectual property rights, delegation of powers in legislation, amendments to the EEA Agreement as well as ad hoc legal support to operational units that temporarily face a shortage of legal staff.


2. MANAGEMENT OF RESOURCES Assurance is an objective examination of evidence for the purpose of providing an assessment of the effectiveness of risk management, control and governance processes. This examination is carried out by management, which monitors the functioning of the internal control systems on a continuous basis, and by internal and external auditors. Its results are explicitly documented and reported to the Director-General.

This section reports on the control results and other relevant elements that support the management'' assurance on the achievement of the internal control objectives8. It is structured in three separate sections: (1) the DG’s assessment of its own activities for the management of its resources; (2) the assessment of the activities carried out by other entities to which the DG has entrusted budget implementation tasks; and (3) the assessment of the results of internal and external audits, including the implementation of audit recommendations.

2.1 Management of human and financial resources by DG CLIMA.

This section reports on and assesses the elements identified by management that support the assurance on the achievement of the internal control objectives. Annex 5 outlines the main risks together with the control processes aimed to mitigate them and the indicators used to measure the performance of the control systems.

The budget of DG Climate Action is implemented through direct centralised management. The 2013 commitment appropriations amount to EUR 38.3 million. The table below gives an overview of the budget implementation at 31/12/2013.

Financial overview DG CLIMA:

Expenditure (EUR) Commitment

Appropriations 2013

Committed 31/12/2013 2013 Payments Appropriations

Payments authorised in 2013

LIFE+ 23,396,000 23,290,141 19,820,352 17,920,181 Multilateral Agreements MEA 1,075,392 987,002 1,007,435 986,972 Preparatory Actions 3,000,000 2,946,938 3,000,000 2,483,026 Cross Sub-delegation DEVCO/ENRTP 8,600,000 8,600,000 7,033,692 7,033,692

Cross Sub-delegation ELARG/TAC 20,000 20,000 20,000 8,238

Administrative expenditure 2,242,875 2,177,515 2,461,389 1,733,058

TOTAL 38,334,267 38,021,596 33,342,867 30,165,167

8 Effectiveness, efficiency and economy of operations; reliability of reporting; safeguarding of assets and information; prevention, detection, correction and follow-up of fraud and irregularities; and adequate management of the risks relating to the legality and regularity of the underlying transactions, taking into account the multiannual character of programmes as well as the nature of the payments (FR Art 32).


The consumption of commitment and payment appropriations is satisfactory with implementation rates of 99.2% and 90.5% respectively at year end.

OPERATIONAL STRUCTURE AND FINANCIAL CIRCUITS

At 31/12/2013, DG CLIMA had 184 staff members including contractual agents. The DG is structured around three Directorates, which receive various administrative and financial support services from the Shared Resource Directorate (around 25 FTE in SRD work for CLIMA): High-level organisation chart of DG CLIMA:

Overview financial circuits for payments authorised in 2013 (including sub delegations):

Financial circuit Expenditure EUR million

Partly centralised LIFE+, Preparatory Actions, MEA (mainly procurement) 27,852,608

Centralised

Administrative expenditure (not including co-delegation to OPOCE) 1,733,058

Co and cross sub-delegations to other DGs

Co and cross sub-delegations to OPOCE, DG ENTR, DG ENV and ESTAT (see 3.1.4)

579,501

Total 30,165,167

MANAGEMENT PARTNERS: AGENCIES AND CROSS SUB-DELEGATIONS

DG CLIMA is managing a small number of actions under cross sub-delegation agreements with DG DEVCO (ENRTP - Environment and Sustainable Management of

Director-General

J.Delbeke

A. International & Climate Strategy

International climate negotiations, Policy

development, Climate finance, Emission monitoring

B. European & International Carbon

Markets EU Emission Trading System

(EU ETS)

C. Mainstreaming Adaption & Low Carbon

Technology Low carbon technologies, International negations

(Montreal protocol)

SRD - Shared Resource Directorate (ENV/CLIMA)

HR, budget and finance, internal control, logistics, document management

publications


Natural Resources including Energy). The ENRTP is part of the EU’s response to help developing countries tackle increasing environmental challenges and contribute to the achievement of the Millennium Development Goals on the environment. Through the ENRTP, the EU has dedicated resources to help developing countries and partner organisations address environmental and natural resource management issues.

Control effectiveness as regards legality and regularity

DG Climate Action has set up internal control processes aimed to ensure the adequate management of risks relating to the legality and regularity of the underlying transactions, taking into account the multiannual character of programmes as well as the nature of the payments concerned. The control objective is to ensure that the final amount at risk related to payments authorised in 2013 does not exceed 2% of the amount per ABB activity. As DG CLIMA is managing a very small number of grants, ex-post audits aiming at detection and correction of potential fraud, errors and irregularities are carried out only on request if there is suspicion of fraud or irregularity. No cases were indicated in 2013. The possible error rate on grants is not considered material.

For procurement, the risk of payment-related errors is considered insignificant. The risk of errors related to the selection and award process deemed to be low in the light of the existing control systems.

