Communication from the Commission on guidance to assist Member States in the implementation of the criteria listed in Annex III to Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, and on the circumstances under which force majeure is demonstrated
Date: 2004-01-07
Institutions: European Commission
Subjects: EU environmental policy, air quality, greenhouse gas, pollution control measures, reduction of gas emissions, tradeable emission permit

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 7.1.2004
COM(2003) 830 final

COMMUNICATION FROM THE COMMISSION

on guidance to assist Member States in the implementation of the criteria listed
in Annex III to Directive 2003/87/EC establishing a scheme for greenhouse gas emission
allowance trading within the Community and amending Council Directive 96/61/EC,
and on the circumstances under which force majeure is demonstrated

EN

  EN

COMMUNICATION FROM THE COMMISSION

on guidance to assist Member States in the implementation of the criteria listed
in Annex III to Directive 2003/87/EC establishing a scheme for greenhouse gas emission
allowance trading within the Community and amending Council Directive 96/61/EC,
and on the circumstances under which force majeure is demonstrated

1. 

1. 

2. 

3. 

4. 

INTRODUCTION

Directive  2003/87/EC1  provides  for  the  establishment  of  a  Community-wide
greenhouse gas emission allowance trading scheme as of 2005. Pursuant to Article 9
of the Directive, each Member State periodically has to develop a national allocation
plan.  These  plans  have  to  be  based  on  objective  and  transparent  criteria,  including
those listed in Annex III to the Directive. The first national allocation plans have to
be  published  and  notified  to  the  Commission  and  the  other  Member  States  by  31
March  2004.  For  those  Member  States  joining  the  Union  as  of  1  May  2004,  the
obligation to publish and notify the national allocation plan arises only with the date
of accession. The Commission encourages these future Member States to publish and
notify national allocation plans also by 31 March 2004.

Article  9  mandates  the  Commission  to  develop  guidance  on  the  implementation  of
the  criteria  listed  in  Annex  III  by  31  December  2003.  Article  29  mandates  the
Commission  to  develop  guidance  to  describe  the  circumstances  under  which  force
majeure is demonstrated by the same date. The purpose of this guidance document is
three-fold:

– 

– 

– 

First, to assist Member States in drawing up their national allocation plans, by
indicating  the  scope  of  interpretation  of  the  Annex  III  criteria  that  the
Commission deems acceptable;

Second, to support the Commission assessment  of notified national  allocation
plans, pursuant to Article 9(3);

to  describe 

Third, 
demonstrated.

the  circumstances  under  which 

force  majeure 

is

The  Directive  is  a  key  element  of  the  Community’s  climate  change  policy  and  its
objective  is  to  promote  reductions  of  greenhouse  gas  emissions  in  a  cost-effective
and  economically  efficient  manner.  It  is  therefore  important  to  ensure  that  the
emissions  trading  scheme  has  a  positive  environmental  outcome.  The  national
allocation  plans  are  the  means  to  achieve  this  goal.  This  fact  is  reflected  in  the
guidance developed in this document.

The Commission will monitor the application of this guidance, and amend it as and
when  it  deems  necessary,  in  particular  following  any  amendments  to  Annex  III
pursuant to Articles 22 and/or 30(2)(c) of the Directive.

1 

OJ L 275, 25.10.2003, p. 32.

2

 
                                                
2. 

5. 

6. 

GUIDANCE ON THE IMPLEMENTATION OF THE ANNEX III CRITERIA

Annex  III  to  Directive  2003/87/EC  contains  11  criteria  relating  to  the  national
allocation  plans.  The  relationships  between  these  criteria  can  be  revealed  by
categorising them in various ways.

Table 1: Categorisation of the criteria

Mandatory (M)/
Optional (O)

Total
level

Activity/
Sector

Installation
level

+

+

+

+

+

(1) Kyoto commitments

(M)/(O)

(2) Assessments of emissions
development

(3) Potential to reduce
emissions

(4) Consistency with other
legislation

(5) Non-discrimination
between companies or sectors

(6) New entrants

(7) Early action

(8) Clean technology

(9) Involvement of the public

(10) List of installations

(11) Competition from
outside the Union

(M)

(M)/(O)

(M)/(O)

(M)

(O)

(O)

(O)

(M)

(M)

(O)

