First come, first served – is this the best formula for the allocation of free emission allowances from the 5% reserve?
Wednesday, 07 September 2011 06:38
 

 

The free allowances as of 2013 will be allocated on a first come, first served basis – this simple and short assertion produces, however, significant business and legal risks, in particular whether the pool of allowances in the 5% reserve does suffice for all interested in new investments (for instance in high-efficiency cogeneration).

 

 

Recently there can be observed a growing interest in investing in high-efficiency cogeneration, in particular natural-gas-fired. It is understandable, given the numerous incentives for such a choice, appearing in the Union legal measures. Also the recently-published European Commission’s Proposal of 22 June 2011 for a Directive of the European Parliament and of the Council on energy efficiency and repealing Directives 2004/8/EC and 2006/32/EC {SEC(2011) 779 final} {SEC(2011) 780 final} (COM(2011) 370 final) strongly emphasises the need for promotion of high-efficiency cogeneration and district heating as a pivotal means for energy efficiency improvement measures.

 


The legal measure commented upon in this post:

the European 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 (“Decision”)



When it comes to the CO2 emissions abatement legal measures, high-efficiency cogeneration is, in principle, entitled as of 2013 to the free allocation of emission allowances in respect of the production of heating or cooling - under the specific rules provided for in the European 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 (meaning, in particular, that only part of the generation’s demand will be covered by the free allocation, with the necessity to acquire the rest in the market).

 

The partially only subsidisation of the heat generation with free CO2 allocation (the description of the exact manner for the said partial free allocation isn’t the subject of the present post), still, however, has a competitive edge over the electricity production, which - temporary derogation under Article 10c of the Directive 2003/87/EC excepting - is entitled to no free allocation.


‘New entrant’ means (Article 3(h) of the Directive 2003/87/EC):

— any installation carrying out one or more of the activities indicated in Annex I, which has obtained a greenhouse gas emissions permit for the first time after 30 June 2011,

— any installation carrying out an activity which is included in the Community scheme pursuant to Article 24(1) or (2) for the first time, or

— any installation carrying out one or more of the activities indicated in Annex I or an activity which is included in the Community scheme pursuant to Article 24(1) or (2), which has had a significant extension after 30 June 2011, only in so far as this extension is concerned.


If somebody, encouraged by the said legal incentives, took currently a decision to invest in a green-field high-efficiency cogeneration plant, his legal status on the ground of the emissions trading legislation would be a ‘new entrant’ (in the meaning defined in Article 3(h) of the Directive 2003/87/EC) as the opposite to ‘incumbent installations’ (defined in Article 3(a) of the Decision).

 

As the opposite to the incumbents installations (for which the relevant pool of allowances has been set aside) the ‘new entrants’ plants will have to compete with other enterprises (installations’ significant extensions including) for free allowances in the 5% reserve.


Pursuant to the Article 19(4) of the Decision, Member States shall notify to the Commission without delay the preliminary total annual amount of emission allowances allocated free of charge. Emission allowances from the new entrants reserve created pursuant to Article 10a(7) of Directive 2003/87/EC shall be allocated on a first come, first served basis with regard to the receipt of this notification.


Five percent of the Community-wide quantity of allowances over the period from 2013 to 2020 shall be set aside for new entrants, as the maximum that may be allocated to new entrants. Allocations shall be adjusted by the linear factor referred to in Article 9. No free allocation shall be made in respect of any electricity production by new entrants (Article 10a(7) of the Directive 2003/87/EC).

 

The wording of the said Article indicates that the point in time deciding about the precedence of the ‘new entrance’ investments with regard to the entitlement to the allocation of free emission allowances from the reserve is the moment of reception by the European Commission of the notification submitted by the Member State.



 

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