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Brussels, 27 April 2011

Emissions trading: Commission adopts decision on how free allowances should be allocated from 2013

The European Commission today adopted a Decision on how free emission allowances should be allocated from 2013 to industrial installations covered by the EU Emissions Trading System (EU ETS). Although auctioning will become the main principle for allocating allowances as of 2013, a proportion of free allowances will still be given to industry until 2020, notably to reduce costs for installations in sectors deemed to be exposed to significant competition from outside the EU. The Decision sets out the rules, including the benchmarks of greenhouse gas emissions performance, to be used by the Member States in calculating the number of allowances to be allocated for free annually in these sectors.

Connie Hedegaard, European Commissioner for Climate Action, said: "This Decision represents a milestone in the reform of the European carbon market. After extensive consultations between the Commission and the industry stakeholders, I am glad that the decision has received the support of the Member States and the European Parliament. Benchmarks give industry clear indications of what is possible in the respective sectors in terms of low carbon production, and provide an advantage to the most carbon-efficient installations."

As stipulated in the revised EU ETS Directive, the benchmarks are in most cases based on the average emissions performance of the most efficient 10% of installations in a given sector or sub-sector in the EU. This average has been derived from verified real-life production data in recent years (2007-2008) provided by the industry sectors themselves.

The benchmarks are expressed in tonnes of carbon dioxide (CO2) per tonne of product produced. The benchmarks will be multiplied by the historical production data for a given installation to determine how many free allowances it will receive.

More favourable treatment for vulnerable industries

A particular treatment will be given to installations in sectors or sub-sectors that are deemed to be exposed to a risk of "carbon leakage" – relocation to outside the EU – because they face competition from industries in third countries which are not subject to comparable carbon restrictions. The list of exposed sectors and sub-sectors was determined at the end of 2009. 1

Installations in these sectors will receive allowances for free up to the level of the benchmark until 2020.

Installations that are not deemed at risk of carbon leakage will receive an allowance allocation at 80% of the benchmark in 2013, falling to 30% in 2020.

The shortfall in free allowances will differ from sector to sector. In most sectors installations will receive free allowances covering on average up to 70-80% of their 2005-2008 emissions. Installations can make up the shortfall in free allowances by improving their emissions performance or by buying additional allowances, using allowances banked from the current trading period ending in 2012, or using international offset credits.

The benchmarks cover 52 of the main product groups covered by the EU ETS. For installations producing other products, the allocation of free allowances will be determined on the basis of the energy consumed.

Extensive consultation

The decision is the result of extensive consultations with industry, including all relevant EU-level sector associations directly affected by the EU ETS, as well as other stakeholders such as representatives of the Member States and non-governmental organisations. The consultations started at the beginning of 2009.

The draft Decision was approved by a qualified majority of members of the Climate Change Committee, in which all EU Member States are represented, last December. It then underwent scrutiny by the European Parliament and the Council before the decision could be formally adopted by the Commission.

Next steps

The Member States will now collect the necessary activity data for each relevant installation in their territory. Based on this data, preliminary free allocation per installation will be calculated for each year until 2020. The deadline for Member State submissions is 30 September 2011. The Commission will then check the submissions before Member States calculate the final allocation per installation. This information should be ready during 2012.

As a complement to today's decision, the Commission's Directorate-General for Climate Action has developed, in close collaboration with the Member States, guidance papers which aim at ensuring harmonised implementation of the allocation rules by Member States. A data collection template has also been developed.

For more information

Questions and Answers: MEMO/11/258

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