FuelsEurope Workshop on Dynamic Allocation for Free Allowances in EU ETS

With ETS phase III, auctioning became the general rule with free allocation as the exception. Almost three years after the start of Phase III, a few learnings can be drawn on whether new allocation rules have been effective in distributing available free quotas to each industrial installation.

Whilst an allocation mechanism based on GHG performance necessarily implies that some installations will receive more and some less – a consequence that is accepted, the refining industry could unfortunately observe a significant mismatch between sectors’ emissions and free allocation, which was mostly due to the system’s inability to reflect economic developments. Allocation based on pre-crisis activity levels resulted in a significant allocation surplus for sectors that cut production drastically and/or moved production overseas whilst sectors which better resisted to the crisis maintaining higher production level were penalised by the rapid exhausting of the limited free allocation budget.

For these reasons, developing a more dynamic, activity-based allocation method in the re–vised ETS Directive, has become an important objective for the European Refining Industry. Stakeholders’ views and positions vary however notably as a result of the estimated cost and administrative burden on the one hand and the ambition of having a fair representation of the level of activity on the other. In order to build more consensus around this aspect of the directive and bring a constructive contribution to the debate, FuelsEurope organised a workshop to bring together key stakeholders from national authorities, industry and experts in carbon markets to share their expe–rience and knowledge and launch the debate to explore options for converging positions.