European Union Allowances posted their biggest weekly gain in four months as EU scaled back the handout of free allowances, reducing the risk of a sell-off by polluters. The European Commission adopted a decision on Member States' national implementation measures (NIMs) for phase three of the EU Emissions Trading System (EU ETS). The decision marks the final step to implement the revised ETS Directive and creates clarity on how many free allowances should be handed out to each industrial installation up to 2020.
The decision provides the basis for calculating the number of allowances allocated for free and auctioned, respectively, but has no effect on the total amount of allowances put on the market in phase three (2013-2020).
The NIMs were notified by Member States and this decision approves almost all their calculations for more than 10 000 industrial installations under the EU ETS. The actual number of allowances handed out each year will be based on harmonised benchmarks. These will be adjusted by a 'cross-sectoral correction factor' laid down in the decision which will vary each year, as foreseen by the ETS legislation. This will ensure that the total amount handed out for free does not exceed a maximum set in the ETS Directive.
The correction factor has been made necessary by, among other things, the existing carbon leakage list. With many sectors featuring on this list, many installations are eligible for a high level of free allocation. It is now for Member State authorities to take the necessary steps to distribute the free allowances to installations via their accounts in the Union registry. This will take around one to three months depending on the procedures to be followed in each Member State.
The Commission also adopted a decision on standard capacity utilisation factors (SCUFs). These factors are necessary to enable Member States authorities to calculate the amount of free allocation to be provided to new entrants to the EU ETS in the period 2013 to 2020.
The decision represents a key milestone in the practical implementation of the 2009 reform of the EU ETS. The decision is the result of a mechanical application of the legislation in force based on a long technical assessment, but it is politically important because it turns the long-standing goal of harmonised allocation rules across the internal market into reality.
The decision is not related to the 'back-loading' discussion or the on-going reflections on future structural reforms of the ETS.