The Standing Instructions9 provide that the assessment by management should cover the DG's significant budget areas. Procurement and technical assistance amount to 80% of the operational budget. The remaining 20% of operational fund are grants and procurement through the cross sub delegation with DEVCO/ENRTP and operating grants to NGO's. As shown in the table below, the payments authorised in 2013 amount to EUR 30.2 million. Apart from the action grants of € 6 million sub-delegated to DEVCO/ENRTP and of 0.1 million related to preparatory actions and pilot projects, all payments were implemented through procurement and therefore the assessment concentrates on this expenditure. The control strategies for procurement under ABB activity 07 11/12/13 are further explained in the Internal Control Templates in Annex 5.

Overview of payments authorised in 2013 per budget line/ABB:

Domain Budget line/ABB Type of expenditure EUR

Administrative expenditure 07010211 Procurement 1,733,058

Multilateral Agreements MEA 070201 07010404 Subscriptions 986,972

LIFE+ 071201 07010405 Procurement 17,920,181

9 ARES(2012)1240233


Preparatory Actions 071303 Action grants (136.380) Procurement (2.346.646) 2,483,026

Cross Sub-delegation DEVCO/ENRTP 210401 Action grants (5.992.934)

Procurement (1.040.758) 7,033,692

Cross Sub-delegation ELARG/TAC 22010401 Procurement 8,238

TOTAL 30,165,167

There are thorough ex-ante controls of procurement-related transactions in DG CLIMA. In addition to the mandatory initiator/verifier controls of all payments and commitments, procurement specialists in the central financial unit systematically provide advice and support to the operating units in DG CLIMA. Also, a specific procurement advisory committee (ENVAC) performs verifications of all contracts above EUR 300.000 plus a sample of contracts of lower value.

Therefore, reasonable assurance can be provided given: robust ex-ante controls performed in the financial circuit; quality advice by procurement experts to the desk officers and authorising officers in the operating units; independent and positive ENVAC verifications; no significant errors and weaknesses detected by the internal and external auditors; and no fraud cases or Ombudsman cases flagged.

KEY CONTROL INDICATORS

The assessment by management is based on the results of key controls performed in 2013, notably ex-ante controls and controls during project implementation. The table below shows the most relevant quantitative control indicators for 2013 compared to 2012:

Key control indicators for 2013 and 2012:

1. Input indicators (resources devoted) 2013 2012 Ex-ante financial initiation (FTE) 2.5 2.0 Ex-ante financial verification (FTE) 1 0.6 Controls at ENVAC meetings and programming 0.5 SIAC (FTE) 1 1 2. Output indicators (controls during project implementation) 2013 2012 Procurement ex-ante: number of rejected/adjusted commitments 48 of 306 (15.5%) 33 of 258 (12.8%) Procurement: number of procurement files reviewed by ENVAC 9 18 Procurement: number of negative opinions by ENVAC 0 0 Number of exceptions registered (ICS 8) 3 6 3. Other indicators 2013 2012 Number of payments exceeding legal delays 41/579 = 7.1% 26/358 = 7.3% Number of European Ombudsman cases 0 0 Number of OLAF cases 0 0

Remarks: − Ex-ante controls (procurement): The resources allocated to control have gone up in

2013 due to a significant increase in the number of transactions (both commitments and payments) in the financial workflows, with the result of more emphasis and


proportionate effort on ex-ante controls. The number of rejected/adjusted commitments following the ex-ante verification increased compared to 2012, mainly due to the introduction of new back-up initiators in the CLIMA procurement team. The reviews performed by the ENVAC are highly important. The number of files reviewed was reduced to 9 in 2013 compared to 18 in 2012, as DG CLIMA made more use of the Framework Contracts that it had concluded in 2011 and 2012 so that a significant number of commitments were made in respect of specific contracts under a framework contract. No negative ENVAC opinions were issued on CLIMA files. However, a number of procurement files were fine-tuned following on ENVAC’s recommendations, while controls contributed to other, non-significant adjustments, for a number of files concerning both procurement and administrative budget expenditure (conferences, meetings, etc.).

− Exception reporting: The number of recorded exceptions halved in 2013 compared to 2012 (only 3 cases) and remains low. The analysis of the reported cases does not point to any weaknesses in the internal control system.

− Payment delays: The number of payments made by DG CLIMA increased significantly compared to 2012 (an increase of 40%). This upward trend will continue as DG CLIMA reaches cruising speed and moves into a full financial programming and spending cycle. In 2013, 7.1% of all DG CLIMA's payments were paid late as compared to the legal deadlines10. In monetary terms, late payments accounted for 12.8% of all payments. The main reason for payment delays in DG CLIMA in 2013 was payments on grants to international organisations and payments on administrative budget lines. While for the latter workflow a solution has already been established and implemented, producing notable improvements from the second half of 2013, awareness raising on observing payment deadlines within DG CLIMA will continue.

Control efficiency and cost-effectiveness.

The principle of efficiency concerns the best relationship between resources employed and results achieved. The principle of economy requires that the resources used by the institution in the pursuit of its activities are made available in due time, in appropriate quantity and quality, and at the best price. This section outlines the indicators used to monitor the efficiency of the control systems, including an overall assessment of the costs and benefits of controls.

10 (i.e. those automatically generated in ABAC, and those which were in force at the time of making the commitment and signing the grant agreement).


