Indirect carbon emissions

Impact of a “hybrid” compensation approach

Published: 19/10/2016

Contracted by European Aluminium, a sector association representing the European aluminium industry, Ecofys has assessed the impact of the regulatory changes in the European Emission Trading System (EU ETS) on the power purchasing costs for electro-intensive industry for the post-2020 timeframe. The assessment revealed that in the period 2021 – 2030 the electro-intensive industry requires approximately 2,300 million allowances to be fully compensated for indirect carbon emissions costs up to the level of the current EU ETS benchmark.

In order to compensate these costs in a harmonised manner across the EU ETS, the study assumes that allowances from the auctioning volume could be channeled towards the electro-intensive industry to form the basis for a new hybrid compensation mechanism.

Such a hybrid compensation approach consists of two steps. First, each member state’s auction volume is reduced by a pre-defined rate to fill an EU compensation pool, reflecting the member state shares as defined by the July 2015 EC proposal. Compensation requirements are region-specific and depend on the details of each region’s power market. Therefore, based on the calculation of the compensation requirements for electro-intensive indirect emissions per member state, each member state can voluntarily „top up“ its contribution via the existing state aid guideline possibilities.

Ecofys has evaluated several scenarios regarding the size of the EU compensation pool and the effect on member state auction revenues.