S.7.1. The European Emissions Trading System

D.7.1. The European Emissions Trading System

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European Commission adopts Regulation on adjustments to free allocation due to activity level changes

Thursday, October 31, 2019


The European Commission (EC) has reached a new step in the preparation for phase 4 of the Emissions Trading System (ETS), which starts in 2021, with the adoption of a Regulation on how the free allocation of emission allowances will reflect changes in the activity of installations.

The revised ETS Directive (Directive (EU) 2018/410 amending Directive 2003/87/EC) provides for an adjustment of free allocation levels when the level of operations of an installation increases or decreases by more than 15%. More detailed implementation requirements on such adjustments are determined in the aforementioned implementing Regulation, which will be applied for the first time in 2021. The Regulation also includes provisions aimed at maintaining incentives to increase energy efficiency for installations for which no product benchmark is available. It also sets rules on dealing with other changes in the operation of installations.

Free allocations will continue as a transitional measure after 2020 to address the risk of an increase in global emissions, known as the ‘carbon leakage’ effect, as long as no comparable efforts are undertaken in other major economies.

The EC will now focus on the development of the IT infrastructure to allow Member States to report changes in the level of allocations to installations in a secure and reliable way during the next decade.