The EU ETS is unnecessarily complex and should be simplified to ease the excessive administrative and cost burdens faced by companies regulated by it, a Dutch government report released late on Tuesday said, as EU lawmakers prepare to reform the 10-year old scheme.
The report, compiled by the Dutch Emissions Authority (NEa) at the request of the country’s State Secretary for Infrastructure and the Environment, found that such burdens, particularly for small- and medium-sized emitters, were in many cases no longer proportionate to their emissions, thereby threatening the cost-effectiveness of the system.
“It is apparent that the complexity of the EU ETS is regarded as a problem,” the report said.
“A degree of complexity is understandable: substantial financial and other interests are at stake, necessitating a system that is reliable and secure. The competitiveness of the participating European companies must also be taken into account. Nevertheless, the system could certainly be made more straightforward.”
The report said some of the scheme’s rules were seen by both surveyed ETS participants and national regulators as “as unnecessary and disproportionate … (and) certain aspects of the system are regarded as insufficiently user-friendly.”
“That undermines support for the system … A simpler ETS would be more future proof,” it added.
Following the approval of the MSR by EU lawmakers last month, which is tasked with regulating the supply of allowances in the market, the European Commission is next month scheduled to table proposed changes to the bloc’s ETS Directive aimed at reforming the scheme ahead of its fourth trading phase (2021-2030).
RADICAL SIMPLIFICATION
The NEa report, which the Netherlands wants to help influence the reform process that could take more than two years, found “considerable room for radical simplification” but warned that cutting red tape need not reduce the robustness of the scheme, and may in fact increase it.
It cited a 2012 study by a German think-tank, which found that while mean ETS-related administrative costs for larger emitters were below €0.10/1,000 tonnes of CO2e, those for small companies with output below 25,000 tonnes were at least four times that on average.
The NEa report highlighted seven strategies for simplifying the ETS, and broke them down into 28 “practical” actions that can be implemented through amendments to the EU ETS Directive, subordinate EU regulations, or implementation practices.
“The biggest gains can be achieved at EU level (but) the intelligent combination of measures can yield additional burden reduction,” the report added.
The NEa said certain targeted measures had the potential to considerably reduce the administrative burden faced by companies compared to others. They included:
– Replacing monitoring procedures for emitters with simple industrial processes with generic rules rather than requiring they submit installation-specific plans;
– Automating the submission and verification of emissions reports, the registration and certification of emissions data in the EU registry, and the surrendering of allowances;
– Revising the documentation required to gain access to the EU registry or introducing proportional security measures and automated procedures that do not require the user to access the registry account, thus eliminating the need for access requirements.
“Either the existing system could be retained in a revised form, or a new type of account – a ‘compliance account’ – could be introduced. A compliance account is an account that can be opened only by an operator and permits only low-risk transactions to be performed, such as the surrender, transfer and deletion of allowances. Outgoing trading transactions would not be possible, or possible only up to a predefined limit (e.g. 200 allowances). In line with the more limited account capabilities, a less onerous know-your-customer policy could be applied to account holders and account representatives, meaning that they need to provide fewer documents, could perform the application process on a fully digitised basis, would not have to go through periodic account retesting, and so on.”
Some of the other measures proposed include simplifying some of the administrative forms companies are required to fill out, slashing the time national governments can take to determine annual EUA allocation levels, and making participation in the scheme dependent on a threshold based on GHG emissions rather than energy generation or consumption.
Below is the full list of the NEa’s seven proposed strategies and 28 sub-measures, including the areas of legislation or implementation practices that would need to be amended in each case.
Strategy 1 – Monitoring
- For simple emitters, replace monitoring plan with generic rules. (Amendment of ETS Directive)
- Further simplify monitoring requirements for simple emitters. (Amendment of subordinate EU regulations)
- Reduce the number of procedure descriptions. (Amendment of subordinate EU regulations)
- Drop requirement to report non-significant changes. (Amendment of subordinate EU regulations)
- Revise the definition of a significant change. (Amendment of subordinate EU regulations)
- Drop requirement that permits are periodically reassessed. (Amendment of ETS Directive)
- Simplify the improvement cycle. (Amendment of subordinate EU regulations)
- Comprehensively simplify the monitoring requirements. (Amendment of subordinate EU regulations)
Strategy 2 – Allocation
- A broader application of product benchmarks. (Amendment of subordinate EU regulations)
- Shorten the allocation periods and don’t make adjustments during a period. (Amendment of subordinate EU regulations)
- Comprehensively simplify the allocation rules. (Amendment of ETS Directive and subordinate EU regulations)
- Limit the time allowed for deciding on an allocation. (Amendment of ETS Directive)
Strategy 3 – Reporting and compliance procedures
- Relieve simple emitters of the requirement to submit a detailed emissions report. (Amendment of ETS Directive)
- Reduce the content of the emissions report to the essentials for all participants. (Amendment of subordinate EU regulations)
- Revise the deadlines for reporting allocation changes, surrendering allowances and completing compliance procedures. (Amendment of ETS Directive)
- Automate the submission and verification of the emissions report and the registration and the verification of the emissions in the registry. (Amendment of subordinate EU regulations)
- Automate the surrender of allowances. (Amendment of subordinate EU regulations)
- Have NEa carry out the compliance procedures. (Amendment of implementation practices)
Strategy 4 – Registry
- Revise the requirements regarding the (repeated) provision of documentation. (Amendment of subordinate EU regulations)
- Revise the transaction security regime. (Amendment of subordinate EU regulations)
Strategy 5 – Verification
- Relax the requirements for waiving site visits. (Amendment of ETS Directive)
- Scrap the verification requirement where alternative guarantees exist. (Amendment of ETS Directive)
Strategy 6 – Information transfer
- Simplify the forms. (Amendment of ETS Directive)
- Revise the terminology used. (Amendment of ETS Directive)
- Introduce an e-portal. (Amendment of implementation practices)
Strategy 7 – Participation
- Make participation in the ETS dependent on a greenhouse gas emissions threshold. (Amendment of ETS Directive)
- Define activities and exceptions more clearly. (Amendment of ETS Directive)
- Enable opting out partway through a trading period. (Amendment of ETS Directive)
The full NEa report can be downloaded here.
By Mike Szabo – mike@carbon-pulse.com
