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1 1 1 1 13 33 36 6 (2008) 20 ELM : PROPOSED MODIFICATIONS TO THE EMISSIONS TRADING DIRECTIVE : POCKLINGTON
• 90 per cent of the total quantity of allowances to be auction revenues has met with resistance from the
auctioned being distributed among Member States Economics and Finance Committee. 31
in shares that are identical to the share of verified Decision no 280/2004/EC requires Member States
emissions under the Community scheme in 2005 of to include information on the use of revenues for each of
the Member State concerned these purposes in their reports submitted to the
• 10 per cent of the total quantity of allowances to be Commission. 32
auctioned being distributed among certain Member
States for the purpose of solidarity and growth within Transitional arrangements and free allocation
the Community, thereby increasing the amount of
allowances that those Member States auction under Entitled ‘Transitional Community-wide Rules for
point (a) by the percentages specified in Annex IIa. Harmonised Free Allocation’, Article 10a contains
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provisions that indicate the circumstances under which
This involved formulation could be interpreted as meaning free allocation is and is not permitted. Except in certain
that once the reduction factor has been applied to the circumstances, no free allocation is to be given to
total quantity of allowances (ie the market scarcity has electricity generators, nor to installations for capturing,
been set) and the level of free allocation has been pipelines for transporting, nor sites for storing greenhouse
determined (by Article 10a), then the remainder will be gas emissions.
auctioned. Thus Member States will only be allowed to Since generators of electricity have the potential to
auction 90 per cent of their 2005 share of allowances pass on the increased cost of CO in full, the Commission
2
unless they are on the list in Annex II. 26 considers that they should be subject to 100 per cent
Additional reductions in the number of allowances auctioning from 2013. This is clearly an important factor
allocated to installations are defined or implied in a number for other sectors to bear in mind when assessing their
of provisions within the proposal, and these are discussed costs under the scheme. Process electricity intensity is
below. not explicitly accounted for in the new proposals; however,
The allocations made to new entrants to the scheme the benchmark procedures referred to in Recital 18 could
(ie those installations not covered within Phases I and II), take account of this. To encourage more efficient
will be made from a fund based upon 5 per cent of the generation of electricity, free allowances would be available
quantity of Community-wide allowances determined in for the production of heat through high efficiency
accordance with Articles 9 and 9a over the period 2013 cogeneration as defined by Directive 2004/8/EC for
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to 2020. Thus those installations not subject to economically justifiable demand to ensure equal treatment
auctioning– mainly the sectors outside the Energy Supply with regard to other producers of heat.
Industry (ESI) – will face a cut of 5 per cent which could Likewise, no free allocations are to be given for carbon
be levied on an installation basis or taken in proportion capture and storage, as the incentive for this arises from
to a sector’s estimated requirements of new entrants allowances not being required to be surrendered in respect
during Phase III. However, it is more likely that the 5 per of emissions which are stored. In practice, the operation
cent set aside for new entrants will act as a further cap of this arrangement is likely to be problematic as a result
reduction on the total allocation for non-auction activities. of the definition of ‘installation’.
It is proposed that on the basis of the precautionary For other sectors within the EU ETS, a transitional
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principle, at least 20 per cent of the revenues generated system will be established. In 2013 this will issue 80 per
from auctioning will be hypothecated and Member States cent of the amount that corresponded to the percentage
can use this for: energy efficiency and renewable funds of overall Community-wide emissions throughout the
for adaptation; meeting 20 per cent renewables by 2020; period 2005–2007 that those installations emitted as a
capture and geological storage of greenhouse gases from proportion of the annual Community-wide total quantity
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coal power stations; avoidance of deforestation; of allowances. The free allocation will then decrease each
facilitation of adaptation in developing countries; year by equal amounts until by 2020 it no longer exists. 34
addressing social aspects such as possible increases in Although aviation has the potential to pass on its
electricity prices in lower and middle incomes; and to costs, it is treated differently from the electricity
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manage the scheme. The proposal to hypothecate generators and will be subject to the interim arrangements
relating to free allowances.

26 The United Kingdom is not on the list in Annex II of the Proposal for a
Directive amending Directive 2003/87/EC (n 2).
27 Proposal for a Directive amending Directive 2003/87/EC (n 2) art
10(a)(6). 31 Council of the European Union. Report on the Efficiency of Economic
28 Article 174(2) of the Treaty. Instruments for Energy and Climate Change ECOFIN 33. ENV 51
29 Note the implied preference for coal-fired power stations over other ECFIN/EPC(2007)REP/ 55386/final (Brussels 30 January 2007).
potential users of carbon capture and storage such as steel and cement 32 Proposal for a Directive amending Directive 2003/87/EC (n 2) art
manufacture. 10(4).
30 Proposal for a Directive amending Directive 2003/87/EC (n 2) art 33 ibid art 10(a), 2, 3.
10(4). 34 ibid art 10(a)(7–9).

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