IP/06/1650

Brussels, 29 November 2006

Emissions trading: Commission decides on first set of national allocation plans for the 2008-2012 trading period

The European Commission has today confirmed its strong commitment to ensuring that the EU and Member States achieve their greenhouse gas emission targets under the Kyoto Protocol. In deciding on the first 10 national plans for allocating CO₂ emission allowances to energy-intensive industrial plants for the 2008-2012 trading period under the EU Emissions Trading Scheme (EU ETS), the Commission reduced the allowances by almost 7 per cent below the emissions proposed by the national allocation plans and 7 per cent below the 2005 emissions. The plans concern Germany, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Sweden and the United Kingdom. They account for 42 % of the allowances allocated in the first trading period of the EU ETS, from 2005 to 2007. The objective of the EU ETS is to ensure that greenhouse gas emissions from the energy and industry sectors covered are cut at least cost to the economy, thus helping the EU and its Member States to meet their emission commitments under the Kyoto Protocol.

Environment Commissioner Stavros Dimas said: “Today’s decisions send a strong signal that Europe is fully committed to achieving the Kyoto target and making the EU ETS a success. The Commission has assessed the plans in a consistent way to ensure equal treatment of Member States and create the necessary scarcity in the European carbon market. The same standards will be applied to the rest of the plans.”

Assessment of the NAPs

National allocation plans (NAPs) determine for each Member State the 'cap,' or limit, on the total amount of CO₂ that installations covered by the EU ETS can emit, and set out how many CO₂ emission allowances each plant will receive.

The Commission's task is to scrutinise Member States' proposed NAPs against 12 allocation criteria listed in the Emissions Trading Directive (1). The criteria seek, among other things, to ensure that plans are consistent with reaching the EU's and Member States' Kyoto commitments, with actual verified emissions reported in the Commission's annual progress reports and with technological potential to reduce emissions. Other criteria relate to non-discrimination issues, EU competition and state aid rules and technical aspects. The Commission may accept a plan in part or in full.

The Commission is requiring changes to the 10 plans assessed where:

• the proposed total of allowances ('cap') for the 2008-2012 trading period is not consistent with meeting the Member State's Kyoto target,
• the proposed total of allowances is not consistent with expected emissions and the technological potential to reduce emissions, taking into account independently verified emissions in 2005, anticipated changes in economic growth and carbon intensity,
• the proposed limit on the use by companies of credits from emission-reduction projects in third countries carried out under the Kyoto Protocol's flexible mechanisms (2) is not consistent with the rule that the use of these mechanisms should be supplementary to domestic action to address emissions.

Where modifications are required, the Commission has indicated in each case the steps to be taken by the Member to make the plan acceptable to the Commission. Approval of the plan will become automatic once these changes have been made.

The Commission has started infringement procedures against Austria, Czech Republic, Denmark, Hungary, Italy and Spain for not submitting their NAPs yet (see IP/06/1364). The deadline was 30 June 2006.

Cleared annual allocation

See also :

http://ec.europa.eu/environment/climat/emission.htm

http://ec.europa.eu/environment/climat/2nd_phase_ep.htm

And MEMO/06/452

Barbara Helfferich, 02 298 2010 or 0496 58 38 29

Lone Mikkelsen, 02 296 0567 or 0498 96 05 67

Annex

Information about specific aspects of decisions:

Total quantity of allowances

The Commission must assess each plan against 12 criteria laid down in the Emissions Trading Directive. Three of these criteria require the total quantity of allowances allocated to be consistent with achieving the Member State's Kyoto Protocol commitment, with the expected level of emissions and with the potential for reducing emissions. The formulae used are given in the Communication accompanying the Commission's national allocation plan decisions. In deciding the total quantity of allowances allowed for each Member State, the Commission has applied the most constraining of these criteria.

Limit on the use of Kyoto project credits (CERs and ERUs)

In addition to domestic action by Member States to reduce their greenhouse gas emissions, the Kyoto Protocol allows Member States to use credits from Joint Implementation (JI) and Clean Development Mechanism (CDM) projects in third countries to comply with part of their emission reduction commitments. Use of these credits must be supplemental to domestic action.

Since the EU ETS is the EU's central instrument for achieving the Kyoto Protocol targets, the Emissions Trading Directive allows operators of installations also to use JI and CDM credits towards fulfilling a proportion of their emission reduction commitments under the scheme. This proportion must be consistent with Member State commitments to supplementarity and has to be fixed in the national allocation plan.

The Commission considers that, as a general rule, installations should be allowed to use JI and CDM credits to supplement their allowance allocation by up to 10%. In assessing proposed limits that are greater than 10%, the Commission has taken into account the effort a Member State has to undertake to respect its Kyoto target. The formula used is given in the Communication accompanying the Commission's national allocation plan decisions.

Banking

Banking (i.e. the carry-over) of allowances from the first to the second trading period is allowed only if it does not lead to an allocation beyond the total allocation approved by the Commission for the second trading period. Therefore, for each allowance allowed to be banked, an allowance must be deducted from the total quantity issued for the second trading period. In addition, banking has to be examined under EU state aid rules. Where banking is not a result of real emission reductions having been made, it is likely to be found incompatible with state aid rules.

Allocation guarantees

The Commission considers that Member State guarantees regarding the future methodology for allocating allowances are not in line with the allocation criteria set in the Emissions Trading Directive. They also discriminate between companies in a way that unduly favours certain undertakings or activities, contrary to the requirements of the EC Treaty.

