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Implications of Emissions Trading Scheme revision

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The most significant aspect of the adopted climate change package is Parliament’s endorsement of the heads of governments’ final compromise on revising the EU ETSi, reached on 12 December. According to the compromise, industrial sectors considered at significant risk of carbon leakage based on criteria agreed by EU leaders will be able to receive up to 100% of allowances free from 2013. Free allowances will be allocated on the basis of best-in-class technology benchmarks. According to the Commission, more than 90% of manufacturing emissions would qualify. Sectors exposed to carbon leakage will be identified by the end of 2009 by the Commission, six months earlier than it first proposed. The Commission and Parliament, however, are opposed to identifying such sectors before international negotiations in Copenhagen in December 2009. However, the Political Agreement requires the list of sectors vulnerable to carbon leakage to be finalised on 31 December 2009 at the latest as this will be decided through comitology subject to scrutiny by the European Parliament, the decision must in fact be made by the European Commission and submitted to the European Parliament on 1 September 2009 at the latest. A tough assignment.

Some 88% of allowances to be auctioned each year will be distributed to Member States according to their EU ETS sector’s emissions in 2005 or the average of 2005-7, whichever is higher. Some 10% will be distributed to poorer Member States for “solidarity and growth”, as proposed by the Commission. 2% will be given to countries whose greenhouse gas emissions in 2005 were at least 20% below their Kyoto base year emissions. Half of all auctioning revenues should be used to finance climate mitigation and adaptation measures in Europe and the developing world, but without a binding commitment. This is a greater proportion than the Commission proposed, but less than Parliament demanded. The scope of the EU ETS will be expanded to bring in new sectors and gases as proposed by the Commission. The threshold for excluding smaller industrial installations has been raised from 10,000 tonnes of CO2 emissions per year to 25,000.