### member states should partially compensate , in accordance with state aid rules , certain installations in sectors or sub - sectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices . the protocol and accompanying decisions adopted by the conference of the parties in paris need to provide for the dynamic mobilisation of climate finance , technology transfer and capacity building for eligible parties , particularly those with least capabilities . public sector climate finance will continue to play an important role in mobilising resources after 2020 . therefore , auction revenues should also be used for climate financing actions in vulnerable third countries , including adaptation to the impacts of climate . the amount of climate finance to be mobilised will also depend on the ambition and quality of the proposed intended nationally determined contributions , subsequent investment plans and national adaptation planning processes . member states should also use auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy . ### for the purpose of avoiding competitiveness distortions , member states should partially compensate , through a centralised system at union level , certain installations in sectors or sub - sectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices . the protocol and accompanying decisions adopted by the conference of the parties in paris need to provide for the dynamic mobilisation of climate finance , technology transfer and capacity building for eligible parties , particularly those with least capabilities . public sector climate finance will continue to play an important role in mobilising resources after 2020 . therefore , auction revenues should also be used for climate financing actions in vulnerable third countries , including adaptation to the impacts of climate . the amount of climate finance to be mobilised will also depend on the ambition and quality of the proposed intended nationally determined contributions , subsequent investment plans and national adaptation planning processes . member states should also use auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy .


### the benchmark values for free allocation shall be adjusted in order to avoid windfall profits and reflect technological progress in the period between 2007 - 8 and each later period for which free allocations are determined in accordance with article 11 . this adjustment shall reduce the benchmark values set by the act adopted pursuant to article 10a by 1% of the value that was set based on 2007 - 8 data in respect of each year between 2008 and the middle of the relevant period of free allocation , unless : ### the benchmark values for free allocation shall be adjusted in order to avoid windfall profits and reflect technological progress in the period between 2017 and 2018 and each later period for which free allocations are determined in accordance with article 11 .


### ' 1 . following consultation with the operator , member states may exclude from the community scheme installations which have reported to the competent authority emissions of less than 25 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 35 mw , excluding emissions from biomass , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the community scheme ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . ' ### in article 27 , paragraph 1 is replaced by the following : ' 1 . following consultation with the operator , member states may exclude from the community scheme installations which have reported to the competent authority emissions of less than 50 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 75 mw , excluding emissions from biomass , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 50 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 50 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the community scheme ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . '


### the auctioning of allowances remains the general rule , with free allocation as the exception . consequently , and as confirmed by the european council , the share of allowances to be auctioned , which was 57% over the period 2013 - 2020 , should not be reduced . the commission ' s impact assessment18 provides details on the auction share and specifies that this 57% share is made up of allowances auctioned on behalf of member states , including allowances set aside for new entrants but not allocated , allowances for modernising electricity generation in some member states and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by decision 2015 / … of the european parliament and of the council19 . __________________ 18 secxx 19 decision 2015 / … of the european parliament and of the council of … concerning the establishment and operation of a market stability reserve for the union greenhouse gas emission trading scheme and amending directive 2003 / 87 / ec . ### the share of allowances to be auctioned should be 52% . this 52% share is made up of allowances auctioned on behalf of member states , including allowances set aside for new entrants but not allocated , allowances for modernising electricity generation in some member states and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by decision 2015 / 1814 of the european parliament and of the council 19 . __________________ 19 decision 2015 / 1814 of the european parliament and of the council of 6 october 2015 concerning the establishment and operation of a market stability reserve for the union greenhouse gas emission trading scheme and amending directive 2003 / 87 / ec .


### by derogation from article 10a to , member states which had in 2013 a gdp per capita in eur at market prices below 60% of the union average may give a transitional free allocation to installations for electricity production for the modernisation of the energy sector . ### by derogation from article 10a to , member states which had in 2013 a gdp per capita expressed in purchasing power standards in eur at market prices below 60% of the union average may give a transitional free allocation to installations for electricity generators for the modernisation and diversification of the energy sector . this derogation shall end after 2030 .


### each year , the management committee shall report to the commission on experience with the evaluation and selection of investments . the commission shall review the basis on which projects are selected by 31 december 2024 and , where appropriate , make proposals to the management committee . ### each year , the advisory board shall report to the commission on experience with the evaluation and selection of investments . the commission shall review the basis on which projects are selected by 31 december 2024 and , where appropriate , make proposals to the management committee .


### following consultation with the operator , member states may exclude from the community scheme installations which have reported to the competent authority emissions of less than 25 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 35 mw , excluding emissions from biomass , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the community scheme ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . ### in article 27 , paragraph 1 is replaced by the following : ' 1 . following consultation with the operator , member states may exclude from the community scheme installations which have reported to the competent authority emissions of less than 25 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 35 mw , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 25 000 tonnes or more of carbon dioxide equivalent , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 25 000 tonnes or more of carbon dioxide equivalent , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the community scheme ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . '


### by derogation from article 10a to , member states which had in 2013 a gdp per capita in &#8364 ; at market prices below 60% of the union average may give a transitional free allocation to installations for electricity production for the modernisation of the energy sector . ### by derogation from article 10a to , member states which had in 2013 a gdp per capita in eur at market prices below 60% of the union average may give a transitional free allocation to electricity generators for the modernisation and diversification of the energy sector . this derogation shall be reconsidered for the period after 2030 .


### the allowances shall be made available for innovation in low - carbon industrial technologies and processes and support for demonstration projects for the development of a wide range of ccs and innovative renewable energy technologies that are not yet commercially viable in geographically balanced locations . in order to promote innovative projects , up to 60% of the relevant costs of projects may be supported , out of which up to 40% may not be dependent on verified avoidance of greenhouse gas emissions provided that pre - determined milestones are attained taking into account the technology deployed . ### the allowances shall be made available for innovation in low - carbon industrial technologies and processes and support for demonstration projects for the development of a wide range of innovative renewable energy technologies and ccs that are not yet commercially viable in geographically balanced locations . in order to promote innovative projects , up to 60% of the relevant costs of projects may be supported , out of which up to 40% may not be dependent on verified avoidance of greenhouse gas emissions provided that pre - determined milestones are attained taking into account the technology deployed .


### article 191 of the treaty on the functioning of the european union requires that union policy is based on the principle that the polluter should pay and , on this basis , directive 2003 / 87 / ec provides for a transition to full auctioning over time . avoiding carbon leakage is a justification to postpone full transition , and targeted free allocation of allowances to industry is justified in order to address genuine risks of increases in greenhouse gas emissions in third countries where industry is not subject to comparable carbon constraints as long as comparable climate policy measures are not undertaken by other major economies . ### article 191 of the treaty on the functioning of the european union requires that union policy is based on the principle that the polluter should pay and , on this basis , directive 2003 / 87 / ec provides for a transition to full auctioning over time . avoiding carbon leakage is a justification to temporarily postpone full transition , and precisely targeted free allocation of allowances to industry is a justified exception from the principle that the polluter should pay only as long as no over - allocation occurs , in order to address genuine risks of increases in greenhouse gas emissions in third countries where industry is not subject to comparable carbon constraints as long as comparable climate policy measures are not undertaken by other major economies .


