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Allocation Rules for Industry under EU ETS: Challenges and Opportunities (2013-Present)

This presentation by Mukund Bhagwat, delivered in Brussels on June 9, 2011, assesses the EU Emissions Trading System (ETS) and its allocation rules impacting the industrial sector from 2013 onwards. It highlights the challenges of benchmark set-ups, insufficient time for adaptation, and the resultant shortages of allowances. Key insights emphasize the need for phased benchmarks, adjustments based on actual production levels, and better incentives to enhance efficiency. The presentation underscores the complexities involved in allocation rules and urges consideration for capacity extensions while addressing financial compensation as a key missed element.

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Allocation Rules for Industry under EU ETS: Challenges and Opportunities (2013-Present)

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Presentation Transcript

  1. Energy ForumAllocation rules for Industry in EU ETS 2013presented by Mukund BhagwatBrussels 9 June 2011

  2. General assessment • Benchmarks for industry: The right decision • but benchmarks severe, especially since they apply from 2013 no time for adaptation • Allocation rules… • … adequate for installations without production changes between 2005 – 2011 • … result partly in shortage of allowances or wrong incentives for installations with production changes • EU experience has shown: • To set up a benchmark system is challenging but feasible • EU system can be a model for the world • if benchmarks are phased in (time for adaptation) and • allocation is based on actual production levels • safeguards right incentives, reduces complexity of allocation rules significantly etc. while maintaining carbon price signal

  3. In detail: What’s good or was improved • Historical Activity Level: some flexibility • Significant Capacity Extension Threshold: > 10 % or 50.000 EUAs … • Allocation to heat consumer • Carbon leakage status of heat consumer considered • Efficiency improvement / Abatement measures will not lead to less allocation • No innovation and technology accelerator

  4. In detail: What’s not implemented well • Constraints on production growth • No additional allocation in case of production growth without a physical change • No additional allocation in case of capacity increase below 10% • Complex and problematic determination of added capacity • There may be no allocation for new entrants/ capacity extensions in case New Entrants’ Reserve is used up • Extension of non-ETS heat consumers not sufficiently considered (sets inefficient incentives) • Capacity extensions of up- and downstream plants not considered

  5. In detail: What’s not implemented well • Competitive advantage of industrial CHP reduced • Wrong calculation of “industry cap” may reduce free allocation • Total amount of free allocation independent of benchmarks and allocation rules • No hardship clause • No rationalisation rule • Lack of EU-harmonisation (esp. with regard to “installation” definition) Financial Compensation: still the missing link in the system

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