+

+

+

+

+

+

+

+

+

One way of categorising the criteria is on the basis of whether their implementation
is mandatory or optional. A Member State has an obligation to apply all elements of
criteria (2), (5), (9) and (10), and some elements of the criteria (1), (3) and (4). It can,
therefore,  choose  whether  it  wants  to  take  specific  action  with  respect  to  some
elements  of  criteria  (1),  (3)  and  (4),  and  the  criteria  (6),  (7),  (8)  and  (11).  The
Commission will not reject a plan if all mandatory criteria and mandatory elements
of criteria are applied in a correct manner. The Commission will not reject a plan if
optional  criteria  or  optional  elements  of  criteria  are  not  applied.  However,  if  these
optional  criteria  or  optional  elements  of  criteria  or  additional  transparent  and
objective  criteria  are  applied,  the  Commission  will  assess  their  application.  In  all
cases, the Commission does require information from a Member State with respect to
criteria (7) and (8), even if this is only to state that a criterion has not been applied. In
respect of criterion (6) a Member State must state the manner in which new entrants
will be able to begin participating in the Community scheme in that Member State.

3

 
7. 

8. 

A second way of categorising the criteria is to distinguish between them depending
on  whether  they  are  applicable  to  allowance  allocation  at  the  level  of  all  covered
installations,  at  activity  or  sector  level,  or  at  installation  level.  The  Commission’s
interpretation is presented in Table 1.

The  attached  common  format reflects the fact that  criteria  apply  at  different  levels,
but  also  that  they  deal  with  different  aspects,  such  as  technical  aspects  and
Community legislation or policy. For the sake of clarity and in order to facilitate its
use  by  Member  States,  a  recommended  common  format  for  establishing  and
notifying the national allocation plans is  attached.  The  common format  will  further
assist a Member  State  in drawing  up  the  plan, and, in addition, it will  significantly
facilitate Member States’ scrutiny of each other’s plans and increase the accessibility
of the plans to stakeholders.

2.1. 

Guidance on individual criteria

9. 

In  the  following,  the  Commission  sets  out  guidance  on  the  implementation  of  the
individual criteria. The criteria are treated individually and in the order in which they
are  listed  in  Annex  III  to  the  Directive.  Cross-references  are  made  in  order  to
highlight  relationships  between  different  criteria.  The  guidance  contains  an
introductory and an analytical section.

2.1.1.  Criterion (1) – Kyoto commitments

The  total  quantity  of  allowances  to  be  allocated  for  the  relevant  period  shall  be
consistent  with  the  Member  State's  obligation  to  limit  its  emissions  pursuant  to
Decision 2002/358/EC and the Kyoto Protocol, taking into account, on the one hand,
the  proportion  of  overall  emissions  that  these  allowances  represent  in  comparison
with  emissions  from  sources  not  covered  by  this  Directive  and,  on  the  other  hand,
national energy policies, and should be consistent with the national climate change
programme. The total quantity of allowances to be allocated shall not be more than
is likely to be needed for the strict application of the criteria of this Annex. Prior to
2008,  the  quantity  shall  be  consistent  with  a  path  towards  achieving  or  over-
achieving  each  Member  State's  target  under  Decision  2002/358/EC  and  the  Kyoto
Protocol.

2.1.1.1.  Introduction

10. 

Criterion  (1)  makes  the  link  between  the  total  quantity  of  allowances  and  the
Member State’s individual target either under Council Decision 2002/358/EC2 on the
joint  fulfilment  of  commitments  under  the  Kyoto  Protocol,  or  under  the  Kyoto
Protocol  itself.  For  new  Member  States  not  referred  to  in  the  Decision,  their
respective targets under the Kyoto Protocol is the reference point under this criterion.
While the commitments established for each Member State must be met, the criterion
enables a Member State to go beyond the “Kyoto” target. . Distributing the effort to
meet  these  targets  is  a  “zero-sum”  exercise,  whereby  the  same  result  must  be
achieved  however  the  effort  is  distributed  between  covered  and  non-covered
installations and activities, as well as between covered installations.

2

OJ L 130, 15.5.2002, p. 1.

4

 
                                                
11. 

12. 