Procurement – Cost of Controls Cost of controls FTE Officials Total n € €

Procurement procedures 0.5

66,000

Financial operations (ex-ante) 2

264,000

Supervisory checks (ex-post) 1

132,000 -

Overall cost of controls 3.5

462,000

The number of FTEs associated with exercising controls has been established and the overall cost of controls for procurement amounts to € 462,000.

The efforts identified above to control procurement procedures over their whole lifecycle contributed towards achieving an insignificant error rate in the procurement cycle in 2013. None of the CLIMA calls for tender were cancelled. Alternative action was taken (through negotiated procedures and re-programming) for 2 calls where there was no award. There was no need for corrections to CLIMA calls. However, one call made under Joint Procurement ended with no award due to the failure of the only consortium that applied to meet the selection criteria, resulting in the procedure being abandoned.

Procurement – Benefits of Controls

Benefits of controls Prevented Detected Corrected Total

€ € € €

Procurement procedures

426,398

426,398 Financial operations (ex-ante) 1,110,087 1,110,087 Supervisory checks (ex-post) 136,216 1,250,905 1,387,121 Overall cost of controls 1,110,087 136,216 1,677,303 2,923,606

The costs of controls performed are matched against benefits derived during the ex-ante phase (as compared to the original management planning), where the full amount budgeted for financial actions in the management plan 2013 was not consumed, meaning that the overall balance of €1.1 million became available for re-deployment. In addition, the supervisory/ex-post checks performed on payments during the running life of the contract led to recovery orders of € 136,216. Finally, there were corrections implemented in 2 procedures where there was no award (total of € 426,398), and correction of non-eligible expenditure prior to payments (which led to de-commitments of € 1,250,905, where the amount has been re-used).

Apart from the quantifiable benefits, the Commission avoided reputational costs and


damages, has not faced any legal action or complaints to the Ombudsman, while the controllers have made every effort to establish and implement the anti-fraud action programme in the DG.

OVERALL CONCLUSION ON THE COSTS AND BENEFITS OF CONTROLS:

DG CLIMA quantified the costs of the resources and inputs required for carrying out the controls described in annex 5 and estimated is so far as possible, their benefits in terms of the amount of errors and irregularities prevented, detected and corrected by these controls.

Overall, during the reporting year, the controls carried out by DG CLIMA for the management of the budget appropriations were cost effective, as the estimated quantifiable benefits exceeded the cost by a ratio of 6 to 1.

In addition, there are a number of non-quantifiable benefits resulting from the controls operated during the programming phase, which aimed to ensure that the financed projects contributed to the achievement of the policy objectives, and from the deterrent effect of ex-post controls. Furthermore, DG CLIMA considers that the necessity of these controls is undeniable, as the totality of the appropriations would be at risk in case they would not be in place.

Fraud prevention and detection

DG CLIMA has developed its anti-fraud strategy as foreseen in the Commission’s overall anti-fraud strategy11. In line with the Commission's Anti-Fraud Strategy (CAFS)12, DG CLIMA has commenced its implementation in 2013. The Anti-Fraud Strategy is built around the following anti-fraud objectives: (i) Maintaining a high level of ethics and fraud awareness within the DG; (ii) Improving the physical security in the CLIMA premises and access to sensitive information; (iii) Ensuring security of ETS through enhanced IT security controls, improvement of risk identification and appropriate level of resources for combating fraud; (iv) Ensuring a secure outsourcing of ETS functions to external service providers (such as the auction monitoring); (v) Strengthening fraud detection in ex-ante and ex-post controls; and (vi) Ensuring an effective fraud-proofing of new legislation.

A specific code of conduct for ethics and good behaviour was issued in July after consultation of central services, with particular emphasis on developing a framework for staff in relation to insider trading, fraud and disclosure of information. The assessment report on sensitive functions was issued in December. DG CLIMA will ensure the continued implementation of all objectives throughout 2014.

11 COM(2011) 376 24.06.2011. 12 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the Court of Auditors on the Commission Anti-Fraud Strategy, COM(2011) 376; Communication to the Commission: Commission internal action plan for the implementations of the Commission Anti-Fraud Strategy, SEC(2011) 787.


During the reporting year, no cases were transmitted to OLAF/IDOC for investigation.

In conclusion, the anti-fraud measures already in place – notably the controls performed through ex-ante and ex-post controls – did not identify any cases of fraud or potential fraud in 2013.

2.2 Budget implementation tasks entrusted to other services and entities.

This section reports and assesses the elements that give assurance that internal control objectives have been achieved as regards budget implementation tasks carried out by other Commission services and entrusted entities distinct from the Commission.

For details, see the ICT in Annex 5.

Cross-sub-delegations

DG CLIMA has entrusted parts of its budget to other DGs through cross-delegations (DGs ESTAT, ENV, ENTR, EMPL, OPOCE). In all these cases, the DG's supervision arrangements are based on a memorandum of understanding with delegated DGs and defined reporting obligations. All delegated AODs have given assurance in their reports on the correct use of funds.

DG

Commitments Payments

ESTAT 238,272

ENV 5,540,000 314,045

ENTR 1,637

EMPL 18,510

OPOCE 18,000 25,547

Total: 5,576,510 579,501

CONCLUSION ON INDIRECT MANAGEMENT

For the 2013 reporting year, the cross-delegated Authorising Officers by Delegation have reported reasonable assurance on the delegated budget managed by them. They have not signalled any serious control issues.

