BACI’s Statement regarding the Regulation on adjustment to free allocation emissions

Statement of BACI to MOEW regarding the draft Regulation on adjustment to free allocation emissionsdue to activity level changes

Bulgarian Association of the Cement Industry (BACI) with a letter welcomes the timely and open communication of the Ministry of environment and water with the Bulgarian industry on EU ETS recast and we appreciate the efforts of the Bulgarian government to contribute to the creation of rules that will ensure the incentives for growth, investment and decarbonation of the EU industry. Bulgarian cement industry has indicated several times that the current EU ETS does not provide for a level playing field among the EU industrial producers and the once outside of EU, so we’ll continue providing our input to the EU regulatory framework, hoping that EC will put the competitiveness of the EU industry higher in its agenda.

BACI presented our comments to the Draft Regulation on Adjustment to Free Allocation Emissions Due to Activity Level Changes (ALC Regulation), distributed on May 22nd 2019:

  • BACI, as well as European Cement Industry (CEMBUREAU), finds the dynamic allocation as an important tool of the Commission to keep the amount of distributed free allowances as close to the production needs of the sectors, exposed to carbon leakage, as possible, leveling them to the best performers in the sector through the application of product specific benchmarks. That is why; we do not support the step-wise approach to adjustment of allocation due to activity level change, introduced with the draft ALC Regulation. This proposal would lead to a distortion of competition between installations (even within the same sector) due to the additional 5% thresholds. If the average activity level of a rolling average of two years increases or decreases by more than 15% compared to the historical activity level, the adjustment of the allocation, must be linear
    , following the exact percentage change in the average activity level and this rule must be applied during the first and each subsequent adjustment of the allocation. The linear adjustment of the allocation will minimize the risk of system “optimization” which will inevitably lead to over or under allocation.
  • The draft ALC Regulations leaves a “handicap” in the allocation of free allowances to the new capacity in the industrial sectors. The ALC Regulation provides for specific treatment of new installations, i.e. the new entrants to the Scheme, as does not differentiate between incumbent installations that just use their free capacity and the incumbent installations that invest heavily in new capacity. In order to intensify the investments in EU industry, the EC has to assure that when changes in production are due to significant modifications in the installation, leading to an increase in capacity, such an increase must receive the same treatment as that for “new entrants” installations
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  • The latest draft of the Regulation defines that the start of the adjustment of free allocation due to activity levels changes will be 01.01.2021, i.e. the first adjustment will be made based on the activity levels in 2019 and 2020.We support this text as it’ll ensure coherent allocation rules throughout the whole period. However, the draft ALC Regulation does not provide for information when this adjustment will be effective. According to the presented dates, the allowances are distributed by the end of February of the year they apply and the activity level is ought to be reported and verified by 31st of March, i.e. the information for possible need of adjustment of the allocation will be available after the distribution of allowances for the specific year. We will appreciate clarification on the timing of the changes
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BACI would be grateful if MOEW takes into consideration our comments and advocate for linear dynamic allocation, fair treatment of capacity increase of the existing installations, and adjustment of the allocated allowances as soon as the activities levels are verified.