Within  the  scope  of  the  climate  change  commitment  of  each  Member  State,  a
Member State applying effective policies and measures to sources outside the trading
scheme  will  necessarily  be  in  a  position  to  allocate  more  allowances  to  covered
installations.  National  energy  policies  may  also  lead  to  adjustments  of  the  relative
contributions to the climate change  commitment.  If  a Member  State  has  committed
itself to gradually phase-out nuclear installations on its territory, measures will have
to  be  taken  to  provide  the  required  levels  of  electricity.  A  nuclear  phase-out  might
lead to an increase in greenhouse gas emissions, but would not justify that a Member
State does not fulfil its obligations under Decision 2002/358/EC.

The  concept  of  the  “path”  reflects  the  fact  that,  before  the  period  2008  to  2012,
Member States do not have quantitative targets but are instead required under Article
3(2) of the Kyoto Protocol to make demonstrable progress by 2005 towards meeting
their quantitative commitments for 2008 to 2012. Allocations for the period 2005 to
2007  have  to  be  mindful  of  the  targets  that  will  apply  from  2008  to  2012.
Consequently,  it  is  understood  that  Member  States  should  be  making  progress
towards  their  commitments  for  2008  to  2012  already  in  the  first  trading  period  of
2005 to 2007. The path is intended to be a trend line, not necessarily a straight one,
but one that is leading towards or goes beyond the reductions and limitations called
for by the Kyoto Protocol and Decision 2002/358/EC.

2.1.1.2.  Analysis

13. 

14. 

15. 

16. 

Criterion  (1) is largely  of  a mandatory  nature  and has  to  be  applied  in  determining
the total quantity of allowances.

While the Directive covers part of a Member State’s greenhouse gas emissions, the
Kyoto target applies to the total greenhouse gas emissions of a Member State. Hence,
a  Member  State  has  to  decide  in  the  plan  what  contribution  should  be  made  by
covered  installations  to  reaching  or  going  beyond  the  overall  commitment  in  the
period 2008 to 2012 and what path it will follow in the period 2005 to 2007.

A Member State has to demonstrate how the  chosen total quantity of allowances is
consistent with reaching or over-achieving the Kyoto target, taking into account, on
the one hand, the proportion of overall emissions that these allowances represent in
comparison  with  emissions  from  sources  not  covered  by  this  Directive  and,  on  the
other hand, national energy policies. A Member State has to present the chosen path
towards reaching  or  over-achieving the target under Decision 2002/358/EC  and  the
Kyoto  Protocol  and  explain  how  consistency  is  ensured  between  the  intended
allocation and the path.

In  deciding  the  total  quantity,  the  proportion  of  overall  emissions  of  covered
installations in relation to total emissions is a first element to be taken into account.
A  Member  State  should  use  the  most  recent  data  available  to  determine  the
proportion.  In  case  a  Member  State  deviates  substantially  from  this  proportion,  it
should  give  reasons  for  such  deviations.  Such  reasons  may  include,  inter  alia,
expected structural change in the economy and national energy  policy. Consistency
with  national  energy  policy  may  be  a  reason  for  an  increase  or  a  decrease  in  the
proportion.  A  Member  State  phasing-out  nuclear  installations  over  the  covered
period  may  increase  the  proportion,  if  replacement  is  not  expected  to  be  through
carbon-free  alternatives.  A  Member  State  intending  to  increase  the  share  of
renewable  energy  or  combined  heat  and  power  production  or  other  forms  of  low-

5

 
17. 

18. 

19. 

20. 

carbon or carbon-free power and heat production should decrease the proportion. The
Commission  recalls  that  under  the  provisions  of  Directive  2001/77/EC3  on  the
promotion  of  electricity  produced  from  renewable  energy  sources  in  the  internal
electricity  market  all  Member  States,  including  the  future  Member  States,  have
committed  themselves  to  increase  the  share  of  electricity  from  renewable  energy
sources.

The  quantity  of  allowances  potentially  available  for  installations  covered  by  the
trading  scheme needs  to  be  consistent with the  forecasted increases or  decreases  in
non-covered activities. Therefore, a Member State should include clear, realistic and
substantiated  projections  of  the  effectiveness  of  the  policies  aimed  at  non-covered
activities  in  the  national  allocation  plan.  Furthermore,  a  Member  State  should
introduce  additional  policies  and  measures  to  control  emissions  of  non-covered
activities  in  order  for  all  relevant  sectors  to  contribute  to  the  achievement  of  the
target under Decision 2002/358/EC and the Kyoto Protocol.

