|Exclusion of small installations and hospitals from the EU ETS|
|European Union Carbon Market Glossary|
The European Union Emissions Trading Scheme offers - under some conditions stated in Article 27 of the Directive 2003/87/EC - the possibility for small installations and hospitals to be excluded from the coverage of the system.
This elasticity has been implemented in order to reduce the administrative costs of small emitters, and is allowed only where equivalent measures for GHG emissions reduction are in place.
Although the eligibility to use the said option currently lapsed (according to the Article 11 of Directive 2003/87/EC each EU Member State was required to publish and submit to the European Commission, by 30 September 2011, the list of installations covered by the Directive and any free allocation to each installation in its territory), it appears the whole issue will need to be reconsidered.
The reason for this is the European Commission's Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, 15.7.2015, COM(2015) 337 final, 2015/148 (COD)).
The said Proposal underlines:
"With regard to installations with low emissions, considering their relative higher administrative costs under the EU ETS, it is appropriate that the possibility to exclude such installations from the system is continued. The proposal thus foresees that installations excluded today may remain excluded provided they make an equivalent contribution to emission reductions. Member States may also exclude further installations as of 2021" (p. 10).
The draft Directive, moreover, foresees that "it should be made possible for Member States to update their list of excluded installations and for Member States currently not making use of this option to do so at the beginning of each trading period" (Recital 14 of the draft Directive).
Small installations free from requirements of the emissions trading system in the EU
As follows from the Report of 18 November 2015 on the functioning of the European carbon market, accompanying the document Report from the Commission to the European Parliament and to the Council, Climate action progress report, including the report on the functioning of the European carbon market and the report on the review of Directive 2009/31/EC on the geological storage of carbon dioxide (COM(2015) 576 final, p. 8), several Member States have made use of the possibility to exclude small emitters from the EU ETS in line with Article 27 of the EU ETS Directive.
According to reports submitted in 2015, 8 countries (DE, ES, FR, HR, IS, IT, SI, UK) are making use of this carve-out, especially for installations with combustion activities and ceramics production.
The amount of emissions excluded is about 3.9 million tonnes CO2, or 0.2% of total verified emissions in 2014, compared to 4.7 million tonnes CO2 in 2013.
Report of 23 November 2017 from the Commission to the European Parliament and to the Council on the functioning of the European carbon market (COM(2017) 693 final, p. 8) also invokes the same data as regards the EU Member Stats making use of the said exemption.
Moreover, as in 2015, emissions excluded for 2016 amounted to about 4 million tonnes CO2 (some 0.22% of total verified emissions).
Procedure for exclusion of small installations from mandatory emissions trading scheme under European rules
Instruments, which, generally, are to cover the list of all installations in the territory of the Member State included in the EU ETS as from 2013, are National Implementation Measures (NIMs - Article 11 of the EU ETS Directive).
This documentation should, consequently, also reflect decisions of EU Member States in relation to the possible exclusion of small emitters and hospitals from the EU ETS under the said Article 27,
Also pursuant to the Article 5(2) of the Commission’s Decision determining transitional Union-wide rules for the harmonised free allocation of emission allowances, pursuant to Article 10a of Directive 2003/87/EC of 27 April 2011 each Member State is obliged to identify all heat producing electricity generators and small installations, which may be excluded from the Union scheme pursuant to Article 27 of Directive 2003/87/EC.
The Guidance Document n°1 on the harmonized free allocation methodology for the EU-ETS post 2012 reminds that NIMs list must include also installations that are classified as the so called 'small emitters' referred to in Article 27 of Directive 2003/87/EC.
The European Commission may assess and where appropriate reject such exclusions.
Under Article 27 of the Directive 2003/87/EC the possibility for small installations and hospitals to be excluded from the coverage of the system is granted only where equivalent measures for GHG emissions reduction are in place.
As Recital 11 of the existing Directive points out, “It is for Member States to propose measures applying to small installations which will achieve a contribution to emission reductions equivalent to those achieved by the Community scheme. Such measures could include taxation, agreements with industry and regulation. Taking into account the need to reduce unnecessary administrative burdens for smaller emitters, Member States may set up simplified procedures and measures to comply with this Directive.”
There was a requirement to notify the European Commission by 30 September 2011 of these equivalent measures applying to small installations.
