The UK is keen to keep the 57% share of EUAs to be auctioned in EU ETS Phase 4 (2021-2020) to ensure a liquid carbon market, the country’s climate ministry said in a written position paper on the Commission’s July proposal.
“It is important that adequate free allocation is supplied to those industries at risk of carbon leakage. At the same time, a sufficient supply of allowances must be made available on the open market for purchase by power generators and industrial installations,” the paper said.
EU leaders agreed on the 57% share while agreeing on an overall 2030 emission reduction goal last year, but industry lobby groups and several member states have stressed the need to boost the share of freely allocated units to help protect industries at risk of carbon leakage, with Belgium referring to the auction pot explicitly.
Many member states are yet to take a formal position on the proposal, with co-legislators in the EU Parliament also at an early stage with an agreement on any changes to the bill only due by the end of next year.
The UK reiterated its support for tiering industry’s allocation of free allowances to more than the two levels proposed by the Commission, and set them according to each tier’s risk of carbon leakage.
“In a tiered approach, sectors would be classified as at (for example) high-, medium-, low- or no-risk, with allowances distributed accordingly. This would ensure that those sectors at greatest risk continue to receive as close to 100% of free allocation at their benchmarks as possible, while those sectors at lower levels of carbon leakage risk receive support more proportionate to their level of risk,” it said.
The UK added that it was concerned that the Commission’s proposed flat percentage reduction of benchmark values to determine free industry allocation may not genuinely reflect technological improvements and could introduce competitive distortions.
“We will consider the Commission’s proposal further in the coming months, and alternative options for improving benchmarking provisions.”
It added that it would be keen to find more ways to cut administrative costs in the EU ETS beyond the proposed opt-out for small emitters.
By Ben Garside – firstname.lastname@example.org