### 400 million allowances shall be available to support innovation in low - carbon technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration projects that aim at the environmentally safe capture and geological storage of co2 as well as demonstration projects of innovative renewable energy technologies , in the territory of the union . ### 600 million allowances shall be available to leverage investment in support of innovation in renewable energy technologies , low - carbon products , bio - based materials and products substituting carbon intensive materials , technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration and pilot projects of innovative renewable energy technologies and energy storage , as well as demonstration and pilot projects that aim at the environmentally safe capture and geological storage of co2 as well as capture and re - use of co2 , in the territory of the union .


### to preserve the environmental benefit of emission reductions in the union while actions by other countries do not provide comparable incentives to industry to reduce emissions , free allocation should continue to installations in sectors and sub - sectors at genuine risk of carbon leakage . experience gathered during the operation of the eu ets confirmed that sectors and sub - sectors are at risk of carbon leakage to varying degrees , and that free allocation has prevented carbon leakage . while some sectors and sub - sectors can be deemed at a higher risk of carbon leakage , others are able to pass on a considerable share of the costs of allowances to cover their emissions in product prices without losing market share and only bear the remaining part of the costs so that they are at a low risk of carbon leakage . the commission should determine and differentiate the relevant sectors based on their trade intensity and their emissions intensity to better identify sectors at a genuine risk of carbon leakage . where , based on these criteria , a threshold determined by taking into account the respective possibility for sectors and sub - sectors concerned to pass on costs in product prices is exceeded , the sector or sub - sector should be deemed at risk of carbon leakage . others should be considered at a low risk or at no risk of carbon leakage . taking into account the possibilities for sectors and sub - sectors outside of electricity generation to pass on costs in product prices should also reduce windfall profits . ### to preserve the environmental benefit of emission reductions in the union while actions by other countries do not provide comparable incentives to industry to reduce emissions , free allocation should continue to installations in sectors and sub - sectors at genuine risk of carbon leakage . experience gathered during the operation of the eu ets confirmed that sectors and sub - sectors are at risk of carbon leakage to varying degrees , and that free allocation has prevented carbon leakage . while some sectors and sub - sectors can be deemed at a higher risk of carbon leakage , others are able to pass on a considerable share of the costs of allowances to cover their emissions in product prices without losing market share and only bear the remaining part of the costs so that they are at a low risk of carbon leakage . the commission should determine and differentiate the relevant sectors based on their trade intensity and their emissions intensity to better identify sectors at a genuine risk of carbon leakage . where , based on these criteria , thresholds determined by taking into account the respective possibility for sectors and sub - sectors concerned to pass on costs in product prices are met or exceeded , the sector or sub - sector should be deemed at a very high , high , medium or low risk of carbon leakage . taking into account the possibilities for sectors and sub - sectors outside of electricity generation to pass on costs in product prices should also reduce windfall profits .


### member states should partially compensate , in accordance with state aid rules , certain installations in sectors or sub - sectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices . the protocol and accompanying decisions adopted by the conference of the parties in paris need to provide for the dynamic mobilisation of climate finance , technology transfer and capacity building for eligible parties , particularly those with least capabilities . public sector climate finance will continue to play an important role in mobilising resources after 2020 . therefore , auction revenues should also be used for climate financing actions in vulnerable third countries , including adaptation to the impacts of climate . the amount of climate finance to be mobilised will also depend on the ambition and quality of the proposed intended nationally determined contributions , subsequent investment plans and national adaptation planning processes . member states should also use auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy . ### member states will compensate , through a centralised arrangement at union’s level , certain installations in sectors or sub - sectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices . a harmonised system will therefore avoid competitive distortions between members states . the protocol and accompanying decisions adopted by the conference of the parties in paris need to provide for the dynamic mobilisation of climate finance , technology transfer and capacity building for eligible parties , particularly those with least capabilities . public sector climate finance will continue to play an important role in mobilising resources after 2020 . therefore , auction revenues should also be used for climate financing actions in vulnerable third countries , including adaptation to the impacts of climate . the amount of climate finance to be mobilised will also depend on the ambition and quality of the proposed intended nationally determined contributions , subsequent investment plans and national adaptation planning processes . member states should also use auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy .


### the second paragraph of paragraph 1 is replaced by the following : ' the commission shall be empowered to adopt a delegated act in accordance with article 23 . this act shall also provide for additional allocation from the new entrants reserve for significant production increases by applying the same thresholds and allocation adjustments as apply in respect of partial cessations of operation . ' ; ### in paragraph 1 , the first and second subparagraphs are replaced by the following : ' 1 . the commission is empowered to adopt delegated acts in accordance with article 30b to supplement this directive and concerning union - wide and fully - harmonised measures for the allocation of the allowances referred to in paragraphs 4 , 5 , 7 and 12 , including any necessary provisions for a harmonised application of paragraph 19 . these delegated acts shall also provide for additional allocation from the new entrants reserve for significant production increases by applying the thresholds defined in paragraph 7 . the threshold and allocation adjustments that apply to significant production increases shall also apply to partial cessations of operation . ' ;


### the commission shall be empowered to adopt a delegated act in accordance with article 23 . this act shall also provide for additional allocation from the new entrants reserve for significant production increases by applying the same thresholds and allocation adjustments as apply in respect of partial cessations of operation . ### the commission is empowered to adopt a delegated act in accordance with article 23 to supplement this directive . this act shall also provide for additional allocation from the new entrants reserve for production variations by applying the same thresholds and allocation adjustments in respect of partial cessations of operation .


### 400 million allowances shall be available to support innovation in low - carbon technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration projects that aim at the environmentally safe capture and geological storage of co2 as well as demonstration projects of innovative renewable energy technologies , in the territory of the union . ### 600 million allowances shall be available to leverage investment in support of innovation in renewable energy technologies , low - carbon products , bio - based materials and products substituting carbon intensive materials , technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration and pilot projects of innovative renewable energy technologies and energy storage , as well as demonstration and pilot projects that aim at the environmentally safe capture and geological storage of co2 , in the territory of the union .


### 400 million allowances shall be available to support innovation in low - carbon technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration projects that aim at the environmentally safe capture and geological storage of co2 as well as demonstration projects of innovative renewable energy technologies , in the territory of the union . ### 600 million allowances shall be available to support innovation in low - carbon technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration projects that aim at the environmentally safe capture and geological storage and use of co2 and demonstration projects of innovative renewable energy technologies , as well as electric batteries and smart grid infrastructures notably for the deployment of electric mobility , in the territory of the union .


