Harmonised Allocation Rules in EU ETS as from

Harmonised Allocation Rules in EU ETS as from 2013 General introduction and overview of NIM process Member State Workshops Zagreb, 26 -27 January 2012 DG CLIMA Unit B. 2. European Commission 1

Content 1. 2. 3. 4. 5. 6. Climate and Energy Package Key elements of the EU ETS Overview of ETS implementation activities Harmonised allocation rules 3 rd trading period Current activities and NIM process Exclusion of small installations under Art. 27 2

Climate and energy package • 5 June 2009: Publication in OJ L 140 of (inter alia): Directive 2009/29/EC amending directive 2003/87/EC (Review ETS) Decision No 406/2009/EC on the effort of MS to reduce their GHG emissions to meet the Community’s GHG reduction commitments up to 2020 Directive 2009/28/CE: absolute target +20% renewables gross energy consumption in EU 3

GHG Target: -20% compared to 1990 -14% compared to 2005 EU ETS -21% compared to 2005 Non ETS sectors -10% compared to 2005 27 Member State targets, stretching from -20% to +20% 4

Key elements of EU ETS • The biggest cap&trade system • Started in 2005 • Abating emissions or buying emissions allowances? • Reference periods: 2005 -7, 2008 -12, 2013 -20, … • The compliance cycle: annual monitoring and reporting of emissions, verification of reported emissions and surrendering of allowances on the Registry 5

Key elements of EU ETS • EU-wide cap • Scope: extension & other adjustments (Annex I) • Auctioning as the basic allocation method • Transitional harmonised allocation rules (‘CIMs’) with “benchmarking” as reference 6

EU-wide cap - only stationar installations - proportions shown are arbitrary - LRF to be reviewed by 2025 Auctioning If applicable, surplus Art 10 a 5 NER 300 NER for stationary Free allocation installations 7

Scope in 2005 -2012: • Sectors/activities: Power sector , energy intensive industry (iron and steel making, cement, lime, ceramics, pulp&paper, glass) • Gas: CO 2, opt-in di N 2 O 1. Extended scope as from 2013: • New sectors: Aluminium, bulk chemicals, aviation (as from 2012) • New gases : PFC from aluminium production, N 2 O from the production of chemicals Possible inclusion of the maritime in case no agreement within the International Maritime Organization 8

Harmonised allocation method • Auctioning is the basic allocation method – 100% auctioning for the power sector as from 2013 • Phasing out of free allocation for industry based on benchmark: 80% free in 2013 – 30% free in 2020 – 0% free in 2027, unless… • …sectors deemed to be exposed to carbon leakage risk, in this case the allocation is the 100% of the allocation calculated on the basis of the BM 9

3 Overview of ETS implementation activities • on ‘allocation of allowances’ • Commission Decision 2011/278/EU published in the OJ on 17/05/2011 • Assessment of the applications for specific rules for transitional free allocation for the modernisation of electricity generation (Art. 10 c) • Assessment of the NIMs for stationary installations • Assessment of notifications under Art. 27 for the exclusion of small emitters 10

Overview of ETS implementation activities • ‘monitoring & reporting’ & ‘verification & accreditation’ • Regulations on M&R and A&V voted in Climate Change Committee in December 2011 • Scrutiny procedure started in EP and Council 3 months and then adoption • Concerning M&R: no major changes compared to Commission Decision 2007/589/EC • Data collection in accordance with M&R rules and principles set in the decision 11

Overview of ETS implementation activities • Auctioning Regulation n. 1031/2010 adopted on 12 November 2010 amended by Commission Regulation (Eu) No 1210/2011 defining the amount of allowances for early auctions • A common auction platform for 20+ Member States • option for Member States to set up own auction platform • Simple auction format • Predictable auction calendar • Adequate oversight: • a single auction monitor, • solid know-your-customer checks and 12 • provisions to mitigate risk of market abuse

Overview of ETS implementation activities • on ‘carbon leakage’ • ‘direct CL’: end 2009 decision determining (sub)sectors deemed to be exposed to significant risk of carbon leakage (amended in 2011 (*)) • ‘indirect CL’: public consultation(**) on rules of state aid in favour of (sub)sectors exposed to significant risk of carbon leakage due to costs relating to GHG emissions passed on in electricity prices. Public consultation closing by 31/01/2012 (*) http: //eur-lex. europa. eu/Lex. Uri. Serv. do? uri=CELEX: 32011 D 0745: EN: NOT (**) http: //ec. europa. eu/competition/consultations/2012_emissions_trading/index_en. html 13

