Manufacturing industry will continue to receive a share of their emission allowances for free until 2020 and beyond. This allocation is based on benchmarks that reward most efficient installations in each sector.
Manufacturing industry received 80% of its allowances for free in 2013. This proportion will decrease gradually year-on-year, down to 30% in 2020.
The free allocation for each installation is calculated using benchmarks developed for each product, as far as possible. The current 54 benchmarks (52 product and 2 so-called fallback approaches based on heat and fuel) were elaborated based on extensive technical work.
Generally speaking, a product benchmark is based on the average greenhouse gas emissions of the best performing 10% of the installations producing that product in the EU.
The benchmarks are based on the principle of 'one product = one benchmark'. This means that the methodology does not vary according to the technology or fuel used, the size of an installation, or geographical location.
Installations that meet the benchmarks, and are therefore some of the most efficient in the EU, will in principle receive all the allowances they need to cover their emissions.
Installations that do not reach the benchmarks will receive fewer allowances than they need. They will have to
The continued provision of some free allowances limits costs for EU industry in relation to non-EU competitors.
Sectors and sub-sectors facing competition from industries outside the EU that are not subject to comparable climate legislation will receive more free allowances than those which are not at risk of this carbon leakage.
EU-wide harmonised rules for free allocation are set out in the European Commission's 2011 Benchmarking Decision.
Following these rules, all EU and EEA-EFTA countries carried out a preliminary calculation of the number of free allowances for each installation in their territory and sent these 'national implementation measures' (NIMs) to the Commission.
The Commission assessed each country's figures to ensure they are complete and comply with the relevant legal provisions (see 2013 Commission decision). The EFTA Surveillance Authority did the same for those from the EEA-EFTA states.
The countries then made final allocation decisions for the entire phase 3 (2013-2020). Allowances are issued yearly.
As the requested allocations for all installations in the EU exceeded the total amount available for free allocation, the allocation per installation was reduced for all installations by the same percentage. This is the cross-sectoral correction factor applied as from 2013.
The correction factor reduced allocation by around 6% in 2013. As the amount of allowances available decreases each year, the correction factor increases each year until 2020 when it will reach approximately 18%.
Moreover, the amount of free allowances can change throughout the period 2013-2020 due to production and capacity adjustments beyond the thresholds fixed in the harmonised allocation rules.