aviation activities will participate in the ETS. All flights landing or taking off from airports in the EU will be covered. The Directive aims at capping GHG (initially $ CO_{2} $ ) emissions from the aviation sector to 3% below the average of 2004–06 annual emission levels in 2012 and tightening the cap to 5% below the base-year levels for the 2013–20 period (Art. 3d.1-2). Initially 15% of the allowances will be auctioned and this percentage may be increased following the review of the Directive. Each member state will be able to decide on the use of auctioning revenues (Art. 3d.4).

#### 4.2.2 Roles of sectoral benchmarks in the EU ETS

Egenhofer and Fujiwara (2008a) explore possibilities for linkages between the EU package, especially the EU ETS, and sectoral approaches. Sector-specific benchmarks form the potentially strongest link between them. In the ETS, the benchmarks developed through sectoral approaches could play a role in cap setting or the allocation of allowances, and more generally in the expansion of carbon markets.

First, if sectoral benchmarks are based on best practices or the best available technology in a sector, they can be used for setting a cap on emissions. In further guidance for the second phase (2008–12) of the EU ETS, the European Commission regarded GDP growth and carbon intensity as two of the most important factors driving emission trends, explicitly using the potential for carbon-intensity improvements to assess the member states' caps and 'objective' projections based on 2005 verified emissions across the board for all member states. $ ^{15} $

Art. 9 of Directive 2009/29/EC signals the change in responsibility for cap setting from individual member states to the European Commission from the third phase (2013–20) onwards. $ ^{16} $ A single EU-wide cap will be placed on annual GHG emissions. The annual cap will decrease by a linear factor of 1.74% compared with the average annual quantity of allowances issued by member states in accordance with the Commission’s decisions on their national allocation plans for the second phase. By the end of June 2010, the Commission will publish the absolute EU-wide cap for 2013 based on the total quantities of allowances issued or to be issued by the member states. The Commission will review the linear factor and submit a proposal as from 2020 with a view to having a decision by 2025. The new approach, adoption of a linear decrease in annual caps, means simplification in cap setting and an increase in predictability.

Second, sectoral benchmarks can be also used for allocation, provided that free allocation continues. Art. 10a of the Directive makes explicit reference to “Community-wide ex ante benchmarks” in considering transitional EU-wide rules for harmonised free allocation. $ ^{17} $ This decision intends

to ensure that allocation takes place in a manner that gives incentives for reductions in greenhouse gas emissions and energy efficient techniques, by taking account of the most efficient techniques, substitutes, alternative production processes, high efficiency cogeneration, efficient energy recovery of waste gases, use of biomass and capture and storage of carbon dioxide, where such facilities are available, and shall not give incentives to increase emissions.

The Directive also notes that the (sub-)sectoral benchmarks will be calculated for products rather than for inputs in order to maximise GHG emission reductions and energy savings throughout