NER 300

The NER 300 funding programme is not financed by the EU budget but by the monetisation of 300 million allowances of the New Entrants Reserve of the ETS Directive. DG CLIMA is responsible for the management of the programme, whereby the


monetisation of allowances and management of revenues is carried out by the European Investment Bank (EIB). In 2013, DG CLIMA signed a service level agreement with DG ECFIN and NER 300 about asset management guidelines with the EIB, in order to establish the asset management of the revenues from the 300 million allowances. The disbursement phase of the programme will start in 2014.

2.3 Assessments of audit results and follow up of audit recommendations

This section reports on and assesses the observations and conclusions reported by auditors which could have a material impact on the achievement of the internal control objectives, and therefore on assurance, together with any management measures taken in response to the audit recommendations.

Below is a summary of the audit work done by the European Court of Auditors (ECA), the Internal Audit Service (IAS) and the Shared Internal Audit Capacity (SIAC). The audits performed in 2013 do not indicate any significant weaknesses in DG Climate Action internal control system.

ECA (EUROPEAN COURT OF AUDITORS)

DAS audit 2012 The audit carried out in relation to the financial statements of DG CLIMA (under the DAS 2012 exercise) revealed no material issues, hence in the discharge report from the Court there is no specific mention of DG CLIMA and no specific preliminary finding was addressed to DG CLIMA. However, in the process of the discharge, the Court audited the common accounting system of DG ENV and DG CLIMA and issued a statement of preliminary findings on 7 June 2013. The auditors mentioned for DG CLIMA that a few payments were made late, that a recovery order was issued late, and that the materiality threshold for accounting mistakes in DG ENV and DG CLIMA was put too high (at 20%). Special report on EU climate finance in the context of external aid The Court of Auditors issued (lead DG: DEVCO) its report on the "Performance Audit on climate change and climate finance to developing countries" (lead DG: DEVCO). The audit examined whether the Commission promotes EU-coordinated efforts to comply with EU international climate finance commitments and to counter fragmentation of climate finance delivery channels. While the audit results are generally positive on the way the Commission has managed climate finance, esp. fast-start finance, the Court is of the opinion that on the basis of enhanced rights through the Lisbon Treaty the Commission could be more proactive in proposing and implementing joint EU initiatives, even if these proposals might be refused by the Member States.


IAS (INTERNAL AUDIT SERVICE)

The IAS, in its audit on focusing on 'the governance and management of the security of the EU ETS IT system", has assessed the control system put in place by DG CLIMA in order to ensure that adequate measures have been identified and are implemented for the governance of the EU ETS system. The IAS audit report reinforces the conclusions of the preliminary risk assessment carried out in-house and issues 8 recommendations in the draft final report to DG CLIMA. Hereafter, the most significant recommendations are listed:

IMPLEMENTATION OF THE ETS'S SECURITY CONTROLS

• The implementation of the security measures for the ETS system should be managed as a specific project, with clearly assigned responsibilities, including the ownership of the process by the ETS Project Steering Committee in order to facilitate the achievement of the objectives.

IT PROJECT GOVERNANCE AND ORGANISATIONAL STRUCTURE

• In cooperation with DG DIGIT and DG HR Security Directorate, DG CLIMA should enhance the governance set-up and the decision making process of the ETS project to ensure that the implementation of the necessary security measures is no longer delayed. The steering committee should endorse a formal charter that clarifies its mandate and the respective responsibilities of its participants.

• DG CLIMA should revise and optimise the organization of the Registry team to ensure a clear attribution of roles, an adequate segregation of duties and the use of the available IT expertise

PROJECT QUALITY MANAGEMENT AND TEST MANAGEMENT

• DG CLIMA should strengthen the quality management for ETS in order to ensure that IT project related activities are controlled, measured and improved. To achieve this objective, DG CLIMA should revise the quality assurance function and the current role of the Quality Manager

• DG CLIMA should develop a test plan to define the part of the system to be tested, the test methodology (appropriate to the operational requirements and environment), the necessary resource to execute testing and evaluate the results, and the criteria for measuring the results of the testing phases

The audit report shows that the set of security measures identified by DG CLIMA are reasonable, given the complexity and challenges facing the system. However, these measures have not yet been implemented to the full extent, which in turn means that the very high security-related risks are not mitigated to the level necessary and jointly envisaged with DG DIGIT.

In summary, as the mitigating actions are only partially implemented, a new action plan following the IAS audit has to be drafted and a full risk assessment is planned to be finalised by mid- 2014.


SIAC (SHARED INTERNAL AUDIT CAPABILITY)

In 2013 the SIAC carried out two audit follow-up assignments (ABAC Access Rights and Payments in DG CLIMA) in accordance with its multiannual audit planning, which covers DG CLIMA's management processes, governance and the state of the internal controls over a period of three years. The auditors closed all recommendations stemming from the ABAC Access Rights audit. Regarding the recommendations related to payments delay 2 out of 5 recommendations were closed, and the remaining three were partially implemented, however, there were no significant issues identified.

As regards the implementation of recommendations issued in the past on Internal and External Communication, the relevant action plans are being implemented as planned. Consequently, the current state-of-play does not lead to assurance-related concerns.