### the beneficiary member states shall report annually to the management committee on investments financed by the fund . the report shall be made public and include : ### the beneficiary member states shall report annually to the advisory board on investments financed by the fund . the report shall be made public and include :


### the auctioning of allowances remains the general rule , with free allocation as the exception . consequently , and as confirmed by the european council , the share of allowances to be auctioned , which was 57% over the period 2013 - 2020 , should not be reduced . the commission ' s impact assessment18 provides details on the auction share and specifies that this 57% share is made up of allowances auctioned on behalf of member states , including allowances set aside for new entrants but not allocated , allowances for modernising electricity generation in some member states and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by decision 2015 / … of the european parliament and of the council19 . __________________ 18 secxx 19 decision 2015 / … of the european parliament and of the council of … concerning the establishment and operation of a market stability reserve for the union greenhouse gas emission trading scheme and amending directive 2003 / 87 / ec . ### the auctioning of allowances remains the general rule , with free allocation as the exception . the european council agreed that the share of allowances to be auctioned , which was estimated by the commission to be 57% over the period 2013 - 2020 , should not be reduced . the commission ' s impact assessment18 provides details on the auction share and specifies that this 57% share is made up of allowances auctioned on behalf of member states , including allowances set aside for new entrants but not allocated , allowances for modernising electricity generation in some member states and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by decision 2015 / 1814 of the european parliament and of the council 19 . however , given that future growth rates are unpredictable , that there is a need to encourage industrial growth and in order to mitigate the effect of a cross sectoral correction factor , flexibility should be introduced to the eu ets with a view to enabling a transfer of a limited number of allowances from the auctioning share to the free allowances share in the event of such a factor being applicable . __________________ 18 swd135 19 decision 2015 / 1814 of the european parliament and of the council of 6 october 2015 concerning the establishment and operation of a market stability reserve for the union greenhouse gas emission trading scheme and amending directive 2003 / 87 / ec .


### from 2021 , allowances not allocated to installations because of the application of paragraphs 19 and 20 shall be added to the reserve . ### from 2021 onwards , any allowances not allocated to installations because of the application of paragraphs 19 and 20 shall be added to the reserve . allowances which are in the reserve by 2030 shall be cancelled .


### ' 2 . for the period referred to in article 13 beginning on 1 january 2013 , and , in the absence of any amendments following the review referred to in article 30 , for each subsequent period , the total quantity of allowances to be allocated to aircraft operators shall be equivalent to 95 % of the historical aviation emissions multiplied by the number of years in the period . this percentage may be reviewed as part of the general review of this directive . ' ### in article 3c , paragraph 2 is replaced by the following : ' 2 . in the absence of any amendments following the review referred to in article 30 , the total quantity of allowances for aviation activities shall decrease annually to achieve the same emission reductions by 2030 as the other activities covered by the eu ets . '


### the auctioning of allowances remains the general rule , with free allocation as the exception . consequently , and as confirmed by the european council , the share of allowances to be auctioned , which was 57% over the period 2013 - 2020 , should not be reduced . the commission ' s impact assessment18 provides details on the auction share and specifies that this 57% share is made up of allowances auctioned on behalf of member states , including allowances set aside for new entrants but not allocated , allowances for modernising electricity generation in some member states and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by decision 2015 / … of the european parliament and of the council19 . __________________ 18 secxx 19 decision 2015 / … of the european parliament and of the council of … concerning the establishment and operation of a market stability reserve for the union greenhouse gas emission trading scheme and amending directive 2003 / 87 / ec . ### the share of allowances to be auctioned should be 52% . this 52% share is made up of allowances auctioned on behalf of member states , including allowances set aside for new entrants but not allocated , allowances for modernising electricity generation in some member states and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by decision 2015 / 1814 of the european parliament and of the council 19 . __________________ 19 decision 2015 / 1814 of the european parliament and of the council of 6 october 2015 concerning the establishment and operation of a market stability reserve for the union greenhouse gas emission trading scheme and amending directive 2003 / 87 / ec .


### member states should partially compensate , in accordance with state aid rules , certain installations in sectors or sub - sectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices . the protocol and accompanying decisions adopted by the conference of the parties in paris need to provide for the dynamic mobilisation of climate finance , technology transfer and capacity building for eligible parties , particularly those with least capabilities . public sector climate finance will continue to play an important role in mobilising resources after 2020 . therefore , auction revenues should also be used for climate financing actions in vulnerable third countries , including adaptation to the impacts of climate . the amount of climate finance to be mobilised will also depend on the ambition and quality of the proposed intended nationally determined contributions , subsequent investment plans and national adaptation planning processes . member states should also use auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy . ### for the purpose of avoiding competitiveness distortions , member states should partially compensate , through a centralised system at union level , certain installations in sectors or sub - sectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices . the protocol and accompanying decisions adopted by the conference of the parties in paris need to provide for the dynamic mobilisation of climate finance , technology transfer and capacity building for eligible parties , particularly those with least capabilities . public sector climate finance will continue to play an important role in mobilising resources after 2020 . therefore , auction revenues should also be used for climate financing actions in vulnerable third countries , including adaptation to the impacts of climate . the amount of climate finance to be mobilised will also depend on the ambition and quality of the proposed intended nationally determined contributions , subsequent investment plans and national adaptation planning processes . member states should also use auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy .


### the european council confirmed that a well - functioning , reformed eu ets with an instrument to stabilise the market will be the main european instrument to achieve this target , with an annual reduction factor of 2 . 2% from 2021 onwards , free allocation not expiring but existing measures continuing after 2020 to prevent the risk of carbon leakage due to climate policy , as long as no comparable efforts are undertaken in other major economies , without reducing the share of allowances to be auctioned . the auction share should be expressed as a percentage figure in the legislation , to enhance planning certainty as regards investment decisions , to increase transparency and to render the overall system simpler and more easily understandable . ### the european council confirmed that a well - functioning , reformed eu ets with an instrument to stabilise the market will be the main european instrument to achieve this target , with an annual reduction factor of 2 . 2% from 2021 onwards , free allocation not expiring but existing measures continuing temporarily after 2020 to prevent the risk of carbon leakage due to climate policy , as long as no comparable efforts are undertaken in other major economies , without reducing the share of allowances to be auctioned . the auction share should be expressed as a percentage figure in the legislation , to enhance planning certainty as regards investment decisions , to increase transparency and to render the overall system simpler and more easily understandable . however , in order to reflect the paris agreement , it is essential that the union , as part of the international community , increases its efforts and commitment with a view to limiting the increase in the global average temperature to well below 2°c above pre - industrial levels as well as to pursuing efforts to limit the temperature increase to 1 . 5°c above pre - industrial levels , and therefore the annual reduction factor in the phase iv of the eu ets should increase to at least 2 . 4% by 2021 .


### other sectors and sub - sectors are considered to be able to pass on more of the cost of allowances in product prices , and shall be allocated allowances free of charge for the period up to 2030 at 30% of the quantity determined in accordance with the measures adopted pursuant to article 10a . ### other sectors and sub - sectors are considered to be able to pass on more of the cost of allowances in product prices , and shall not be allocated allowances free of charge for the period up to 2030 .


### by derogation from article 10a to , member states which had in 2013 a gdp per capita in &#8364 ; at market prices below 60% of the union average may give a transitional free allocation to installations for electricity production for the modernisation of the energy sector . ### by way of derogation from article 10a to , member states which had in 2013 a gdp per capita in eur at market prices below 60% of the union average may give transitional free allocation to installations for electricity generation for the modernisation of the energy sector .


