|EU ETS New Entrant Reserve (NER)|
|European Union Carbon Market Glossary|
New Entrants Reserve (NER) constitutes a special-purpose, EU-wide pool of emission allowances set aside for new installations and installations that increase capacity, which are covered by the scope of the EU ETS Directive, and which are eligible for additional free allocation in phase 3 of the European Union Emissions Trading System (EU ETS).
In order to be eligible for free allowances it is necessary to apply to the NER for free allowances within 12 months of starting operations or of increasing capacity.
NER is available for installations that started carrying out regulated activities or significantly increased capacity, after June 2011.
Eligibility and procedure for allocations from the EU ETS New Entrants Reserve in the third trading period (2013-2020)
The ETS Directive and the harmonised allocation rules ('Harmonised Allocation Rules Decision' adopted in April 2011) set the rules for free allocation of emission allowances for the period 2013 - 2020 to numerous installations in all EU Member States.
For already existing installations carrying out one or more of the activities listed in Annex I of the ETS Directive ('incumbent installations'), in the course of 2011-2012 Member States prepared and submitted to the European Commission the National Implementation Measures ('NIMs'), determining free allocation of allowances to those installations.
After non-rejection from the European Commission, the free allowances can be allocated to the incumbent installations.
Free allowances for the third trading period 2013-2020 can also be allocated to new installations or installations that had a significant capacity extension.
To be allocated the respective amount of free allowances, the operators of such installations have to submit applications containing verified data to the national competent authorities.
The applications of new entrants and significant capacity extensions have to be submitted using complex electronic templates based on a model used for incumbent installations.
During the third trading period operators must inform the national competent authorities of any changes in its operations that might have an impact on the installation's allocation, such as significant capacity reductions and (partial) cessation of operation of an installation as defined in Articles 21-23 of the Harmonised Allocation Rules Decision.
The monitoring of such cases and the implementation of the relevant rules, however, is the responsibility of the Member States.
The European Commission's assessment only relates to cases that have been notified by the Member States.
In practice, this translates into several situations for which allocation has to be given from the new entrants reserve.
These are the following:
- new sub-installations of existing installations and have changed normal operations as defined in the harmonised allocation rules after 30 June 2011,
- significant capacity extensions with start of changed operations after 30 June 2011,
- significant capacity extensions with start of changed operations before 30 June 2011, but new capacity identified after 30 September 2011,
- significant capacity reductions with start of changed operations after 30 June 2011,
- significant capacity reductions with start of changed operations before 30 June 2011, but new capacity identified after 30 September 2011,
- cessation of operations,
- partial cessation of operation with reduction of activity levels after 30 June 2011 exceeding the thresholds of Article 23 of the Harmonised Allocation Rules Decision,
- recovery after partial cessation where the installation has recovered its activity levels to the thresholds referred to in Article 23 of the Harmonised Allocation Rules Decision.
The checks to be applied are both automatic and manual, checking for instance the following issues (certain checks may not be applicable to all types of applications):
- eligibility of applications,
- legal elements,
– official agreement of operator to use the data etc.,
- timeline of the application,
– starting date, start of changed operations etc.,
- sub-installation split,
– correct sub-installation definition and hierarchy, correct split of heat and fuel,
- cross-boundary heat flows and process emissions,
- benchmark value and special benchmarks,
- exchangeability of heat and fuel,
- carbon leakage status,
- significant capacity changes during baseline period,
- correct calculation of allocation, RCUF and SCUF,
- comparison of emissions.
The final decision on the completeness/compliance of concrete applications is to be taken by the European Commission, as set out in Articles 17-20 of the Harmonised Allocation Rules Decision.
To establish what is viewed as new activity or significantly increased capacity see Guidance Document n°7 on the harmonized free allocation methodology for the EU-ETS post 2012, Guidance on New Entrants and Closures.
NER's utilisation in the third trading period
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) gave account of data on the volumes of allowances held in and allocated from the New Entrant Reserve.
Generally, NER is foreseen equivalent to 5% of the total amount of allowances for phase 3 of the EU ETS (2013-2020) - Article 10a(7) of the EU ETS Directive.
Pursuant to the said Report, the initial NER, after deducting 300 million allowances for the NER300 programme, held 480.2 million allowances.