Overall, the SIAC expresses the opinion that the internal control system in place in DG CLIMA in 2013 provided reasonable assurance regarding the achievement of the business objectives set up for the processes audited.


3. ASSESSMENT OF THE EFFECTIVENESS OF THE INTERNAL CONTROL SYSTEMS The Commission has adopted a set of internal control standards, based on international good practice, aimed to support the achievement of policy and operational objectives. In addition, as regards financial management, compliance with these standards is a compulsory requirement.

DG Climate Action has put in place the organisational structure and the internal control systems suitable for its policy and control objectives, in accordance with the standards and having due regard to the risks associated with the environment in which it operates.

Below is a summary of the actions taken to implement the four Internal Control Standards prioritised in 2013 resulting in a conclusion on their effectiveness.

ICS 2 – ETHICAL AND ORGANISATIONAL VALUES

In 2013 DG Climate Action aimed to develop measures to provide staff with a comprehensive framework for ethics and anti-fraud measures. Key actions in 2013 included the following:

• By the end of June 2013, a dedicated code of ethics and conduct was developed for CLIMA staff (after consultation of central services) with particular emphasis on developing a framework for staff in relation to insider trading, fraud and disclosure of information. Following its communication to staff, interactive seminars on ethics and integrity, using case studies as well as theory, were offered to all staff in the DG, covering conflicts of interest, gifts and hospitality, non-disclosure of information, and external activities. The seminars were well received, provoked much reflection and discussion, and promoted awareness in the DG of ethical obligations and good behaviour. A poster campaign addressing the risk of data leaks was rolled out during the Commission's ethics week in November.

• DG Climate Action's annual team event focused not just on policy work (specifically the 2030 climate and energy package). It also included sessions on stress detection and management, and breaking down the silo mentality towards joined-up thinking.

• DG Climate Action adopted an Anti-fraud Strategy in March 2013. It has been gradually implemented since then, with the focus on actions to detect and prevent fraud in relation to the EU ETS, finance and climate legislation. Specific follow-up sessions on how to identify "Red Flags" were offered to financial staff in November and December. New sessions will be arranged in the course of 2014. As a result, the most appropriate Red Flags to look out for in management of the various funding programmes and procurement actions were identified. Staff have also been advised of preventive measures and of the use of on-line information tools, so as to be better able to detect plagiarism or false contact details.

• The process in place to identify and manage sensitive functions is effective. A review was carried out in December 2013 which confirmed that policy officers and


middle and senior managers responsible for the ETS Registry hold sensitive functions. It was agreed that a further review will be carried out in the 1st quarter of 2014.

• Security measures to further improve the DG's processes and premises were implemented. Particular focus was put on activities in relation to ETS, clarification of rights for access to documents and on how to handle sensitive information.

The implementation of ICS 2 is considered effective. DG Climate Action will continue the promotion of awareness, obligations and good ethical behaviour. Further implementation of the Anti-fraud Strategy also remains a priority.

ICS 6 – RISK MANAGEMENT

Risk management is an established process in DG Climate Action. This is also confirmed by all participants in the management survey on the Internal Control Standards who consider that risk management in the DG is effective. This standard was, however, selected as a priority in the light of critical risks identified, primarily the functioning and security of EU Emissions Trading System (ETS) and the risk of insufficient capacity and delay regarding management and externalisation of the climate part of the future LIFE programme.

Risk were managed according to plan. A risk review took place in the context of preparations and reviews of DG Climate Action's Management Plan 2014. Directorates were asked to review their existing risks in the light of mitigation plans put in place and to reflect on any new risks related to actions foreseen for 2014. Furthermore, DG Climate Action's management of risks is periodically discussed at the weekly directors meetings. This facilitates the need for any corrective actions or initiatives aimed at addressing specific problems. In addition, DG Climate Action's Risk Advisory Committee was newly established in 2013 and assessed the risks flagged by the operational units in December 2013. By the end of 2013, DG Climate Action's risk register includes the 2 critical risks mentioned before and 10 other risks catalogued as 'very important'.

Key actions taken in 2013 have included the following:

• Ongoing implementation of the 2011 action plan as a follow-up to the reservation in the 2011 Annual Activity Report on reputational grounds related to a significant security weakness identified in the national registries of the ETS.

A preliminary risk assessment was conducted early in 2013 as well as the implementation of additional security measures.

• Careful analysis and management of the risk of insufficient capacity regarding management and externalisation of the climate part of the future LIFE programme in close coordination with SRD.

The implementation of ICS 6 is considered effective despite the remaining significant security risk of a fraudulent cyber-attack to the EU Emissions Trading System (ETS)


ICS 12 – INFORMATION AND COMMUNICATION:

The main action to improve communication in 2013 was the implementation of the action plan following the recommendations issued by SIAC in the audit report of May 2012. The recommendations mainly concern the need to clarify roles and responsibilities and the strategic planning for communication.

Key actions in 2013 have included the following:

INTERNAL COMMUNICATION

• Drafting, discussion at Directors meeting and adoption of a comprehensive Internal Communication Strategy and related Best Practice document.

• Preliminary analysis and preparatory work for the migration of the Intranet to the new platform myIntracomm (beginning of the migration is planned for March 2014) with a view to making it more participatory and focused on clear communication priorities.

