Free allocation based on benchmarks
Although auctioning is the default method for allocating emission allowances to companies participating in the EU emissions trading system (EU ETS), manufacturing industry will continue to receive a share of allowances for free until 2020 and beyond. Free allocation is carried out on the basis of ambitious benchmarks of greenhouse gas emissions performance. These benchmarks reward best practice in low-emission production and are an important signal of the EU's commitment to moving towards a low-carbon economy.
Free allocation decreases each year
Manufacturing industry will receive 80% of its allowances for free in 2013, a proportion that will decrease in linear fashion each year to 30% in 2020.
Sectors facing carbon leakage receive higher share
Installations that meet the benchmarks, and are thus among the most efficient in the EU, will in principle receive all the allowances they need.
Those that do not reach the benchmarks will receive fewer allowances than they need. These installations will therefore have to reduce their emissions, or buy additional allowances or credits to cover their emissions, or combine these two options.
The continued provision of some free allowances limits costs for EU industries in relation to international competitors. Sectors and sub-sectors facing competition from industries outside the EU which are not subject to comparable climate legislation will receive a higher share of free allowances than those which are not at risk of such 'carbon leakage.'
What are benchmarks?
A benchmark does not represent an emission limit or even an emission reduction target, but merely a value used to calculate free allocation per installation. The benchmarks have been developed per product, to the extent feasible.
Generally speaking, a product benchmark is based on a value reflecting the average greenhouse gas emission performance of the 10 % best performing installations in the EU producing that product.
The benchmarks have been established on the basis of the principle of 'one product = one benchmark.' This means the benchmark methodology does not differentiate according to the technology or fuel used, nor the size of an installation or its geographical location.
How free allocation is calculated
Transitional, harmonised EU-wide rules for free allocation are laid down in the European Commission's 2011 'Benchmarking Decision'. The Commission and Member States have worked together to make sure the rules are applied in a harmonised way. Guidance documents and templates have been agreed and a number of workshops held for national competent authorities. The documents, templates and workshop presentations can be found in the Documentation tab at the top of this page.
In accordance with the rules set out in the Benchmarking Decision, all Member States and EEA-EFTA countries have carried out a preliminary calculation of the number of free allowances to be allocated to each installation in their territory and have notified these so-called national implementation measures (NIMs) to the Commission.
The Commission has carried out an in-depth assessment of each notification to ensure completeness and compliance with the relevant legal provisions. The EFTA Surveillance Authority has done the same for the notifications from the EEA-EFTA states.
In its decision on the NIMs, adopted on 5 September 2013, the Commission concluded that most NIMs submitted by Member States have been established in accordance with the rules, and provided guidance on how to ensure all NIMs fully comply.
As the preliminary allocation through the NIMs exceeded the maximum amount of allowances available in 2013, a cross-sectoral correction factor will have to be applied (as provided for in Article 10a.5 of the revised ETS Directive). The correction factor will be 5.73 % in 2013 and will thereafter increase gradually to 17.56% in 2020.
On the basis of the Commission decision, EU Member States and EEA-EFTA countries can take final allocation decisions and issue the allowances for 2013. The time needed before installations will receive allowances on their accounts will depend on the procedures in each Member State, but can be estimated at between one and three months.
The Benchmarking team can be reached by email