The Commission understands ”likely to be needed” as forward-looking and linked to
the projected emissions of covered installations as a whole, given that this criterion
refers  to  the  total  quantity  of  allowances  to  be  allocated.  The  Commission
understands  the  “strict  application  of  the  criteria  in  this  annex”  to  comprise  the
criteria with a mandatory  character  or containing mandatory  elements – i.e. criteria
(1), (2), (3), (4), and (5)4. In order to satisfy this requirement and fulfil all mandatory
criteria  and  elements,  a  Member  State  should  not  allocate  more  than  is  needed,  or
warranted, by the most constraining of these criteria. It follows that any application
of the optional elements of Annex III may not lead to an increase in the total quantity
of allowances.

The chosen proportion, taking into account criteria (1), (2), (3), (4) and (5), should be
multiplied  by  the  annual  average  emissions  allowed  under  Decision  2002/358/EC
and,  for  new  Member  States,  the  Kyoto  Protocol  in  the  period  2008  to  2012.  This
figure  could  be  scaled  downwards  by  an  appropriate  factor  if  the  Member  State
intends to go beyond the Kyoto target in 2008 to 2012. In order to determine the total
quantity for the period 2005 to 2007 the Member State should scale this amount to
the path chosen and multiply the figure by three.

As  a  Party  to  the  Kyoto  Protocol,  a  Member  State  may  use  the  mechanisms  under
Articles  6,  12,  and  17  (Joint  Implementation,  Clean  Development  Mechanism,  and
International  Emission  Trading)  to  contribute  to  compliance  with  its  commitments
under the Protocol in the period 2008 to 2012. If a Member State intends to use these
mechanisms  it  may  adapt  annual  average  emissions  allowed  under  Decision
2002/358/EC  and  the  Kyoto  Protocol  in  the  period  2008  to  2012.  In  the  national
allocation  plan,  a  Member  State  must  substantiate  any  such  intentions  to  use  the
Kyoto mechanisms. The Commission will base its assessment notably on the state of
advancement of relevant legislation or implementing provisions at the national level.

3

4

OJ L 283, 27.10.2001, p. 33.
Criteria  (9)  and  (10)  do  not  relate  to  the  determination  of  allocated  quantities  and  are  therefore  not
relevant in this context.

6

 
                                                
A  Member  State  has  to  determine  the  total  quantity  of  allowances  based  on  the
proportion of overall emissions of covered installations in relation to total emissions.
A  Member  State  should  use  the  most  recent  data  available  to  determine  the
proportion.  In  case  a  Member  State  deviates  substantially  from  the  current
proportion, it should give reasons for such deviations.

A Member State must substantiate the intention to use the Kyoto mechanisms.

2.1.2.  Criterion (2) – Assessments of emissions development

The total quantity of allowances to be allocated shall be consistent with assessments
of actual and projected progress towards fulfilling the Member States' contributions
to the Community's commitments made pursuant to Decision 93/389/EEC.

2.1.2.1.  Introduction

21. 

Pursuant  to  Decision  93/389/EEC  establishing  a  monitoring  mechanism  of
Community  carbon  dioxide  (CO2)  and  other  greenhouse  gas  emissions5,  the
Commission  undertakes  an  annual  assessment  of  actual  and  projected  emissions  of
Member States, in total and by sector and by gas. These assessments are prepared in
close  cooperation  with  Member  States.  Criterion  (2)  is  intended  to  ensure  that  the
total  allocation  is  consistent  with  pre-existing,  publicly  available  and  objective
assessments of actual and projected emissions. The relevant reports that summarise
these  assessments  are  COM(2000)749,  COM(2001)708,  COM(2002)702  and
COM(2003)735. The 2000 and 2001 reports cover only the existing Member States,
and so are not relevant to new Member States. The 2002 and 2003 reports also cover
the new Member States.

22. 

Decision  93/389/EEC  will  be  repealed  and  replaced  in  early  2004  by  Decision
2004/xx/EC on the monitoring of greenhouse gas emissions and the implementation
of the Kyoto Protocol6.

2.1.2.2.  Analysis

23. 

24. 

25. 

5

6

Criterion (2) is of a mandatory nature and has to be applied in determining the total
quantity of allowances.

