Commission confirms rules for free ETS allowances

The European Commission has agreed how industries at risk of relocating outside the EU because of tough emissions targets will receive free allowances during phase III of the emissions trading scheme (ETS).

In a decision made yesterday (27 April 2011) the commission detailed how member states should allocate free ETS allowances from 2013, including the use of benchmarking greenhouse gas emissions performance.

Although auctioning will become the main principle for allocating allowances from 2013, some free allowances will be given to industry until 2020.

Installations that will benefit most are in sectors such as mining and manufacturing, which deemed to be vulnerable to "carbon leakage" – relocation to outside the EU because they face strong competition from firms located in countries not subject to comparable carbon restrictions.

"This decision represents a milestone in the reform of the European carbon market. After extensive consultations between the commission and the industry stakeholders,” said Connie Hedegaard, European commissioner for climate action.

“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."

In line with the revised EU ETS Directive (2009/29/EC), the benchmarks are based on the average emissions performance of the most efficient 10% of EU installations in each sector. The benchmarks will then be multiplied by the historical production data for a given installation to determine how many free allowances it will receive.

In December 2009, the commission published a list of sectors and sub-sectors at risk from carbon leakage. Those on the list will receive allowances for free up to the level of the benchmark until 2020.

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