• Political achievements and progress in on-going work were also tackled by specific new initiatives such as debriefings by the Director General to all the staff after key meetings and milestones. This has been done under the form of video messages.

EXTERNAL COMMUNICATION

• The awareness raising campaign a "World You Like with a climate you like" spotting Europe's best climate solutions on the move to a low carbon society had a very positive response among the general public and stakeholders all over Europe and created an important social media community. In total, the campaign reached close to 1.9 million people throughout Europe through various channels

• With regard to social media, the campaign attracted, in less than a year, more than 70.000 fans on Facebook and more than 3.000 followers on Twitter. To further build on this success, some material was moved from the campaign website to the DG CLIMA website and the full management of the social media accounts was taken over by DG CLIMA, in accordance with the web rationalisation guidelines and following advice from DG COMM's Social Media team

The implementation of ICS 12 in 2013 is considered effective.

ICS 14 – EVALUATION:

DG Climate Action has in 2013 created a dedicated evaluation function aiming for a more centralised coordination and support of policy evaluations. This is done by adjustments of its rolling multi-annual evaluation programme and by contributing to the REFIT ("Regulatory Fitness" programme) that started with the mapping of the climate legislative "acquis".

A pilot evaluation contract has been commissioned in 2013 to undertake an evaluation of Regulations 443/2009 and 510/2011 on the reduction of CO2 emissions from cars and vans (light duty vehicles).


The implementation of ICS 14 is considered effective though the capacity and knowledge-base needs to be further elaborated. It remains a selected priority for 2014 in light of the new evaluation requirements so as to match evaluations of expenditure programmes, legislation and other non-spending activities.

THE ANNUAL ASSESSMENT OF THE INTERNAL CONTROL STANDARDS:

The assessment of the sixteen standards did not identify any significant control weaknesses. While there is somehow scope for improvement in some areas, DG Climate action is confident that its internal control system as a whole – covering both financial and non-financial activities – is effective. It has the necessary procedures, staff skills and experience to identify and manage the main operational, financial and legal/regulatory risks.

This conclusion is based on a thorough review of all available information, in particular:

a) The annual assessment of the Internal Control Standards: The assessment of the sixteen standards did not identify any significant control weaknesses, but pointed out some areas where improvements can be made. Concerning "mission and values" (ICS 1-2), actions to strengthen the awareness of ethical issues and values will continue in 2014. This is part of the new Anti-Fraud Strategy to be further implemented. In the domain of "planning and risk management" (ICS 5-6), the actions launched in 2013 to improve the risk management process will be consolidated in 2014. Concerning "operations and control activities" (ICS 7-11), no specific weaknesses have been identified. It should be noted that the procedures for assessing the implementation of internal control standards were reinforced and simplified. As regards, "information and financial reporting" (ICS 12-13), implementation of the external communication strategy and the internal audit recommendations on internal communication was done in 2013. Finally, concerning "evaluation and audit" (ICS 14-16) harmonised procedures for managing Commission evaluations have been introduced in 2013. This will call for a mapping exercise in each DG to outline the legislative framework and its state of implementation for specific regulatory areas.

b) The annual declarations by the Authorising Officers by Sub-delegation: In this declaration, each AOS confirms that the transactions authorised by them in 2013 are legal and regular and that the corresponding funds have been used for their intended purpose and in accordance with the principle of sound financial management. The AOS declarations do not signal any significant weaknesses in the control system, but a few AOS raised some concern over heavy workloads and the impact it could have on the timeliness of controls (e.g. risk of payment delays due to constraint control resources).

c) The reporting of exceptions and non-compliance events (ICS 8): The analysis of the three cases reported in 2013 does not hint to any weaknesses in the internal control system. In 2013, the procedures for reporting of exceptions and non-compliance events were aligned with the updated guidelines of DG BUDG.

d) Information obtained from the SRD monitoring dashboard: This tool was implemented in 2012 and has become an effective means of reinforcing senior management supervision (ICS 9). It is based on a set of control indicators covering, for example, budget implementation, payment delays, recovery orders, implementation of audit recommendations, etc. The monitoring results - which are discussed at Directorate


level on a regular basis - do not indicate any significant weaknesses in the internal control system. However, while improvements have been made, the dashboard shows that compliance with payment delays remains a challenge.

e) The DG's risk register (ICS 6): The risk management process has become a mature and well established process in DG CLIMA. The majority of participants in the management survey on the Internal Control Standards consider that risk management in DG Climate Action is effective.

The risk review took place in the context of preparations of the 2014 DG CLIMA Management Plan. Directorates were asked to review their existing risks in light of mitigation plans put in place and to reflect on any new risks related to actions foreseen for 2014. By the end of 2013, DG Climate Action's risk register included 2 critical risks: the functioning and security of EU Emissions Trading System (ETS), (critical and cross-cutting risk shared with DG DIGIT and HR/DS) and the risk of insufficient capacity, and delay regarding management and externalisation of the climate part of the future LIFE programme 2014-2020.

f) OLAF fraud cases: There were no cases flagged to OLAF.

g) The European Ombudsman: There were no cases reported to the Ombudsman.

h) Review of sensitive functions: The process in place to identify and manage sensitive functions is effective. A review was carried out in December 2013 which confirmed that policy officers and middle and senior managers responsible for the ETS Registry hold sensitive functions. It was agreed that a further review will be carried out in the spring of 2014.

i) ECA, IAS and SIAC audit reports: see 2.3 above

In conclusion, the internal control standards are effectively implemented. The results of the ICS management survey provide sufficient assurance in this respect. ICS 6 (risk management) and 14 (evaluation function) remain, however, priority standards in 2014. The implementation of the audit recommendations will continue.