Harmonised allocation rules – benchmarking for free allocation • Benchmark = X Allowances per unit of product produced • Benchmark x historical production = allocation • A benchmark does not represent a physical emission limit or a target to reach • Operators are allowed to buy allowances if necessary or reduce emissions, financing such reductions by selling the saved allowances 14

Current activities and NIM process __2009 -2010____15/12/2010______2011______30/09/2011_____…… 28/02/2013 Developing CIMs CCC vote on the CIMs NIMs develop ment NIMs submissi on & approval Issuance of free allowances to installations 15

Current activities and NIM process Member State perspective 1. Setting up the legal basis for data collection&verification 2. Identification of incumbent installations (Guidance on interpretation of the annex 1 activities(*)) 3. Collecting data 4. Calculating preliminary allocations 1. Advisable: consultation phase with operators 5. Submitting the NIMs to the Commission for assessment 6. (*) http: //ec. europa. eu/clima/policies/ets/docs/guidance_interpretation_en. pdf 16

Current activities and NIM process 1. NIMs assessment (DG CLIMA) 2. Completeness checks of NIMs lists & methodology reports, NIMs tables 3. Compliance checks of NIMs list & methodology reports (correct application of rules, plausibility checks, etc. ) 4. Decision on the NIM 17

NIMs process: Assessment phase Submission Completeness check if necessary positive Compliance check positive Decision on non-rejection if necessary negative Decision on rejection 18

Current activities and NIM process DG Clima’s tasks and activities Member States’ tasks and activities • Acceptance/rejection of the NIM list at installation level. Legal form to be decided. • Receiving EC Decision on the NIM • After notification by all MS the Commission determines the CSCF • Calculating final allocation to installations with the application of the CSCF • Uploading the table in the common Registry • Submitting the final table to the Registry (also requirement foreseen in the forthcoming Registry regulation) 19

Exclusion of small installations Installations subject to the provisions under Article 27: • ‘Installations which have reported to the competent authority emissions of less than 25. 000 tonnes of carbon dioxide equivalent and, where they carry out combustion activities, have a rated thermal input below 35 MW , […], and which are subject to measures that will achieve an equivalent contribution to emission reductions’ • ‘Hospitals[*] may also be excluded if they undertake equivalent measures’ Main purpose of exclusion (Recital 11 of the revised ETS Directive): • “This threshold offers the maximum gain, in relative terms, of reduction of administrative costs for each tonne of CO 2 equivalent excluded from the system, for reasons of administrative simplicity. • [*] For a definition see Guidance on Interpretation of Annex I of the EU ETS Directive endorsed by CCC on 18 March 2010 20

Exclusion of small installations Any measure adopted at national level shall be in line with the following 'cornerstones', which represent the main criteria for the assessment of the relevant notification under Article 27: • Reducing administrative burden for the operators • Following Recital 11 of the revised ETS directive, the main aim of equivalent measure under Article 27 should be the reduction of administrative burden for the operators. • Possible examples: simplification in the permitting procedures (i. e. number and cases in which a permit needs to be updated) or measures whereby capacity increases/decreases do not need to be taken into account, or simplified verification requirements. 21

Exclusion of small installations • …'cornerstones‘ Equivalent contribution to emissions reductions • Additional: Member States will have to substantiate that the proposed measure(s) is(are) additional; in case a measure would also apply to the installation if it remained under the EU ETS, it cannot qualify as equivalent; • At installation level: the measure(s) shall be applicable and applied at installation level • Consistent with the principles of the ETS Directive: the equivalent measure shall be consistent with the Directive's overall objective. Not entailing distortions of competition • introducing different costs per ton of CO 2 emitted above the relevant benchmark level (the carbon leakage exposure status of the subinstallations of the installation concerned needs to be taken into 22 account)

Exclusion of small installations • non-paper distributed to the Member States after the WG 3, giving an example of equivalent measure • In order to allow for a proper assessment of the notification, Member States should notify together with the list of installations the national legislation that will apply to the excluded installation, in particular the acts setting out the equivalent measures, and thus supporting the exclusion 23

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