### the fund shall be governed by an investment board and a management committee , which shall be composed of representatives from the beneficiary member states , the commission , the eib and three representatives elected by the other member states for a period of 5 years . the investment board shall be responsible to determine an union - level investment policy , appropriate financing instruments and investment selection criteria . the management committee shall be responsible for the day - to - day management of the fund . ### the fund shall be governed by an investment board and a management committee . the investment board shall be composed of representatives from all the beneficiary member states , the commission and the eib for a period of 5 years . the investment board shall be responsible to determine an union - level investment policy , appropriate financing instruments and investment selection criteria . public consultation shall be undertaken regarding the investment selection criteria and the results of the public consultation shall be taken into account by the investment board before the adoption of the selection criteria . the management committee shall be composed of representatives appointed by the investment board and shall be responsible for the day - to - day management of the fund . decisions of the management committee shall be taken by simple majority .


### 2% of the total quantity of allowances between 2021 and 2030 shall be auctioned to establish a fund to improve energy efficiency and modernise the energy systems of certain member states as set out in article 10d of this directive . ### up to 19% of the auctioning volume between 2021 and 2030 shall be auctioned to establish a harmonised compensation scheme as set out in article 10a , paragraph 6 , of this directive .


### the fund shall be governed by an investment board and a management committee , which shall be composed of representatives from the beneficiary member states , the commission , the eib and three representatives elected by the other member states for a period of 5 years . the investment board shall be responsible to determine a union - level investment policy , appropriate financing instruments and investment selection criteria . the management committee shall be responsible for the day - to - day management of the fund . ### the individual allocations of each beneficiary member state from the modernisation fund shall be governed by the eligible beneficiary member state , assisted by the advisory board composed of representatives of the beneficiary member states , the commission , and the eib . individual decisions on financing particular projects shall be taken by the eligible beneficiary member state . day - to - day management of the fund shall be executed by the beneficiary member states . the advisory board shall be responsible for preparing the framework guidance on investment , including a union - level investment policy , appropriate financing instruments and investment selection criteria .


### ' 4 . it shall be for member states to determine the use to be made of revenues generated from the auctioning of allowances . those revenues should be used to tackle climate change in the eu and third countries , inter alia , to reduce greenhouse gas emissions , to adapt to the impacts of climate change in the eu and third countries , especially developing countries , to fund research and development for mitigation and adaptation , including in particular in the fields of aeronautics and air transport , to reduce emissions through low - emission transport and to cover the cost of administering the community scheme . the proceeds of auctioning should also be used to fund contributions to the global energy efficiency and renewable energy fund , and measures to avoid deforestation . ### in article 3d , subparagraph 1 is replaced by the following : ' 4 . all revenues shall be used to tackle climate change in the eu and third countries , inter alia , to reduce greenhouse gas emissions , to adapt to the impacts of climate change in the eu and third countries , especially developing countries , to fund research and development for mitigation and adaptation , including in particular in the fields of aeronautics and air transport , to reduce emissions through low - emission transport and to cover the cost of administering the community scheme . the proceeds of auctioning may also be used to fund contributions to the global energy efficiency and renewable energy fund , and measures to avoid deforestation .


### 400 million allowances shall be available to support innovation in low - carbon technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration projects that aim at the environmentally safe capture and geological storage of co2 as well as demonstration projects of innovative renewable energy technologies , in the territory of the union . ### 800 million allowances shall be available to leverage investment in support of innovation in renewable energy technologies , low - carbon products , bio - based materials and products substituting carbon intensive materials , technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration and pilot projects of innovative renewable energy technologies and energy storage , as well as demonstration and pilot projects that aim at the environmentally safe capture and geological storage of co2 , in the territory of the union .


### the allowances shall be made available for innovation in low - carbon industrial technologies and processes and support for demonstration projects for the development of a wide range of ccs and innovative renewable energy technologies that are not yet commercially viable in geographically balanced locations . in order to promote innovative projects , up to 60% of the relevant costs of projects may be supported , out of which up to 40% may not be dependent on verified avoidance of greenhouse gas emissions provided that pre - determined milestones are attained taking into account the technology deployed . ### the allowances shall be made available for innovation in low - carbon industrial technologies and processes and support for demonstration projects for the development of a wide range of ccs and ccu and innovative renewable energy technologies that are not yet commercially viable . projects shall be selected on the basis of their impact on energy systems or industrial processes within a member state , a group of member states or the union . in order to promote innovative projects , up to 75% of the relevant costs of projects may be supported , out of which up to 60% may not be dependent on verified avoidance of greenhouse gas emissions provided that pre - determined milestones are attained taking into account the technology deployed . the allowances shall be allocated to support the relevant costs of individual projects according to the needs of those projects in relation to reaching pre - determined milestones .


### 2% of the total quantity of allowances between 2021 and 2030 shall be auctioned to establish a fund to improve energy efficiency and modernise the energy systems of certain member states as set out in article 10d of this directive . ### up to 3% of the total quantity of allowances between 2021 and 2030 shall be auctioned to establish a harmonised compensation scheme as set out in article 10a , paragraph 6 , of this directive .


### ' 5 . the commission shall monitor the functioning of the european carbon market . each year , it shall submit a report to the european parliament and to the council on the functioning of the carbon market including the implementation of the auctions , liquidity and the volumes traded . if necessary , member states shall ensure that any relevant information is submitted to the commission at least two months before the commission adopts the report . ' ### paragraph 5 is replaced by the following : ' 5 . the commission shall monitor the functioning of the european carbon market . each year , it shall submit a report to the european parliament and to the council on the functioning of the carbon market including the implementation of the auctions , liquidity and the volumes traded . the report shall also address the interaction of the eu ets with other union climate and energy policies , including how those policies impact upon the supply - demand balance of the eu ets . member states shall ensure that any relevant information is submitted to the commission at least two months before the commission adopts the report . '


### a modernisation fund should be established from 2% of the total eu ets allowances , and auctioned in accordance with the rules and modalities for auctions taking place on the common auction platform set out in regulation 1031 / 2010 . member states who in 2013 had a gdp per capita at market exchange rates of below 60% below the union average should be eligible for funding from the modernisation fund and derogate up to 2030 from the principle of full auctioning for electricity generation by using the option of free allocation in order to transparently promote real investments modernising their energy sector while avoiding distortions of the internal energy market . the rules for governing the modernisation fund should provide a coherent , comprehensive and transparent framework to ensure the most efficient implementation possible , taking into account the need for easy access by all participants . the function of the governance structure should be commensurate with the purpose of ensuring the appropriate use of the funds . that governance structure should be composed of an investment board and a management committee and due account should be taken of the expertise of the eib in the decision - making process unless support is provided to small projects through loans from a national promotional banks or through grants via a national programme sharing the objectives of the modernisation fund . investments financed from the fund should be proposed by the member states . to ensure that the investment needs in low income member states are adequately addressed , the distribution of funds will take into account in equal shares verified emissions and gdp criteria . the financial assistance from the modernisation fund could be provided through different forms . ### a modernisation fund should be established from 2% of the total eu ets allowances , and auctioned in accordance with the rules and modalities for auctions taking place on the common auction platform set out in regulation 1031 / 2010 . member states who in 2013 had a gdp per capita at market exchange rates of below 60% below the union average should be eligible for funding from the modernisation fund and derogate up to 2030 from the principle of full auctioning for electricity generation by using the option of free allocation in order to transparently promote real investments modernising their energy sector in line with the union 2030 and 2050 climate and energy goals , while avoiding distortions of the internal energy market . the rules for governing the modernisation fund should provide a coherent , comprehensive and transparent framework to ensure the most efficient implementation possible , taking into account the need for easy access by all participants . the function of the governance structure should be commensurate with the purpose of ensuring the appropriate use of the funds . that governance structure should be composed of an investment board and a management committee and due account should be taken of the expertise of the eib in the decision - making process unless support is provided to small projects through loans from a national promotional banks or through grants via a national programme sharing the objectives of the modernisation fund . investments financed from the fund should be proposed by the member states and all financing from the fund should comply with specific eligibility criteria . to ensure that the investment needs in low income member states are adequately addressed , the distribution of funds will take into account in equal shares verified emissions and gdp criteria . the financial assistance from the modernisation fund could be provided through different forms .


