The UK and France have tabled a joint paper suggesting how the post-2020 allocation of free EU carbon allowances could be divided into four different tiers, wider than the Commission’s proposed two, in an effort to focus the handouts on those sectors most at risk of carbon leakage.
The non-paper was presented to officials from all member states at a meeting in Brussels on Friday, and is intended to help shape debate on the Commission’s proposal for wider post-2020 structural reforms to the EU ETS, in a lawmaking process expected to take at least another year.
The tiering would see the steel, aluminium and fertiliser sectors continue to get 100% free allocation status under all three of the scenarios. Chemicals and refineries face a smaller share in one scenario, while cement and paper face a smaller share in two.
UK Steel, an industry association, welcomed the initiative.
“In the absence of other measures such as removing or increasing the free allocation cap, we believe the paper is a pragmatic approach and would go some way to addressing the serious flaws in the Commission’s current proposal,” said UK Steel’s head Gareth Stace.
“A well designed tiered approach better reflects that those sectors most exposed to the risk of carbon leakage such as steel, should receive a fairer and higher allocation of free allowances. It remains absolutely critical that our most carbon-efficient plants receive all their allowances for free, as promised,” he added.
The British and French paper set out three scenarios, each with four tiers. All the scenarios phase out free EUA allocations by 2027 to sectors deemed at no risk, in contrast to the Commission proposal, which seeks to give all sectors at least 30% until 2030.
“France and the UK consider this to be important in order to ensure that as much free allocation as possible is made available for sectors at risk of carbon leakage,” the paper said.
All the scenarios also give 100% free allocation up to the benchmark to those sectors deemed to be at the highest risk of carbon leakage and keep the overall free allocation to within 6.3 billion allowances, consistent with the Commission’s decision on overall free allocation share.
The three scenarios differ in their share of industrial sectors in each tier, with the first based on scenarios from the Commission’s impact assessment.
The non-paper builds on a November one the two nations penned alongside the Czech Republic and Slovakia.
The November non-paper laid down principles that the tiering should:
- Not decrease the overall auctioning share
- Recognise carbon leakage risk varies greatly between sectors
- Focus free allocation based on this leakage risk
- Minimise the need to apply blunt mechanisms such as the CSCF
By Ben Garside – ben@carbon-pulse.com
