Feasibility check on correction factor and benchmark updates

In EU ETS phase IV

Published: 17/03/2016

For the fourth phase of the EU Emissions Trading Scheme (EU ETS Phase IV) that will run from 2021 to 2030, the European Commission and other stakeholders are discussing a revised methodology for the free allocation of emission allowances. The proposal put forward by the Commission includes updated lower values for the benchmarks that are used to determine the free allocation, an adapted carbon leakage list, and the continued use of a cross-sectoral correction factor (CSCF) in case the bottom-up calculated allocation exceeds the available number of allowances for free allocation. In the EC impact assessment a carbon leakage list with four, rather than the current two tiers, is also studied which may be another option to design the leakage list.

The Dutch Energy Agreement for Sustainable Growth aims at 100% free allocation compared to a realistic benchmark for best performing installations in the EU ETS. The choices made with respect to the proposed benchmark updates, as well as the various options for the carbon leakage list, will determine whether the resulting allocation is compatible with the Dutch Energy Agreement. Against this background this report investigates the likelihood that the CSCF is needed for a variety of scenarios and provides a feasibility check on the proposed default benchmark updates for two important sectors in the Dutch industry: the steel and refinery sectors.