### the auctioning of allowances remains the general rule , with free allocation as the exception . consequently , and as confirmed by the european council , the share of allowances to be auctioned , which was 57% over the period 2013 - 2020 , should not be reduced . the commission ' s impact assessment18 provides details on the auction share and specifies that this 57% share is made up of allowances auctioned on behalf of member states , including allowances set aside for new entrants but not allocated , allowances for modernising electricity generation in some member states and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by decision 2015 / … of the european parliament and of the council19 . __________________ 18 secxx 19 decision 2015 / … of the european parliament and of the council of … concerning the establishment and operation of a market stability reserve for the union greenhouse gas emission trading scheme and amending directive 2003 / 87 / ec . ### the auctioning of allowances remains the general rule , with free allocation as the exception . the european council agreed that the share of allowances to be auctioned , which was estimated by the commission to be 57% over the period 2013 - 2020 , should not be reduced . the commission ' s impact assessment18 provides details on the auction share and specifies that this 57% share is made up of allowances auctioned on behalf of member states , including allowances set aside for new entrants but not allocated , allowances for modernising electricity generation in some member states and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by decision 2015 / 1814 of the european parliament and of the council 19 . however , given that future growth rates are unpredictable , that there is a need to encourage industrial growth and in order to mitigate the effect of a cross sectoral correction factor , flexibility should be introduced to the eu ets with a view to enabling a transfer of a limited number of allowances from the auctioning share to the free allowances share in the event of such a factor being applicable . __________________ 18 swd135 19 decision 2015 / 1814 of the european parliament and of the council of 6 october 2015 concerning the establishment and operation of a market stability reserve for the union greenhouse gas emission trading scheme and amending directive 2003 / 87 / ec .


### ' 2 . from 1 january 2013 , 15 % of allowances shall be auctioned . this percentage may be increased as part of the general review of this directive . ' ### in article 3d , paragraph 2 is replaced by the following : ' 2 . from 1 january 2021 , 50% of allowances shall be auctioned . '


### from 2021 , allowances not allocated to installations because of the application of paragraphs 19 and 20 shall be added to the reserve . ### from 2021 onwards , any allowances not allocated to installations because of the application of paragraphs 19 and 20 shall be added to the reserve . allowances which are in the reserve by 2030 shall be cancelled .


### where necessary , the commission may adopt amendments to provide for flights arriving from the third country concerned to be excluded from the aviation activities listed in annex i or to provide for any other amendments to the aviation activities listed in annex i which are required by an agreement pursuant to the fourth subparagraph . the commission shall be empowered to adopt such amendments in accordance with article 23 . ### where necessary , the commission may submit a legislative proposal to the european parliament and council to provide for flights arriving from the third country concerned to be excluded from the aviation activities listed in annex i or to provide for any other amendments to the aviation activities listed in annex i which are required by an agreement with that third country .


### ' article 29 report to ensure the better functioning of the carbon market if , on the basis of the regular reports on the carbon market referred to in article 10 , the commission has evidence that the carbon market is not functioning properly , it shall submit a report to the european parliament and to the council . the report may be accompanied , if appropriate , by proposals aiming at increasing transparency of the carbon market and addressing measures to improve its functioning . ' ### article 29 is amended as follows : ' article 29 report to ensure the better functioning of the carbon market if , on the basis of the regular reports on the carbon market referred to in article 10 , the commission has evidence that the carbon market is not functioning properly , it shall submit a report to the european parliament and to the council . the report may be accompanied , if appropriate , by proposals aiming at increasing transparency of the carbon market and addressing measures to improve its functioning , including measures to limit the impact of overlapping union - wide energy and climate policies on the supply - demand balance of the eu ets . ' ;


### ensure that only projects which contribute to the diversification of their energy mix and sources of supply , the necessary restructuring , environmental upgrading and retrofitting of the infrastructure , clean technologies and modernisation of the energy production , transmission and distribution sectors are eligible to bid ; ### ensure that only projects which contribute to the diversification of their energy mix and sources of supply , the necessary restructuring , environmental upgrading and retrofitting of the infrastructure , clean technologies and modernisation of the energy production , including district heating , transmission and distribution sectors are eligible to bid ;


### ' when the total rated thermal input of an installation is calculated in order to decide upon its inclusion in the community scheme , the rated thermal inputs of all technical units which are part of it , in which fuels are combusted within the installation , are added together . these units could include all types of boilers , burners , turbines , heaters , furnaces , incinerators , calciners , kilns , ovens , dryers , engines , fuel cells , chemical looping combustion units , flares , and thermal or catalytic post - combustion units . units with a rated thermal input under 3 mw and units which use exclusively biomass shall not be taken into account for the purposes of this calculation . units using exclusively biomass ' includes units which use fossil fuels only during start - up or shut - down of the unit . ' ### in annex i , paragraph 3 is replaced by the following : ' when the total rated thermal input of an installation is calculated in order to decide upon its inclusion in the community scheme , the rated thermal inputs of all technical units which are part of it , in which fuels are combusted within the installation , are added together . these units could include all types of boilers , burners , turbines , heaters , furnaces , incinerators , calciners , kilns , ovens , dryers , engines , fuel cells , chemical looping combustion units , flares , and thermal or catalytic post - combustion units . units with a rated thermal input under 3 mw shall not be taken into account for the purposes of this calculation . '


### ' 4 . it shall be for member states to determine the use to be made of revenues generated from the auctioning of allowances . those revenues should be used to tackle climate change in the eu and third countries , inter alia , to reduce greenhouse gas emissions , to adapt to the impacts of climate change in the eu and third countries , especially developing countries , to fund research and development for mitigation and adaptation , including in particular in the fields of aeronautics and air transport , to reduce emissions through low - emission transport and to cover the cost of administering the community scheme . the proceeds of auctioning should also be used to fund contributions to the global energy efficiency and renewable energy fund , and measures to avoid deforestation . member states shall inform the commission of actions taken pursuant to this paragraph . ' ### in article 3d , paragraph 4 is replaced by the following : ' 4 . all revenues shall be used to tackle climate actions in vulnerable developing countries , in particular to fund adaptation , through the united nations green climate fund . '


### ' ' new entrant ' means : - any installation carrying out one or more of the activities indicated in annex i , which has obtained a greenhouse gas emissions permit for the first time after 30 june 2011 , - any installation carrying out an activity which is included in the community scheme pursuant to article 24 or for the first time , or - any installation carrying out one or more of the activities indicated in annex i or an activity which is included in the community scheme pursuant to article 24 or , which has had a significant extension after 30 june 2011 , only in so far as this extension is concerned ; ' ### in article 3 , point h is replaced by the following : ' ' new entrant ' means : - any installation carrying out one or more of the activities indicated in annex i , which has obtained a greenhouse gas emissions permit for the first time after 30 june 2018 , - any installation carrying out an activity which is included in the community scheme pursuant to article 24 or for the first time , or - any installation carrying out one or more of the activities indicated in annex i or an activity which is included in the community scheme pursuant to article 24 or , which has had a significant extension after 30 june 2018 , only in so far as this extension is concerned ; '


### starting in 2021 , the linear factor shall be 2 . 2% . ### the linear factor shall be 2 . 2% for the period 2021 to 2030 .


