The European Commission will propose in the upcoming revision of the EU's emissions trading system (ETS) the introduction of sector-specific "fallback" benchmarks used in free allocation calculations, to address concerns expressed by some industries.
The commission should have a "specific empowerment" to define such sector-specific benchmark values for 2026-30, including the methodology for how these are calculated, the climate change expert group at the commission's climate directorate noted on 3 June, in a document seen by Argus. The revised methodology should become applicable as early as possible "to ensure timely and effective support" to the affected sectors, the group noted.
Fallback benchmarks are the default efficiency benchmarks applied when product-specific carbon intensity benchmarks — used to calculate free emission allowances under the EU ETS — are unavailable. The proposed revision to heat and fuel fallback benchmarks put forward by the commission in a consultation last month would cut free allowances per tonne of product by around 34pc.
A group of EU countries raised concerns that the current fallback methodology is unrealistic in terms of what is physically possible, as many affected installations continue to rely on fossil-fuel based heat production because of technological constraints or a lack of cost-effective alternatives. Industry groups have voiced similar concerns.
Sector-specific fallback benchmarks could be developed in sectors with at least 30 sub-installations, while the generic fallback values are maintained for the other sectors. These benchmarks would be calculated taking into account 2021-22 emissions from the top 10pc performers of the identified sectors.
This would create a need for an additional 20mn-25mn free ETS allowances, although this would likely not trigger a change in the cross-sector correction factor (CSCF), according to the document. The CSCF ensures that the total amount of free allowances allocated under the ETS does not exceed the overall emissions cap for any given year.
Extraction of natural gas, ceramic tiles and flags, extraction of crude petroleum and transport via pipeline would be the sectors requiring the largest amount of additional free allowances for the entire five-year period, at 6.7mn, 5.9mn, 3mn and 5mn, respectively.
The commission's empowerment to introduce these changes will be introduced in the wider ETS review due on 15 July.
