|Commission Decision of 27 April 2011 determining transitional Union-wide rules for harmonised free allocation of emission allowances|
The principles for the free allocation of emission allowances to industries covered by the European Union Emission Trading Scheme (EU ETS) have drastically changed in the third trading period (2013-2020) compared to previous years 2005-2007 and 2008-2012.
Currently allowances are distributed for free according to EU-wide harmonised rules, stipulated in Commission Decision of 27 April 2011 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council (2011/278/EU), meaning that the same rules apply to installations of the same type across all Member States.
The important feature of the free allocation process as from 2013 is that it is based on performance benchmarks to strengthen the incentives for greenhouse gas emissions reductions and reward the most efficient installations.
The above European Commission Decision (sometimes called a "Benchmarking Decision", "Harmonised Allocation Rules Decision") is, furthermore, key to the EU ETS architecture due to its new entrants and closures provisions.
As an allocation process for the third trading period up to 2020 can be considered a one-off task, new entrants and closures rules are for on-going supervision and careful implementation into the operator's organizational and functional structures since they influence on business decisions and strategies.
Installation's significant changes in the period 2013 - 2020
Particularly noteworthy for the day-to-day operation of the instalation and the current management and operational choices are Articles 20 - 23 of the Decision which regulate the key issues like (respectively):
(1) allocation as new entrant following a significant capacity extension,
(2) significant capacity reduction,
(3) cessation of operations of an installation,
(4) partial cessation of operations of an installation.
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 Commission the National Implementation Measures ('NIMs'), determining free allocation of allowances to those installations. After non-rejection from the 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.
During the third trading period operators must also inform the national Competent Authorities of any changes in their 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.
Several situations for which allocation has to be given from the new entrants reserve are the following:
- new installations ('greenfield plants') which have obtained all the necessary permits and have started normal operations as defined in the harmonised allocation rules 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,
The monitoring of such cases and the implementation of the relevant rules, however, is the responsibility of the Member States. The more detailed rules on these issues are highlighted in articles attached.
Process for determining free allocation volumes
To carry out the process for determining the free allocation volumes under EU ETS in the third trading period it is necessary to carry out, among others, the thorough checks to examine:
- the eligibility of installations for free allocation,
- the division of installations into sub-installations,
- the installation's boundaries,
- the application of the correct benchmark values to the relevant sub-installations, the final product produced (in accordance with the product definition and the system boundaries set out in Annex I of the Benchmarking Decision),
- calculation of the historical activity levels of installations,
- cases of significant capacity changes during the baseline period as well as cases of installations starting operation during the baseline period,
- the calculation of the preliminary number of emission allowances to be allocated free of charge taking into account the exchangeability of fuel and electricity,
- the carbon leakage status,
- heat exports to private households.
The said process for the EU ETS third trading period 2013 - 2020 has been finalised by the European Commission Decision of 5 September 2013 concerning national implementation measures for the transitional free allocation of greenhouse gas emission allowances in accordance with Article 11(3) of Directive 2003/87/EC of the European Parliament and of the Council (2013/448/EU).
Systemic position of the Harmonised Allocation Rules Decision
The fact important from the systemic point of view is that the said legal act is adopted in the form of decision, which means, it is addressed to EU Member States. Consequently, Member States are under obligation to implement the Decision into their national legal orders. However, national divergences in that regard mustn't contravene the rules set by the Decision.
The European Commission will assess after two one year periods of implementation of the harmonised rules on significant capacity reductions and (partial) cessation of operations, if these rules have been implemented in a correct and consistent manner throughout the Member States in order to ensure equal treatment to all installations under the EU ETS.
For ensuring the equal treatment to all installations under the EU ETS the effective application by Member States of Articles 21-23, in particular rules on capacity reductions and (partial) cessation of operations, is key.
Thus, in interpreting of specific provisions of national rules implementing the Decision, the reference thereto seems to be inevitable.
Guidance documents although helpfull, don't represent an official position of the European Commission and are not legally binding.
Pursuant to the note on their status, they are intended to support the Member States, and their Competent Authorities, in the coherent implementation throughout the Union of the new allocation methodology for Phase III of the EU ETS (post 2012) established by the Commission Decision.
The guidance papers do not go into details regarding the procedures that Member States apply when issuing greenhouse gas emissions permits. It is also acknowledged that the approach to setting the installation boundaries laid down in GHG emissions permits differ between Member States.
The views presented in the Guidance Documents elaborated on by the external consultants engaged by the European Commission may, in certain respects, appear controversial (see the articles attached).
Nevertheless, Guidance Documents offer valuable help in dealing with complicated matter of emission allowances allocations in the third trading period.
The process of allocation of free emission allowances under the said Decision takes place for the first time with respect to 2013 allocation.
However, the establishment of the need and value for the cross-sectoral correction factor by the European Commission, which should be effected between 30 September 2011 (deadline for publication and submission of National Implementation Measures by Member States) and 28 February 2013 (final allocation date for 2013), occurred more complicated and time-consuming than previously expected (see The European Commission's communication of 25 January 2013).
As a result of the said delay, until the Commission's communication of 5 September 2013 installations were not cognizant of the exact volumes of the free allocation under Article 10a of the Directive 20013/87/ECas regards the entire third trading period (2013 - 2020), and not only 2013 vintage.
The above European Commission Decision of 5 September 2013 concerning national implementation measures provides the basis for calculating the number of allowances allocated for free and auctioned, respectively, but has no effect on the total amount of allowances put on the market in phase three (2013-2020).
Commission Decision of 27 April 2011 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council (2011/278/EU)
European Commission Decision of 5 September 2013 concerning national implementation measures for the transitional free allocation of greenhouse gas emission allowances in accordance with Article 11(3) of Directive 2003/87/EC of the European Parliament and of the Council (2013/448/EU)
|Last Updated on Thursday, 28 February 2019 20:04|