Climate Action

Adoption of the Regulation on adjustments to free allocation of emission allowances due to activity level changes

31/10/2019

The Commission adopts the Regulation on adjustments to free allocation due to activity level changes.

The Commission has reached an important milestone in the preparation for phase 4 of the EU Emissions Trading System (ETS), starting in 2021 with the adoption of the Regulation setting out the rules on how the free allocation of emission allowances will reflect the changes in the activity of the installations.

In the revised ETS Directive (Directive (EU) 2018/410 amending Directive 2003/87/EC) the co‑legislators established that free allocation to industry will continue after 2020 as long as no comparable efforts are undertaken in other major economies. Free allocation is a transitional measure foreseen to address the risk of an increase in global emissions following relocation of industry due to climate policies to third countries with no or limited carbon constraints, an effect known as ‘carbon leakage’.

The ETS Directive establishes that when the level of operations of an installation increases or decreases by more than 15%, the level of free allocation shall be adjusted. While the ETS Directive establishes the main rules for adjusting free allocation to activity level changes, more detailed implementation requirements need to be determined.

The adopted implementing Regulation sets out the rules for adjustments taking place after the initial 15% change has taken place. It also contains provisions aimed at maintaining incentives for increasing the energy efficiency of installations for which no product benchmark is available. In addition, rules on how to deal with other changes in the operation of the installation are set. The Regulation will be applied for the first time in 2021.

Compared with the rules applied during the period 2013 – 2020, the new rules will result in changes in the operations of the installation being more easily reflected in the level of free allocation. As result, the system will be more flexible in the future.

A consultation seeking the views of the stakeholders was organised during the winter 2018/2019. The Regulation was discussed with Member States and sectorial experts in the Climate Change Expert Group. It was published for feedback in June 2018 and received the positive vote of the Climate Change Committee on 8 October 2019.

The Commission will now focus on the development of the necessary IT infrastructure for allowing Member States to report the changes in the level of allocation of installations in a secure and reliable way during the next decade.

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