The Commission conducts assessments under Decision 93/389/EEC, in co-operation
with  Member  States.  These  assessments  cover  recent  developments  of  actual
emissions of Member States and projected emissions during the period 2008 to 2012,
in total and per sector and gas.

Consistency  with  assessments  pursuant  to  Decision  93/389/EEC  will  be  deemed  as
ensured if the total quantity of allowances to be allocated to covered installations is
not more than would be necessary taking into account actual emissions and projected

OJ L 167, 9.7.1993, p.31. Decision as amended by Decision 1999/296/EC (OJ L 117, 5.5.1999, p. 35).
This  Decision,  based  on  the  Commission  proposal  COM(2003)51,  is  the  subject  of  a  first  reading
agreement based on the amendments adopted by the European Parliament on 21 October 2003, and is
expected to enter into force early in 2004.

7

 
                                                
emissions  contained  in  those  assessments.  Consistency  would  not  be  ensured  if  a
Member State intended to allocate a total quantity of allowances in excess of actual
or projected emissions of covered installations as reported in the assessment for the
relevant period.

Consistency  with  assessments  pursuant  to  Decision  93/389/EEC  will  be  deemed  as
ensured if the total quantity of allowances to be allocated to covered installations is
not  more  than  actual  emissions  and  projected  emissions  contained  in  those
assessments.

2.1.3.  Criterion (3) – Potential to reduce emissions

Quantities  of  allowances  to  be  allocated  shall  be  consistent  with  the  potential,
including the technological potential, of activities covered by this scheme to reduce
emissions.  Member  States  may  base  their  distribution  of  allowances  on  average
emissions of greenhouse gases by product in each activity  and achievable  progress
in each activity.

2.1.3.1.  Introduction

26. 

27. 

28. 

No definition  or further  determination of the  term  “potential” has been  established,
and  potential  should  therefore  not  be  limited  to  technological  potential  but  may
include, inter alia, economic potential.  As  the technical options available to reduce
emissions by a tonne of carbon dioxide as well as the costs of doing so vary between
activities, an allocation may be made to reflect that in some cases a reduction can be
achieved  at  lower  cost,  and  in  other  cases  an  equivalent  reduction  may  be  more
costly.  The  implication  is  that  more  might  be  asked  of  activities  that  can  make
cheaper  reductions,  and  less  might  be  asked  of  activities  whose  reductions  are
expensive.

The second sentence of the criterion makes explicit the possibility for Member States
to  use  benchmarks  by  product  in  each  activity  and  achievable  progress  in  each
activity. Under a benchmarking approach, an average of emissions per unit of output
would  be  established,  and  allocations  made  on  the  basis  of  historic,  current  or
expected  output  quantities.  An  installation  that  had  lower  emissions  per  unit  of
output  would  be  given  more  allowances  in  relation  to  current  emissions  than
installations whose emissions were higher per unit of output.

Criterion  (3)  refers  to  the  product  in  each  activity,  without  defining  product.  It  is
implicitly recognised that a given activity could cover several products, so that each
activity  does  not  have  to  be  treated  as  a  whole.  For  example,  achievable  progress
with coal-fired electricity generation is an acceptable basis for  the  determination of
benchmarks. What is achievable by different coal-fired technologies is more limited
than what may be achievable in the case of fuel-switching from coal to natural gas.
However, the incentive for fuel switching to less carbon intensive fuels would not be
affected.

8

 
29. 

Pursuant to Article 30(2) of the Directive, the Commission shall consider in a future
review  the  practicality  of  developing  Community  wide  benchmarks  as  a  basis  for
allocation. The Commission notes that the legislators do not consider the application
of  Community-wide  benchmarks  to  be  practicable  for  the  first  national  allocation
plan.

2.1.3.2.  Analysis

30. 

31. 

32. 

33. 

34. 

35. 

36. 

Criterion  (3)  is  mandatory  in  part.  It  has  to  be  applied  in  determining  the  total
quantity of allowances and it may be applied in determining the quantity per activity.

A Member State should determine the total quantity of allowances resulting from the
application  of  this  criterion  by  comparing  the  potential  of  activities  covered  by  the
scheme to reduce emissions with the potential of activities not covered. The criterion
will  be  deemed  as  fulfilled  if  the  allocation  reflects  the  relative  differences  in  the
potential between the total covered and total non-covered activities.