The Commission has therefore disallowed the provision of such guarantees beyond 2012, and the application of such guarantees given at an earlier stage during the 2008 to 2012 period. Installations intended to benefit from such preferential guarantees have to be allocated allowances in the same manner as other existing installations. In addition, allocation guarantees beyond 2012 have to be examined under EU state aid rules.

Additional installations or emissions

Several Member States have extended the scope of the EU ETS and covered installations or emissions that were not included in the first trading period. Under the 10 plans assessed it is foreseen that a total of close to 24 million allowances would be allocated for this purpose. The Commission has approved these allowances conditionally. If, after verification of the relevant emissions data, it transpires that these installations should have been allocated fewer allowances, the total quantity of allowances will have to be reduced accordingly.

Auctioning

The Directive allows each Member State to auction up to 10% of the allowances allocated in the second trading period. Several Member States have decided to make use of the possibility to auction some allowances. The decisions allow each Member State to increase the share of auctioning after the Commission's assessment and prior to the finalisation of the allocation process at national level. This is the only discretionary change allowed.

Ex-post adjustments

The Emissions Trading Directive requires Member States to decide the total number of allowances and the allocation to each installation’s operator before the trading period starts. This decision may not be re-visited. In this way, the scheme gives certainty to companies about their allocation and promotes investment in measures to reduce emissions.

The Commission has consequently disallowed any proposal contained in the national allocation plans to adjust allocations after a Member State has made its final allocation decision.

Information about individual decisions:

Germany: Plan accepted with changes required.

1) The annual allocation may not exceed 453.1 million allowances.

2) Allocation guarantees contained in the first allocation plan may not be implemented in the period 2008 to 2012. The installations concerned have to be allocated allowances in the same way as other installations (i.e. subject to the same compliance factor).

3) If new allocation guarantees were implemented in German law the Commission would need to examine them under EU state aid rules. Under the Directive the Commission would also disallow the implementation of allocation guarantees when the third allocation plan is assessed.

4) The list of installations included in the national allocation plan for the second trading period has to be completed.

Greece: Plan accepted with changes required.

1) The annual allocation may not exceed 69.1 million allowances.

2) Intended ex-post adjustments (e.g. where future legislative requirements cause higher emissions in existing installations) are eliminated.

3) More information needs to be provided on the manner in which new entrants will be treated.

Ireland: Plan accepted with changes required.

1) The annual allocation may not exceed 21.15 million allowances.

2) Intended separate new entrant reserves for specific sectors are eliminated and equal treatment is ensured.

3) More information needs to be provided on the manner in which new entrants will be treated.

4) Intended ex-post adjustments (e.g. in the case of closure of existing installations) are eliminated.

5) The overall maximum amount of Kyoto project credits (CERs and ERUs) which may be used by operators for compliance purposes may not exceed 21.9 %.

Latvia: Plan accepted with changes required.

1) The annual allocation may not exceed 3.3 million allowances.

Lithuania: Plan accepted with changes required.

1) The annual allocation may not exceed 8.8 million allowances.

2) Intended ex-post adjustments are eliminated.

3) More information needs to be provided on the manner in which new entrants will be treated.

Luxembourg: Plan accepted with changes required.

1) The annual allocation may not exceed 2.7 million allowances.

Malta: Plan accepted with changes required.

1) The annual allocation may not exceed 2.1 million allowances.

2) Intended ex-post adjustments (e.g. in the event of partial or temporary closure of an installation) are eliminated.

3) The overall maximum amount of Kyoto project credits (CERs and ERUs) which may be used by operators for compliance purposes has to be specified in the National Allocation Plan.

Slovakia: Plan accepted with changes required.

1) The annual allocation may not exceed 30.9 million allowances.

2) The allocation at installation level must be modified so that it corresponds to production limitations in the Accession Treaty. This concerns in particular one company in the steel sector.

3) More information needs to be provided on the manner in which new entrants will be treated.

Sweden: Plan accepted with changes required.

1) The annual allocation may not exceed 22.8 million allowances.

2) The overall maximum amount of Kyoto project credits (CERs and ERUs) which may be used by operators for compliance purposes may not exceed 10 %.

3) The list of installations included in the national allocation plan for the second trading period has to be completed.

UK: Plan accepted with changes required.

1) The proposed annual allocation amounting to 246.2 million allowances is accepted.

2) The list of installations included in the national allocation plan for the second trading period has to be completed with respect to installations situated in Gibraltar.

Summary information on the 10 assessed plans:

Comparison of allowances approved for 2005 to 2007 vs. verified emissions in 2005 (3)

Comparison of proposed vs. approved caps for 2008 to 2012

(2) These mechanisms are known as the Clean Development Mechanism (CDM), for projects carried out in developing countries, and Joint Implementation, for projects carried out in developed countries or economies in transition.

(3) Additional installations and emissions included in the second trading period are not included in this table.

(4) Verified emissions for 2005 does not include installations opted out in 2005 which will be covered in 2008 and 2012 and are estimated to amount to some 30 Mt.

(5) Additional installations and emissions of 11 million tons are included in the second trading period.

(6) Additional installations and emissions of 0.05 million tons are included in the second trading period.

(7) Additional installations and emissions of 1.7 million tons are included in the second trading period.

(8) Additional installations and emissions of 2 million tons are included in the second trading period.

(9) Additional installations and emissions of 9.5 million tons are included in the second trading period.