Requirement for holding GHG emission permit as regards excluded entities
The Guidance on Interpretation of Annex I of the EU ETS Directive (excl. aviation activities) of 18 March 2010 underlines that Member States should ensure that no installation carries out any activity listed in Annex I unless its operator holds a GHG emissions permit (Article 4), or the installation has been excluded from the EU ETS pursuant to Article 27.
The said Guidance makes also interesting point clarifying that “For small emitters excluded from the EU ETS pursuant to Article 27, and in order to ensure that monitoring and reporting arrangements in accordance with Article 14 still apply for those installations, a Member State may also require that small emitters hold a GHG emissions permit, even when excluded from the EU ETS”.
The above finding (not mentioned in the Directive itself) marks thus another (after a decision whether to exclude small installations and hospitals from EU ETS or not) legal option for the EU Member States – for the possibility to maintain the requirement for the excluded entities to hold GHG emission permit.
As regards this point it is useful to note that the Directive requires in Article 27 that monitoring arrangements are in place to assess whether any installation emits 25000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year (it is also allowed a simplified monitoring, reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 below 5000 tonnes a year).
So, the issues relating to the GHG emission permit on the one part and monitoring arrangements on the second are separate and effective enforcement of monitoring arrangements does not necessarily require holding GHG emission permit for excluded entities.
Also the approval of the monitoring plan need not necessarily be the integral part of the GHG emission permit – taking into account the text of the Directive itself, it may take the form of the distinct administrative decision.
Units below 3 MW thermal input and units using exclusively biomass
The issue relating to the units below 3 MW thermal input is triggered off by the content of the clause 3 of Annex I to the Directive.
The said provision foresees that units with a rated thermal input below 3 MW, as well as units using exclusively biomass, are excluded from aggregation rules when calculating the rated thermal inputs of all technical units.
The Guidance on Interpretation of Annex I of the EU ETS Directive (excl. aviation activities) of 18 March 2010 remarks that the aggregation clause contained in the said point 3 of Annex I – and consequently the threshold of 3 MW - applies to the process for assessing whether an installation falls under the scope of the EU ETS – and not to the qualification under Article 27 of the Directive.
In other words, Article 27 does not provide a basis for leaving out biomass units and the 3 MW de-minimis units as these exclusions are only relevant when assessing whether an installation falls under the scope of the EU ETS.
The said Guidance consequently conclude that “when assessing the 35 MW and 25 000 t CO2(eq) threshold for possible exclusion from the Community scheme, also the fuel use (and CO2 emissions) from units with a rated thermal input of less than 3 MWth are included.
It is therefore clear that the calculation of the 35 MW treshold does not provide the "earlier" exclusion of units below 3 MW thermal input and units using exclusively biomass, as these exclusions are only relevant when assessing whether an installation falls under the scope of the EU ETS”.
An example is also given when an installation operates a boiler of 28 MWth fired with natural gas, and a wood based boiler of 12 MWth.
While the wood boiler is excluded for the aggregation, it is included for the purpose of checking the capacity threshold for possible exclusion.
Since Article 27 does not refer to the same de-minimis rules as clause 3 of Annex I, all combustion units at the installation are to be considered. Thus the relevant capacity is 28 + 12 = 40 MWth, i.e. too high for a possible exclusion.
Hospitals can be excluded from the EU ETS under Article 27, irrespective of their emissions or thermal capacities.
As the Guidance underlines, a definition of hospitals should be applied consistently by all Member States in order to prevent abuse of this exception.
For this purpose, the operator of a hospital must provide evidence to the competent authority, that providing hospital activities is the main purpose of the installation in question.
This can be a proof from the statistical office that the installation is classified as NACE 85.11 (NACE rev 1.1) or 86.10 (NACE rev. 2).
Period 2020 - 2030
According to the European Commission’s “Explanatory note accompanying the proposal for the revision of the Emission Trading System Guidelines” of 14 January 2020, since “no Member State has implemented certain categories of aid provided for in the 2012 ETS Guidelines, namely aid involved in the exclusion of small installations and hospitals from the EU ETS, the Commission has removed the relevant provisions from its proposal”.
|Last Updated on Friday, 17 January 2020 13:19|