### following consultation with the operator , member states may exclude from the community scheme installations which have reported to the competent authority emissions of less than 25 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 35 mw , excluding emissions from biomass , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the community scheme ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . ### in article 27 , paragraph 1 is replaced by the following : ' 1 . following consultation with the operator , member states may exclude from the community scheme installations which have reported to the competent authority emissions of less than 25 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 35 mw , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 25 000 tonnes or more of carbon dioxide equivalent , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 25 000 tonnes or more of carbon dioxide equivalent , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the community scheme ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . '


### in order to respect the auctioning share set out in article 10 , the sum of free allocations in every year where the sum of free allocations does not reach the maximum level that respects the member state auctioning share , the remaining allowances up to that level shall be used to prevent or limit reduction of free allocations to respect the member state auctioning share in later years . where , nonetheless , the maximum level is reached , free allocations shall be adjusted accordingly . any such adjustment shall be done in a uniform manner . ### in order to respect the auctioning share set out in article 10 , the sum of free allocations in every year where the sum of free allocations does not reach the maximum level that respects the member state auctioning share , the remaining allowances up to that level shall be used to prevent or limit reduction of free allocations to respect the member state auctioning share in later years until 2030 . where , nonetheless , the maximum level is reached , free allocations shall be adjusted accordingly . any such adjustment shall be applied so that the 10% most efficient installations , in accordance with paragraph 2 , are not impacted . any allowances not allocated to installations by the end of the trading period shall be cancelled .


### each year , the management committee shall report to the commission on experience with the evaluation and selection of investments . the commission shall review the basis on which projects are selected by 31 december 2024 and , where appropriate , make proposals to the management committee . ### each year , the advisory board shall report to the commission and the european parliament on experience with the evaluation and selection of investments . the commission shall review the basis on which projects are selected by 31 december 2024 and , where appropriate , make proposals to the advisory board .


### the investments supported shall be consistent with the aims of this directive and the european fund for strategic investments . ### the investments supported shall be consistent with the aims of this directive , eu greenhouse gas emission reduction targets , the paris agreement , and the european fund for strategic investments . the selection criteria for projects eligible under the modernisation fund shall be those used by the european investment bank as set out in its environmental and social handbook . the projects selected must apply the best available technology for a given sector .


### ' 3 . when the total rated thermal input of an installation is calculated in order to decide upon its inclusion in the community scheme , the rated thermal inputs of all technical units which are part of it , in which fuels are combusted within the installation , are added together . these units could include all types of boilers , burners , turbines , heaters , furnaces , incinerators , calciners , kilns , ovens , dryers , engines , fuel cells , chemical looping combustion units , flares , and thermal or catalytic post - combustion units . units with a rated thermal input under 3 mw and units which use exclusively biomass shall not be taken into account for the purposes of this calculation . “units using exclusively biomass” includes units which use fossil fuels only during start - up or shut - down of the unit . ### annex i is replaced by the following : ' 3 . when the total rated thermal input of an installation is calculated in order to decide upon its inclusion in the community scheme , the rated thermal inputs of all technical units which are part of it , in which fuels are combusted within the installation , are added together . these units could include all types of boilers , burners , turbines , heaters , furnaces , incinerators , calciners , kilns , ovens , dryers , engines , fuel cells , chemical looping combustion units , flares , and thermal or catalytic post - combustion units . units with a rated thermal input under 3 mw , back - up and emergency units used solely to generate electricity for on - site consumption in the event of a power cut and units which use exclusively biomass shall not be taken into account for the purposes of this calculation . “units using exclusively biomass” includes units which use fossil fuels only during start - up or shut - down of the unit .


### the commission shall be empowered to adopt a delegated act in accordance with article 23 . ### the commission is empowered to adopt a delegated act in accordance with article 23 to supplement this directive , taking due account of the following principles : - projects shall focus on research and innovation for the design and development of breakthrough solutions and implementation of demonstration programmes , including in real industrial environments ; - projects shall deliver ambitious reductions in specific greenhouse gas emission intensity of at least 20% , with respect to the best available technologies ; - the activities shall run close - to - market in production plants to demonstrate the viability of breakthrough technologies in overcoming the technological as well as non - technological barriers ; - projects shall address technological solutions that can have widespread applications and may combine different technologies ; - solutions and technologies shall ideally have the potential to be transferred within the sector and possibly to other sectors .


### ' 1 . following consultation with the operator , member states may exclude from the community scheme installations which have reported to the competent authority emissions of less than 25 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 35 mw , excluding emissions from biomass , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the community scheme ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . ' ### in article 27 , paragraph 1 is replaced by the following : ' 1 . following consultation with the operator and upon the operators agreement , member states may exclude from the eu ets installations which have reported to the competent authority emissions of less than 50 000 tonnes of carbon dioxide equivalent , excluding emissions from biomass , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place and specifying how those measures would not result in higher compliance costs for such installations , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 50 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 50 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the eu ets ; it makes the information referred to in points , and available to the public . ' hospitals may also be excluded if they undertake equivalent measures . '


### ' 1 . following consultation with the operator , member states may exclude from the community scheme installations which have reported to the competent authority emissions of less than 25 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 35 mw , excluding emissions from biomass , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission ; it confirms that monitoring arrangements are in place to assess whether any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 25 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the community scheme ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . ' ### in article 27 , paragraph 1 is replaced by the following : ' 1 . following consultation with the operator and subject to its agreement , member states may exclude from the eu ets installations which have reported to the competent authority emissions of less than 50 000 tonnes of carbon dioxide equivalent and , where they carry out combustion activities , have a rated thermal input below 35 mw , excluding emissions from biomass , in each of the three years preceding the notification under point , and which are subject to measures that will achieve an equivalent contribution to emission reductions , if the member state concerned complies with the following conditions : it notifies the commission of each such installation , specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place and specifying how those measures would not result in higher compliance costs for such installations , before the list of installations pursuant to article 11 has to be submitted and at the latest when this list is submitted to the commission it confirms that monitoring arrangements are in place to assess whether any installation emits 50 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year . member states may allow simplified monitoring , reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 below 5 000 tonnes a year , in accordance with article 14 ; it confirms that if any installation emits 50 000 tonnes or more of carbon dioxide equivalent , excluding emissions from biomass , in any one calendar year or the measures applying to that installation that are aimed at making an equivalent contribution to emission reductions are no longer in place , the installation will be reintroduced into the eu ets ; it publishes the information referred to in points , and for public comment . hospitals may also be excluded if they undertake equivalent measures . '