A Member State may apply the criterion to determine separate quantities per activity.
It  should  compare  the  potentials  of  individual  activities  covered  by  the  scheme  to
reduce  emissions  against  each  other.  If  a  Member  State  applies  the  criterion  to
determine separate quantities per activity, the criterion will be deemed as fulfilled if
the  allocation  reflects  the  relative  differences  in  the  potential  amongst  individual
covered activities.

A  Member  State  may  use  the  relevant  average  emissions  of  covered  greenhouse
gases by generic product type and achievable progress in each activity to determine
the quantity per activity. If a Member State chooses to do so, it should determine the
actual  average  emissions  by  product  using  national  data,  and  assess  the  average
emissions by product that could be attained in the relevant period taking into account
achievable  progress.  A  Member  State  should  indicate  the  applied  average  in  the
national  allocation  plan  and  justify  why  it  considers  the  chosen  average  to  be  an
appropriate estimate to incorporate achievable progress. The quantity of allowances
per activity should be based on expected output per activity over the relevant period.
A  Member  State  should  indicate  the  forecast  used  and  justify  why  it  considers  the
chosen forecast as the most likely development. In doing so it should also take into
account recent output developments in the relevant activities.

In  contrast  to  criterion  (7),  in  which  benchmarks  may  be  applied  to  determine  the
quantity of allowances by installation, under this criterion the benchmark  would be
applied to determine the quantity of allowances by activity.

A  distinction  is  made  between  technological  and  other  potential  of  activities  to
reduce emissions. The realisation of the technological potential to reduce emissions
within a trading period is limited by factors such  as timing, economic  viability and
legal provisions.

Member  States  should  consider  that  some  measures  can  be  implemented  and  will
have  an  effect  on  emissions  in  the  short  term,  while  others  may  have  longer  lead-
times and depend on investment cycles. Considering the potential of measures with a
lead-time extending beyond the duration of a trading period will create an incentive
for operators to act early.

9

 
37. 

38. 

39. 

The economic potential of activities to reduce CO2 emissions should be based on an
assessment of abatement costs per tonne of CO2equivalent, and not on the economic
viability  of  individual  companies  or  installations  belonging  to  the  activity  or
activities concerned.

A  Member  State  may  make  use  of  best  available  techniques  reference  documents
(BREFs)  when  assessing  the  potential  of  activities.  A  “best”  available  technique  is
defined as a technique, which is “most effective in achieving a high general level of
protection  of  the  environment  as  a  whole”.  Therefore,  there  is  not  necessarily  full
coherence between the use of a best available technique  and the  performance  of an
installation in terms of covered emissions.

In the national allocation plan,  a Member State  should describe the methodology it
has  used  to  assess  the  potential  to  reduce  emissions.  It  should  preferably  base  the
assessment of the potential on a study made for the purpose of the national allocation
plan. In case circumstances and timing do not allow for such a study in the process of
elaborating  the  national  allocation  plan,  recent  existing  assessments  and  secondary
sources  may  be  used  (e.g.  peer-reviewed  studies).  A  Member  State  should  indicate
sources used and summarise the applied methodology (including major assumptions
made) and results.

A  Member  State  has  to  apply  the  criterion  to  determine  the  total  quantity  of
allowances. A Member State may apply the criterion to determine the quantities per
activity.

2.1.4.  Criterion (4) – Consistency with other legislation

The  plan  shall  be  consistent  with  other  Community  legislative  and  policy
instruments. Account should be taken of unavoidable increases in emissions resulting
from new legislative requirements.

2.1.4.1.  Introduction

40. 

Criterion  (4)  concerns  the  relationship  between  allocations  under  Directive
2003/87/EC  and  other  Community  legislative  and  policy  instruments.  Consistency
between allowance allocations and other legislation is introduced as a requirement in
order to ensure that allocation does not contravene the provisions of other legislation.
In  principle,  no  allowances  should  be  allocated  in  cases  where  other  legislation
implies  that  covered  emissions  had  or  will  have  to  be  reduced  even  without  the
introduction  of  the  emission  trading  scheme.  Similarly,  consistency  implies  that  if
other  legislation  results  in  increased  emissions  or  limits  the  scope  for  decreasing
emissions covered by the Directive account should be taken of this increase.

