(Bloomberg) -- Germany is set to fall so far short of its climate obligations for sectors like transport and buildings that it risks triggering a damaging race for carbon credits across the European Union.

Twelve EU nations are set to miss their emissions-cutting targets under the bloc’s Effort Sharing Regulation, according to an analysis by T&E, a non-profit. Those legally binding rules aim to curb CO2 in sectors not covered by the EU’s carbon market. 

The shortfall in Germany and Italy alone by the end of the decade would result in a deficit of about 256 million tons of CO2 emissions, significantly more than the potential credits that will be available elsewhere in the EU. Germany’s need will equate to around 70% of available credits, triggering competition with other failing countries and likely driving prices higher, T&E said.

“Germany and Italy are eating up all available carbon credits from their neighbors, leaving them stranded and at risk of legal proceedings,” said Sofie Defour, climate director at T&E. “The German government will soon have to face its citizens, asking for even more money and deepening the budget crisis yet further, to make up for their weak policies.”

The T&E study shows the EU is at risk of missing its emissions-cutting goals under the bloc’s landmark green deal. While around 50 laws have been approved, covering everything from cars to renewables, much rests on EU countries implementing them over the next five years. 

The European Commission, the bloc’s executive branch, has said countries will only reduce overall emissions by 51% by the end of the decade under current planned policies, short of its 55% goal.

That headline target includes pollution cuts under the bloc-wide carbon market. The effort sharing regulation, which covers other sectors such as agriculture, aims to cut the amount of CO2 going into the atmosphere by 40%. Those sectors are at the epicenter of a backlash against green laws, with citizens and farmers worried that they will push up the cost of living.

Implementing existing rules and putting new laws on those sectors that have been broadly left untouched, like agriculture, could be more difficult after EU elections this month saw the center-right triumph, and the far-right gain seats. The Greens were hammered in Germany and France, the two biggest economies, meaning that climate could slip down the agenda.

To be sure, Germany’s environmental agency said earlier this year that the nation could still meet its 2030 climate targets if all policy measures are implemented. That’s mainly because it expects the energy sector to exceed its emission-cutting goal — an assumption coal operators have put in doubt. The transport and housing sectors are set to wildly miss it: their shortfall is equal to more than half of the UK’s entire greenhouse emissions last year.

Another risk is that the country’s budget constraints — which had not been considered in the environment agency’s positive outlook — could also curb climate-related programs. The government has so far also been reluctant to introduce budget-saving emissions-cutting measures in the transport sector, such as a general speed limit on highways or axing car-related subsidies and benefits.

Countries that miss their targets can buy credits from countries that outperform their goals. Spain is set to have most surpluses, outperforming its target by seven percentage points, followed by Greece and Poland. T&E estimates that Germany and Italy would have to pay over €15 billion ($16.1 billion) to other EU member states to comply with the law.

“The sheer amount of penalties countries might need to pay in 2030 is mind blowing,” Defour said. “Countries face a clear choice: pay billions to their neighbors for their carbon debt, or implement new policies that improve the life of their own citizens, such as insulating houses.”

--With assistance from Ewa Krukowska.

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