More product benchmarks in the EU ETS

The Dutch Emissions Authority published their findings on simplifying the EU ETS in 2015. One of the concrete measures proposed is to increase the use of product benchmarks. The NEa asked Ecofys to assess the possibilities of more product benchmarks in the EU ETS.

Since the start of the third trading phase of the EU ETS, the free allocation of emission allowances takes place using a combination of approaches: product benchmarks and three fall-back approaches (a heat and fuel benchmark and a separate approach for process emissions). While the fall-back approaches are true fall-backs in terms of total amount of free allocation (covering 22%, 6% and 1% respectively of free allocations in the Netherlands), they are the dominant allocation approach for the majority of installations in the Netherlands since they are the approach used for many of the smaller installations in terms of emissions.

If one of the fall-back benchmarks is used, administrative costs to companies can increase significantly, in particular related to the heat benchmark which requires the monitoring of parameters which are usually not monitored by companies. An increased use of product benchmarking could thus reduce the administrative burden.

Commissioned by the Dutch Emissions Authority, Ecofys has investigated the feasibility of extending the use of product benchmarks in the EU ETS. The study looked at two different tracks to do so: either by enlarging the scope of currently existing benchmarks (track 1) or by increasing the number of product benchmarks (track 2).

Focusing on 14 sectors, in which a total of 183 installations (78%) uses fall-back approaches for the allocation, Ecofys found that using both track, a maximum of around 73% of these installations and 67% of the allocation could potentially shift from the fall-back approaches to an approach based on product benchmarks. Track 1 promises relatively quick but small wins, while track 2 offers the biggest wins, but also demands most efforts. The study concludes with recommendations for next steps such as a more detailed investigation on the feasibility of new product benchmarks for the seven most promising sectors such as beer, plastics and sugar.