2.1.4.2.  Analysis

41. 

The  first  sentence  of  the  criterion  is  mandatory  in  nature,  while  the  second  one  is
optional.

10

 
42. 

43. 

44. 

45. 

46. 

The first sentence of criterion (4) has to be applied in determining the total quantity,
if the Community legislative and policy instruments affect all covered  installations,
or in determining the quantities for affected installations in other cases.

Pursuant  to  the  first  sentence  in  the  criterion,  consistency  with  other  Community
legislative  and  policy  instruments  has  to  be  applied  in  a  symmetrical  manner.  Not
only  an  unavoidable  increase  in  covered  greenhouse  gas  emissions  resulting  from
new Community legislative and policy instruments should be taken into account, but
also a decrease in covered emissions resulting from such instruments.

A Member State should list all Community legislative and policy instruments it has
considered and indicate which ones have been taken into account.

“New”  legislative  requirements  should  be  understood  as  legislation  and  policy
instruments  that  were  adopted  before  the  date  of  submission  of  the  national
allocation plan, and will impose relevant obligations on installations covered by the
scheme  after  that  date  and  before  the  end  of  the  period  covered  by  the  national
allocation  plan.  This  includes  the  implementation  of  relevant  parts  of  the  acquis
communautaire by new Member States following their accession in May 2004.

In  order  to  take  an  unavoidable  change  in  emissions  into  account,  a  Member  State
should  consider,  firstly,  if  a  change  in  greenhouse  gas  emissions  from  covered
installations  is  in  fact  due  to  new  requirements,  and,  secondly,  if  such  a  change  is
unavoidable.

In  order  to  simplify  administrative  tasks  the  Commission  recommends  a  Member
State to  consider  a  Community  legislative  or  policy  instrument  only  insofar  as  it  is
expected to result, per activity or in total, in a substantial increase or decrease (e.g.
10 %) of covered emissions.

2.1.5.  Criterion (5) – Non-discrimination between companies or sectors

The  plan  shall  not  discriminate  between  companies  or  sectors  in  such  a  way  as  to
unduly favour certain undertakings or activities in accordance with the requirements
of the Treaty, in particular Articles 87 and 88 thereof.

47. 

Normal state aid rules will apply.

2.1.6.  Criterion (6) – New entrants

The plan shall contain information on the manner in which new entrants will be able
to begin participating in the Community scheme in the Member State concerned.

2.1.6.1.  Introduction

48. 

The treatment of new entrants, i.e. installations starting operation in the course of a
trading  period,  is  one  of  the  important  design  choices  in  any  emission  trading
scheme.  The  options differ depending on  the  allocation  method  chosen  for  existing
installations.  If  all  allowances  are  sold  by  a  government,  no  specific  decisions  are

11

 
49. 

50. 

needed for new entrants. If (the majority of) allowances are, however, allocated free
of charge, several options are available to integrate new entrants into the scheme.

The definition of new entrants in Article 3 of the Directive7 puts new installations on
an  equal  footing  with  existing  installations  extending  capacity.  The  definition  in
relation to an updated permit applies only to the extension of an installation, and not
to  the  entire  installation,  nor  to  the  increased  capacity  utilisation  at  an  existing
installation.

The criterion foresees an informational obligation to state how new entrants will be
able  to  begin  participating  in  the  Community  scheme.  The  guidance  outlines  three
options to implement the criterion against the backdrop of relevant Treaty provisions.
However,  the  Commission  will  also  assess  any  other  option  notified  in  a  national
allocation plan.

2.1.6.2.  Analysis

51. 

52. 

53. 

54. 

The  obligation  arising  under  criterion  (6)  will  be  deemed  as  fulfilled  if  a  Member
State  explains  in  the  national  allocation  plan  how  it  intends  to  ensure  access  to
allowances  for  new  entrants.  Thus  the  criterion  will  be  fulfilled  if  a  Member  State
indicates that it has decided to have new entrants buy all allowances on the market.
There are also other options to treat new entrants. In all cases, the guiding principle is
equality of treatment.