4. MANAGEMENT ASSURANCE This section reviews the assessment of the elements reported in Parts 2 and 3 and draws conclusions supporting of the declaration of assurance and namely, whether it should be qualified with reservations.

4.1 Review of the elements supporting assurance

Concerning the financial management (mainly procurement), the AOD's assurance relies - to a large extent - on the ex-ante verifications performed in 2013: namely the mandatory controls of all commitments and payments, the advice by procurement experts in the financial unit, and the reviews performed by the Environment and Climate Advisory Committee on procurement procedures (ENVAC). These controls effectively reduce to an acceptable level the risk of significant errors being undetected.

The number of "exceptions" and "non-compliance events" reported in 2013 remains low

Additional assurance is obtained from the annual declarations by the Authorising Officers by Sub-delegation, whereby they confirm that all financial transactions authorised by them in 2013 are legal and regular and in compliance with the principle of sound financial management.

Further assurance is received from the Authorising Officers in DG ESTAT, DG EMPL, DG ENV and DG ENTR regarding the crossed sub-delegations granted to them.

The audit work performed by ECA and SIAC in 2013 did not identify any significant weaknesses in DG CLIMA's internal control system. Concerning the true and fair view of the accounting records and reporting, it should be noted that the audits performed by ECA and SIAC in 2013 in this field did not identify any material issues.

The awareness raising campaign on ethics and the implementation of the comprehensive antifraud strategy in DG CLIMA (release of special code of conduct, identification of sensitive functions, handling of commercially sensitive information …) provides further assurance to management that assets and sensitive data are safeguarded.

According to management's self-assessment, all 16 Internal Control Standards have been implemented effectively.

According to the opinion of Internal Auditor on the state of Internal Control in DG CLIMA, the internal control system provides reasonable assurance.

EU ETS security

As a follow-up to the reservation issued in previous years related to the security of the EU ETS tool, the ‘security statement’ or preliminary risk assessment conducted jointly by DG CLIMA and DG DIGIT in January 2013 proposed five additional security measures to be implemented in 2013-14 to reduce the residual risk of cyber-attacks to an acceptable level. However, at the end of 2013 only 2 actions were completed meaning that the


very high security-related risks are not mitigated to the level necessary and jointly envisaged with DG DIGIT.

The IAS in its audit on the management of the EU ETS focusing on the IT security dimension of the management of the EU ETS, has assessed the control system put in place by DG CLIMA in order to ensure that adequate measures have been identified and are implemented for the governance of the EU ETS system (Union Registry and EU Transaction Log). In the draft report 8 recommendations were issued of which 4 qualified as very important in the areas of security controls, project governance, project quality management and test management.

The IAS audit report reinforces the conclusions of the preliminary risk assessment carried out in-house.

In summary, the extension of the reservation on reputational grounds issued in the 2010, 2011 and 2012 AAR is justified in the 2013 AAR, though there were no further cyber-attacks that succeeded and hence the inherent reputational risk did not materialize in 2013, as (1) the mitigating actions in the CLIMA/DIGIT security action plan elaborated in 2011 have only been partly implemented at the end of 2013, (2) the security environment is changing continuously, all actions foreseen in the 2011 security plan may no longer be fully relevant and will have to be revised or complemented with other actions, (3) the security plan will therefore be updated following an in-depth risk assessment planned for the 1st semester of 2014 and (4) an action plan following the IAS audit on the IT security of the EU ETS needs to be adopted and implemented.

In conclusion, the information reported in Parts 2 and 3 stems from the results of management assessment, reports of internal and external auditors, and other monitoring reports and assessments listed. These reports involve a systematic analysis of the evidence available. This approach provides sufficient guarantees as to the completeness and reliability of the information reported and results in a complete coverage of the budget delegated to the Director-General of DG CLIMA.

The Director General, in his capacity as Authorising Officer by Delegation, can sign the Declaration of Assurance albeit qualified by a reservation on reputational grounds related to remaining significant security weakness identified in the Union Registry for the Emissions Trading System).

4.2 Reservations and overall conclusion on assurance

Reservation 1

DG/service DG CLIMA Title of the reservation, including its scope

Reservation on reputational grounds related to remaining significant security weakness identified in the EU Registry Emissions Trading System (EU ETS)

Domain Central direct management in collaboration with national authorities-Administration of the EU Registry and EU Transaction Log by the Commission

ABB activity and amount affected (="scope")

