EU consults on ETS free allowance benchmarks

The European Commission is now consulting on revised benchmarks used to determine which installations benefit from free allocation under the EU's emissions trading system (ETS).

The commission has updated 54 benchmarks for 2021-25, based on average greenhouse gas emissions of the best performing 10pc of installations making the concerned products. Installations that reach benchmarks receive allowances needed to cover their emissions.

The consultation runs until 4 January, and the commission expects to adopt the relevant regulation in February.

The commission confirmed last month that the distribution of the 2021 allocation of free allowances to eligible installations will not take place until the second quarter of next year because of delays to the decision-making process.

Once the benchmark regulation is adopted, the commission will decide whether a cross-sectoral correction factor needs to be applied to allocations, after which member states can submit final allocation data.

Free allowances are handed out to EU ETS-covered sectors deemed most at risk of "carbon leakage", whereby companies relocate to other jurisdictions to avoid carbon costs.

The system will be tightened from the start of the fourth trading phase of the EU ETS next year to focus on the sectors most at risk of carbon leakage — which will receive 100pc of their allowances free — while free allocations in lower-risk areas will be gradually phased out in 2026-30.

By Dafydd ab Iago