Changes to the way the EU calculates free carbon allowance allocations to industry could mean administrative costs reach €173 million next decade, more than double the amount expected by the European Commission, consultancy Ecofys said late on Monday.

About a quarter of these costs will be covered by companies, and the rest by public authorities, Ecofys said in the study.

In its post-2020 EU ETS reform proposal, the European Commission aimed to strike a balance between aligning free allocations more closely with actual production levels while keeping administration costs low, with an overall goal to prevent industries from getting billions of euros in windfall profits by handing them more EUAs than they need.

It proposes to update the industry benchmarks, from which it calculates free allocations, twice over the next decade, with benchmark values reducing by between 0.5-1.5% a year.

Ecofys warned that administration costs could be even higher if lawmakers expand the number of tiers of free allocation by more than the Commission’s proposed two.

By Ben Garside  – ben@carbon-pulse.com