The number of allowances allocated to the industry for free from the NER (greenfield investments as well as capacity increases) in first years of the phase 3 of the EU ETS amounted to the following figures (in millions):
2013 - 10.7,
2014 - 12.4,
2015 - 12.3.
Until July 2015, 91.3 million allowances were reserved for 369 installations for the entirety of phase 3.
The said Report of 18 November 2015 expected a significant number of these allowances to remain unallocated.
Subsequent data from the European Commission on allocation of allowances from NER, as updated on 15 January 2016, confirmed this expectation.
NER updates as of 16 January 2017 are set out in the tables below.
Table: New Entrants' Reserve allowances allocated and put in circulation as of 16 January 2017
Table: Status of the New Entrants' Reserve as of 16 January 2017
The remaining NER can be distributed in the future in case there are new installations or existing installations increasing their capacity.
Report of 23 November 2017 from the Commission to the European Parliament and to the Council, Report on the functioning of the European carbon market (COM(2017) 693 final, p. 12) referred to the following facts as regards the NER’s utilisation in the EU ETS third trading period:
- the initial NER, after deducting 300 million allowances for the NER300 programme, held 480.2 million allowances;
The above Report of 23 November 2017 invoked the Commission's 2015 Impact Assessment, which indicated that in line with trends, it was expected that no more than 2% of the cap would additionally be allocated for free from NER.
Report of 23 November 2017 upheld the view that it is expected that a significant number of these allowances will remain unallocated.
However, it reserved that is not possible to determine how much of the NER will be used in future years.
On 15 January 2018 the European Commission published a new status update on the allocation of allowances from the New Entrants' Reserve 2013 – 2020 as in the tables below.
Table: New Entrants' Reserve allowances allocated and put in circulation as of 15 January 2018
Table: Status of the New Entrants' Reserve as of 15 January 2018
In the said publication of 15 January 2018 the Commission indicated that until 15 January 2018 144.3 million allowances have been reserved for 698 installations for the entirety of the third trading period.
This leaves 70% of the initial New Entrants' Reserve to be distributed to new installations that will be built in the future as well as existing installations that will increase their capacity in the years ahead.
The Decision establishing the Market Stability Reserve (MSR) foresees that the allowances that remain unused from the New Entrants' Reserve in phase 3 will be put in the MSR in 2020.
In turn, the provisional agreement reached on the revised ETS Directive for the period post-2020 foresee that 200 million allowances from the MSR will be used to constitute a New Entrants' Reserve for the period from 2021 to 2030.
The table on the allocation of allowances from the New Entrants' Reserve will be updated again in July 2018.
New Entrant Reserve in the fourth trading period and beyond
For the perspective beyond 2020 European Commision'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 of 15 July 2015 (COM(2015) 337 final) 2015/148 (COD) foresees amendments to Article 10a of the EU ETS Directive, which - with respect to the allowances available to new entrants - have the following wording:
- The second paragraph of paragraph 1 is replaced by the following:
"The Commission shall be empowered to adopt a delegated act in accordance with Article 23. This act shall also provide for additional allocation from the new entrants reserve for significant production increases by applying the same thresholds and allocation adjustments as apply in respect of partial cessations of operation."
- The first and second sentences of the first subparagraph of paragraph 7 are replaced by the following:
"Allowances from the maximum amount referred to Article 10a(5) of this Directive which were not allocated for free up to 2020 shall be set aside for new entrants and significant production increases, together with 250 million allowances placed in the market stability reserve pursuant to Article 1(3) of Decision (EU) 2015/... of the European Parliament and of the Council.
From 2021, allowances not allocated to installations because of the application of paragraphs 19 and 20 shall be added to the reserve."
This legal language is commented upon by the European Commission in the explanatory part of the said Proposal of 15 July 2015 as follows:
"Allocations for new entrants and significant increases in production will be provided from a dedicated reserve. This new entrants' reserve will be created with 250 million of unallocated allowances from the Market Stability Reserve and supplemented by allowances that remain unused due to the closure of installations or significant changes in production in the period from 2021 onwards. Allowances not allocated for free from the industry's share up to 2020 and not placed in the Market Stability Reserve will also be added to this new entrants' reserve" (p. 10).
EU ETS Directive, Article 3(h)
European Commision'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 of 15 July 2015 (COM(2015) 337 final) 2015/148 (COD)
|Last Updated on Sunday, 10 June 2018 13:10|