### member states should adopt financial measures in favour of sectors or sub - sectors which are exposed to a genuine risk of carbon leakage due to significant indirect costs that are actually incurred from greenhouse gas emission costs passed on in electricity prices , taking into account any effects on the internal market . such financial measures to compensate part of these costs shall be in accordance with state aid rules . ### a centralised arrangement at union level shall be adopted to compensate sectors or sub - sectors which are exposed to a significant risk of carbon leakage due to significant greenhouse gas emission costs passed through in electricity prices . this harmonised compensation is financed as set out in article 10 for such costs . compensation shall be proportionate to greenhouse gas emission costs passed through in the electricity prices and shall be applied in accordance with the criteria in the current state aid guidelines in such a way to avoid both negative effects on the internal market as well as overcompensation of costs incurred , and only when it is certain that there is no possibility for sectors and sub - sectors to in turn pass through those costs to consumers . compensation shall be allowed to a maximum of 75% of the incurred cost and shall be based on regularly updated emission factors , taking into account the actual decrease of carbon intensity of the energy mix in the different geographical zones . the amount of consumed electricity eligible for compensation shall be limited to a regularly updated energy efficiency benchmark . where the amount of compensation as defined in article 10 is not sufficient to compensate for eligible costs , the amount of aid for all eligible installations is reduced uniformly . the commission is empowered to adopt a delegated act to supplement this directive for this purpose in accordance with article 23 , fully complying with the criteria laid down in the current guidelines on state aid applicable to the eu ets .


### 400 million allowances shall be available to support innovation in low - carbon technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration projects that aim at the environmentally safe capture and geological storage of co2 as well as demonstration projects of innovative renewable energy technologies , in the territory of the union . ### 600 million allowances shall be available to leverage investment in support of innovation in renewable energy technologies , low - carbon products , bio - based materials and products substituting carbon intensive materials , technologies and processes in industrial sectors listed in annex i , and to help stimulate the construction and operation of commercial demonstration and pilot projects of innovative renewable energy technologies and energy storage , as well as demonstration and pilot projects that aim at the environmentally safe capture and geological storage of co2 , in the territory of the union .


### to preserve the environmental benefit of emission reductions in the union while actions by other countries do not provide comparable incentives to industry to reduce emissions , free allocation should continue to installations in sectors and sub - sectors at genuine risk of carbon leakage . experience gathered during the operation of the eu ets confirmed that sectors and sub - sectors are at risk of carbon leakage to varying degrees , and that free allocation has prevented carbon leakage . while some sectors and sub - sectors can be deemed at a higher risk of carbon leakage , others are able to pass on a considerable share of the costs of allowances to cover their emissions in product prices without losing market share and only bear the remaining part of the costs so that they are at a low risk of carbon leakage . the commission should determine and differentiate the relevant sectors based on their trade intensity and their emissions intensity to better identify sectors at a genuine risk of carbon leakage . where , based on these criteria , a threshold determined by taking into account the respective possibility for sectors and sub - sectors concerned to pass on costs in product prices is exceeded , the sector or sub - sector should be deemed at risk of carbon leakage . others should be considered at a low risk or at no risk of carbon leakage . taking into account the possibilities for sectors and sub - sectors outside of electricity generation to pass on costs in product prices should also reduce windfall profits . ### to preserve the environmental benefit of emission reductions in the union while actions by other countries do not provide comparable incentives to industry to reduce emissions , free allocation should temporarily continue in a precise and targeted manner to installations in sectors and sub - sectors at genuine risk of carbon leakage . experience gathered during the operation of the eu ets confirmed that sectors and sub - sectors are at risk of carbon leakage to varying degrees , and that free allocation has prevented carbon leakage . while some sectors and sub - sectors can be deemed at a higher risk of carbon leakage , others are able to pass on a considerable share of the costs of allowances to cover their emissions in product prices without losing market share and only bear the remaining part of the costs so that they are at a low risk of carbon leakage . the commission should determine and differentiate the relevant sectors based on their trade intensity and their emissions intensity to better identify sectors at a genuine risk of carbon leakage . where , based on these criteria , thresholds determined by taking into account the respective possibility for sectors and sub - sectors concerned to pass on costs in product prices is exceeded , the sector or sub - sector should be deemed at varying risks of carbon leakage . the varying degree to which sectors and sub - sectors are at risk of carbon leakage should be reflected in the amount of free allocation received . sectors below the aforementioned threshold should be deemed at no risk of carbon leakage and therefore should not benefit from free allocation . taking into account the possibilities for sectors and sub - sectors outside of electricity generation to pass on costs in product prices should also reduce windfall profits .


### ' ‘ new entrant ' means : - any installation carrying out one or more of the activities indicated in annex i , which has obtained a greenhouse gas emissions permit for the first time after 30 june 2011 , - any installation carrying out an activity which is included in the community scheme pursuant to article 24 or for the first time , or - any installation carrying out one or more of the activities indicated in annex i or an activity which is included in the community scheme pursuant to article 24 or , which has had a significant extension after 30 june 2011 , only in so far as this extension is concerned ; ' ### in article 3 , point h is replaced by the following : ' ‘ new entrant’ means : - any installation carrying out one or more of the activities indicated in annex i , which has obtained a greenhouse gas emissions permit for the first time after 30 june 2018 , - any installation carrying out an activity which is included in the community scheme pursuant to article 24 or for the first time , or - any installation carrying out one or more of the activities indicated in annex i or an activity which is included in the community scheme pursuant to article 24 or , which has had a significant extension after 30 june 2018 , only in so far as this extension is concerned ; '


### the allowances shall be made available for innovation in low - carbon industrial technologies and processes and support for demonstration projects for the development of a wide range of ccs and innovative renewable energy technologies that are not yet commercially viable in geographically balanced locations . in order to promote innovative projects , up to 60% of the relevant costs of projects may be supported , out of which up to 40% may not be dependent on verified avoidance of greenhouse gas emissions provided that pre - determined milestones are attained taking into account the technology deployed . ### the allowances shall be made available for innovation in low - carbon industrial technologies and processes and support for demonstration projects for the development of a wide range of innovative renewable energy technologies and ccs that are not yet commercially viable in geographically balanced locations . in order to promote innovative projects , up to 60% of the relevant costs of projects may be supported , out of which up to 40% may not be dependent on verified avoidance of greenhouse gas emissions provided that pre - determined milestones are attained taking into account the technology deployed .


### article 191 of the treaty on the functioning of the european union requires that union policy is based on the principle that the polluter should pay and , on this basis , directive 2003 / 87 / ec provides for a transition to full auctioning over time . avoiding carbon leakage is a justification to postpone full transition , and targeted free allocation of allowances to industry is justified in order to address genuine risks of increases in greenhouse gas emissions in third countries where industry is not subject to comparable carbon constraints as long as comparable climate policy measures are not undertaken by other major economies . ### article 191 of the treaty on the functioning of the european union requires that union policy is based on the principle that the polluter should pay and , on this basis , directive 2003 / 87 / ec provides for a transition to full auctioning over time . avoiding carbon leakage is a justification to temporarily postpone full transition , and precisely targeted free allocation of allowances to industry is a justified exception from the principle that the polluter should pay only as long as no over - allocation occurs , in order to address genuine risks of increases in greenhouse gas emissions in third countries where industry is not subject to comparable carbon constraints as long as comparable climate policy measures are not undertaken by other major economies .


