EU Emissions Trading Scheme
The EU Emissions Trading System (EU-ETS) is seen as a cornerstone of the European Union's policy to combat climate change. The EU ETS works on the 'cap and trade' principle. Within the cap, companies receive or buy emission allowances which they can trade with one another as needed. After each year a company must surrender enough allowances to cover its emissions. We are currently near the end of Phase III of the EU-ETS, which ended in December 31st 2020. Phase IV of the EU-ETS, which will apply post-2020, is now being finalised with regulations for the rules for harmonised free allocation (FAR), the carbon leakage list (CLL) and adjustments of allowances due to changes in production levels (ALC) all approved in 2019. Under the Green Deal and the proposed EU Climate Law the 2030 reduction target is currently being reviewed and this may have an impact on the final target for 2030, together with the proposed development of a carbon border mechanism (CBM). During the remainder of 2020 and the first quarter on 2021 the list of installations eligible for free allocation (NIMS), the benchmarks (product, fuel and heat) and the monitoring and reporting rules (MRR) will be finalised. Within phase IV there will have two halves, from 2021 to 2025 and from 2026 to 2030. Currently the 2030 ETS target is 43% reduction compared with 2005 and this will result in a linear reduction factor (LRF) of 2.2% on the total number of allowances per annum. Over Phase IV, the amount of free allowances for carbon leakage sectors will be based on the combination of historical activity levels and a benchmark (based on the average of the 10% best performers) and may be further corrected through an application of the cross-sectoral correction factor.
In a nutshell, the cement industry views on Phase IV of the EU-ETS are as follows:
- EU-ETS sectors already contribute proportionately more to the overall EU reduction target than non-ETS sectors. Therefore, the 43% reduction objective and the 2.2% linear reduction factor for phase IV should not be further increased. Before the any changes are proposed for the 2030 ETS target a thorough impact assessment should be carried out to determine is that the target is technically and financially feasible.
- All energy-intensive industries must be on the carbon leakage list, with all installations receiving free allocation based on ambitious, but realistic, benchmarks.
- No differentiation should be made between sectors. CEMBUREAU is firmly opposed to both the tiering of free allowances and the cross-sectoral correction factor.
- In order to allow for sufficient free allowances at the level of the best performer, the auctioning/free allowances share proposed by the European Commission (57/43% respectively) needs to be revised in favour of an increase in the free allowances available.
- If a carbon border mechanism (CBM) is applied to any energy intensive sector, then this should in combination with free allowances in ETS.