ABB Activity 07 12 : IMPLEMENTATION OF EU POLICY AND LEGISLATION ON CLIMATE ACTION

Reason for the Operational since January 2005, the registries system ensures the accurate


reservation accounting of allowances issued under the European Emissions Trading System (EU ETS). As foreseen by the ETS Directive and Relevant Commission Regulations, all national registries were migrated in June 2012 to a single EU ETS Registry operated by the Commission. The Commission is now clearly more exposed to criticism and reputational risk if new security incidents would occur. The ETS was identified as a critical system in the Management Plans of 2011, 2012, 2013 and 2014 of DG CLIMA in terms of potential liabilities as well as reputational risks in case of dysfunction of the system or security flaws. Following the organised cyber-attacks on some national registries in November 2010 till January 2011 and the theft of a considerable number of allowances, significant and systemic weaknesses were detected in the related security provisions. A preliminary risk assessment was conducted. The ensuing action plan was elaborated by DGs CLIMA, DIGIT and HR/DS, but as of today all measures are not yet fully implemented. Moreover, as the security challenges are in continuous evolution, the measures in the action plan are not fully adequate anymore to mitigate current risks and new threats. Additional measures are indispensable. The absence of security incidents in 2012/13 does not necessarily mean that security level is sufficient. No reasonable assurance can be provided that the current security measures could successfully prevent a future attack. Following the IAS audit an updated in-depth risk assessment is planned for 2014. Conclusion: though the inherent reputational risk did not materialise in 2013 and hence did not turn into a reputational event, the reservation of 2011 will not be lifted but repeated in 2013.

Materiality criterion/criteria

The significance of the event was assessed against the following 3 criteria: - nature of the impact on reputation of the Commission vis-à-vis stakeholders to manage a market based instrument (medium-term negative stakeholder perception with limited impact on ability of the Commission (DG CLIMA) to meet key objectives), - breadth of awareness of the events (international and national press coverage, pro-active communication with the MS in full transparency by the Commission via the dedicated website 'Climate Action' , via a dedicated webpage to ETS on the Europa server and in the Climate Change Committee) - duration: a series of incidents started in November 2010 and continued in January 2011 led to a suspension of trading of allowances on the 'spot' market that accounts for less than 20% of the ETS. Another incident in a national registry occurred in October 2011.

Quantification of the impact (= actual exposure")

Reputational/legal/financial risk A Swiss broker lodged a complaint in the European Court of Justice about theft of allowances. This led to the recording of a contingent liability amounting to € 16,2 mio in the accounts of DG CLIMA(annexes of this AAR). The hearing in Court is ongoing.

Impact on the assurance

The event falls within the scope of the declaration as it is an activity managed by CLIMA with high visibility and media coverage to which considerable human and financial resources have been allocated in the past and will be in the future. However it has no negative impact on the statement of reasonable assurance and as such does not invalidate the declaration of reasonable assurance by the Director General

Responsibility for the weakness

As guardian and regulator of the EU carbon market the Commission as central administrator has a role in supervising/coordinating the MS systems. Corrective action is imposed by the Commission on the administrators of national registries. Simultaneously the Commission is taking action to improve the security and hosting provisions of the Community Independent transaction log (CITL) and Community Registry (CR) managed in-house

Responsibility for the corrective action

The ‘security statement’ issued jointly at end of January 2013 by DG CLIMA and DG DIGIT includes an action plan proposing 5 additional security measures to address 6 identified business risks, to be addressed jointly by DGs CLIMA and DIGIT - 4 short-midterm security measures that will reduce the currently high level of risk inherent to the ETS to a medium risk level by 2014/15;


- an in-depth risk assessment to define complementary security measures to reduce the risk to an acceptable level The timely and successful rolling out of this joint action plan by 2015 would provide reasonable assurance that the residual risk of any successful cyber-attack would be reduced to a low, acceptable level, as there is no such thing as zero risk. A formal in-depth risk assessment is due to be completed by the Summer of 2014 by both DGs. It will identify further measures to address any gaps in the security of the registry. Meanwhile, the IAS has conducted an audit of the IT security of the Registry resulting in a number of important recommendations. An action plan is being drafted jointly by DGs CLIMA and DIGIT, its implementation should be completed end 2015.

No assurance can be provided that the current security measures could successfully prevent a future attack. This security assurance is conditional to lifting the reservation.

However, despite the reservation, as

• this report gives a true and fair view and info is reliable

• the resources were used for the intended purposes,

• the principles of sound and efficient financial management were observed, and

• no significant issues regarding the legality and regularity of the underlying financial transactions were detected

• assets and sensitive information are safeguarded

Overall, the DG's internal control system is considered effective and the Director-General can still provide reasonable assurance in his Declaration.


DECLARATION OF ASSURANCE

I, the undersigned, Jos Delbeke

Director-General of DG Climate Action

In my capacity as authorising officer by delegation

Declare that the information contained in this report gives a true and fair view13.

State that I have reasonable assurance that the resources assigned to the activities described in this report have been used for their intended purpose and in accordance with the principles of sound financial management, and that the control procedures put in place give the necessary guarantees concerning the legality and regularity of the underlying transactions.

This reasonable assurance is based on my own judgement and on the information at my disposal, such as the results of the self-assessment, ex-post controls, the work of the internal audit capability, the observations of the Internal Audit Service and the lessons learnt from the reports of the Court of Auditors for years prior to the year of this declaration.

Confirm that I am not aware of anything not reported here which could harm the interests of the institution

However the following reservation should be noted: Reservation on reputational grounds related to remaining significant security weakness identified in the Union Registry for the Emissions Trading System (EU ETS)

Brussels, 26 March 2014

signed

Jos DELBEKE

13 True and fair in this context means a reliable, complete and correct view on the state of affairs in the service