### the european council confirmed that a well - functioning , reformed eu ets with an instrument to stabilise the market will be the main european instrument to achieve this target , with an annual reduction factor of 2 . 2% from 2021 onwards , free allocation not expiring but existing measures continuing after 2020 to prevent the risk of carbon leakage due to climate policy , as long as no comparable efforts are undertaken in other major economies , without reducing the share of allowances to be auctioned . the auction share should be expressed as a percentage figure in the legislation , to enhance planning certainty as regards investment decisions , to increase transparency and to render the overall system simpler and more easily understandable . ### the european council confirmed that a well - functioning , reformed eu ets with an instrument to stabilise the market will be the main european instrument to achieve this target , with an annual reduction factor of 2 . 2% from 2021 onwards , free allocation not expiring but existing measures continuing temporarily after 2020 to prevent the risk of carbon leakage due to climate policy , as long as no comparable efforts are undertaken in other major economies , without reducing the share of allowances to be auctioned . the auction share should be expressed as a percentage figure in the legislation , to enhance planning certainty as regards investment decisions , to increase transparency and to render the overall system simpler and more easily understandable . however , in order to reflect the paris agreement , it is essential that the union , as part of the international community , increases its efforts and commitment with a view to limiting the increase in the global average temperature to well below 2°c above pre - industrial levels as well as to pursuing efforts to limit the temperature increase to 1 . 5°c above pre - industrial levels , and therefore the annual reduction factor in the phase iv of the eu ets should increase to at least 2 . 4% by 2021 .


### a fund to support investments in modernising energy systems and improving energy efficiency in member states with a gdp per capita below 60% of the union average in 2013 shall be established for the period 2021 - 30 and financed as set out in article 10 . ### a fund to support investments in modernising energy systems and improving energy efficiency in member states with a gdp per capita below 60% of the union average in 2013 , in 2014 or in 2015 shall be established for the period 2021 - 30 and financed as set out in article 10 .


### by derogation from article 10a to , member states which had in 2013 a gdp per capita in &#8364 ; at market prices below 60% of the union average may give a transitional free allocation to installations for electricity production for the modernisation of the energy sector . ### by derogation from article 10a to , member states which had in 2013 a gdp per capita in eur at market prices below 60% of the union average may give a transitional free allocation to electricity generators for the modernisation and diversification of the energy sector . this derogation shall be reconsidered for the period after 2030 .


### ' 4 . it shall be for member states to determine the use to be made of revenues generated from the auctioning of allowances . those revenues should be used to tackle climate change in the eu and third countries , inter alia , to reduce greenhouse gas emissions , to adapt to the impacts of climate change in the eu and third countries , especially developing countries , to fund research and development for mitigation and adaptation , including in particular in the fields of aeronautics and air transport , to reduce emissions through low - emission transport and to cover the cost of administering the community scheme . the proceeds of auctioning should also be used to fund contributions to the global energy efficiency and renewable energy fund , and measures to avoid deforestation . ### in article 3d , subparagraph 1 is replaced by the following : ' 4 . all revenues shall be used to tackle climate change in the eu and third countries , inter alia , to reduce greenhouse gas emissions , to adapt to the impacts of climate change in the eu and third countries , especially developing countries , to fund research and development for mitigation and adaptation , including in particular in the fields of aeronautics and air transport , to reduce emissions through low - emission transport and to cover the cost of administering the community scheme . the proceeds of auctioning may also be used to fund contributions to the global energy efficiency and renewable energy fund , and measures to avoid deforestation .


### by derogation from article 10a to , member states which had in 2013 a gdp per capita in &#8364 ; at market prices below 60% of the union average may give a transitional free allocation to installations for electricity production for the modernisation of the energy sector . ### by derogation from article 10a to , member states which had in 2013 or in 2014 or in 2015 a gdp per capita in eur at market prices below 60% of the union average may give a transitional free allocation to installations for electricity production for the modernisation of the energy sector .


### by derogation from article 10a to , member states which had in 2013 a gdp per capita in eur at market prices below 60% of the union average may give a transitional free allocation to installations for electricity production for the modernisation of the energy sector . ### by derogation from article 10a to , member states which had in 2013 a gdp per capita expressed in purchasing power standards in eur at market prices below 60% of the union average may give a transitional free allocation to installations for electricity generators for the modernisation and diversification of the energy sector . this derogation shall end after 2030 .


### a modernisation fund should be established from 2% of the total eu ets allowances , and auctioned in accordance with the rules and modalities for auctions taking place on the common auction platform set out in regulation 1031 / 2010 . member states who in 2013 had a gdp per capita at market exchange rates of below 60% below the union average should be eligible for funding from the modernisation fund and derogate up to 2030 from the principle of full auctioning for electricity generation by using the option of free allocation in order to transparently promote real investments modernising their energy sector while avoiding distortions of the internal energy market . the rules for governing the modernisation fund should provide a coherent , comprehensive and transparent framework to ensure the most efficient implementation possible , taking into account the need for easy access by all participants . the function of the governance structure should be commensurate with the purpose of ensuring the appropriate use of the funds . that governance structure should be composed of an investment board and a management committee and due account should be taken of the expertise of the eib in the decision - making process unless support is provided to small projects through loans from a national promotional banks or through grants via a national programme sharing the objectives of the modernisation fund . investments financed from the fund should be proposed by the member states . to ensure that the investment needs in low income member states are adequately addressed , the distribution of funds will take into account in equal shares verified emissions and gdp criteria . the financial assistance from the modernisation fund could be provided through different forms . ### a modernisation fund should be established from 2% of the total eu ets allowances , and auctioned in accordance with the rules and modalities for auctions taking place on the common auction platform set out in regulation 1031 / 2010 . member states who in 2013 , in 2014 or in 2015 had a gdp per capita at market exchange rates of below 60% below the union average should be eligible for funding from the modernisation fund and derogate up to 2030 from the principle of full auctioning for electricity generation by using the option of free allocation in order to transparently promote real investments modernising their energy sector while avoiding distortions of the internal energy market . the rules for governing the modernisation fund should provide a coherent , comprehensive and transparent framework to ensure the most efficient implementation possible , taking into account the need for easy access by all participants . the function of the governance structure should be commensurate with the purpose of ensuring the appropriate use of the funds . that governance structure should be composed of an investment board and a management committee and due account should be taken of the expertise of the eib in the decision - making process unless support is provided to small projects through loans from a national promotional banks or through grants via a national programme sharing the objectives of the modernisation fund . investments financed from the fund should be proposed by the member states . to ensure that the investment needs in low income member states are adequately addressed , the distribution of funds will take into account in equal shares verified emissions and gdp criteria . the financial assistance from the modernisation fund could be provided through different forms .