The EC Treaty’s provisions on the right of establishment in the internal market have
to be respected. It is crucial that new entrants have access to allowances, as without
such  access  operators  would  be  prevented  from  establishing  a  business  in  sectors
carrying  out  covered  activities.  Guaranteeing  this  freedom  is  the  essence  of  the
second  sentence  of  Article  11(3)  of  the  Directive.  Moreover,  EU  competition  law
would  be  applicable  in  the  event  that  uncompetitive  practices  with  respect  to
allowances were to be used to erect market entry barriers.

It is important to keep in mind that the new entrants issue is of a temporary nature. In
principle,  an  installation  defined  as  a  new  entrant  in  one  trading  period  should  no
longer fall within this definition when the national allocation plan for the subsequent
period is notified.

It  follows  from  the  definition  that  a  new  entrant  is  an  installation  for  which  no
greenhouse gas emission permit has been issued or updated by the date the national
allocation plan is notified to the Commission. A Member State may issue or update
greenhouse  gas  emission  permits  with  respect  to  installations  which  will  start  or
extend  operations  with  considerable  certainty  during  the  relevant  trading  period.
Before  issuing  or  updating  a  greenhouse  gas  emission  permit,  a  Member  State  is
recommended to require an operator to demonstrate that it has already obtained the
construction  permit  and  any  other  relevant  permits.  Once  an  installation  that  is
expected  to  start  or  extend  operations  during  the  trading  period  has  obtained  a
greenhouse  gas  emission  permit  or  an  updated  permit,  it  can  be  included  in  the
national  allocation  plan  and  be  allocated  allowances  in  the  same  manner  as  an
existing installation. The number of allowances allocated to an installation expected

7

See Article 3(h) in Directive 2003/87/EC.

12

 
                                                
55. 

56. 

57. 

58. 

to  operate  only  during  part  of  the  trading  period  should  be  proportionate  to  the
expected  duration  of  (extended)  operations  at  the  installation  as  a  share  of  the
duration  of  the  trading  period.  The  Member  State  may  not  withhold  foreseen
allowances,  in  case  the  installation  does  not,  or  not  at  the  time  intended,  start  or
extend operations, unless it withdraws the greenhouse gas emissions permit.

A Member State has at least three options to enable participation of new entrants: it
may have any new entrants buy all allowances on the market, it may make use of the
possibility to set aside some allowances for periodic auctioning, or it may foresee a
reserve  in  the  national  allocation  plan  to  issue  allowances  to  new  entrants  free  of
charge.

Having new entrants buy all allowances on the market

A Member State may decide to implement this criterion by having new entrants buy
all allowances on the market, as any person (incl. operators) in the Community with
or  without  covered  installations  may  do.  The  Commission  notes  that  having  new
entrants  buy  allowances  on  the  market  is  in  accordance  with  the  principle  of  equal
treatment for the following reasons. Firstly, the Commission notes that the size of the
EU-wide  allowance  market  sets  the  correct  conditions  for  liquidity,  which  ensures
that new entrants will have access to  allowances. Secondly, incumbents have made
their investments without having been able to take the cost of carbon into account, in
contrast  to  new  entrants,  who  can  minimise  their  carbon  costs  through  investment
choices.  Thirdly,  new  installations  only  fulfil  the  definition  of  a  new  entrant  for  a
limited period of time, i.e. part of a trading period, and the cost of allowances for this
limited  period  (probably  less  than  two  years  in  the  first  period)  can  be  taken  into
account in the investment and timing decisions. The Directive guarantees that as of a
certain point in time the new entrant will be allocated allowances in the same manner
as all other existing installations for the remainder of the lifetime of the installation.

Auctioning

A Member State may  enable new  entrants to  begin  participating in the  Community
scheme  and  provide  access  to  allowances  on  the  basis  of  a  periodic  auction
procedure. In accordance with internal market rules a Member State has to allow any
person  in  the  Community  to  participate  in  such  an  auction  procedure.  A  Member
State  has  to  respect  Article  10  of  the  Directive,  pursuant  to  which  a  Member  State
may  not auction more than  5%  of the  total  quantity  of  allowances  allocated  during
the first trading period and 10 % in the second trading period.

A Member State should specify what use will be made of any allowances offered in
the  auction  procedure  but  not  purchased.  A  Member  State  may  cancel  remaining
allowances and re-issue a corresponding quantity of allowances for auctioning in the
subsequent  period.  The  Commission  notes  that  at  the  end  of  the  first  period  this
option is only available, if a Member State’s national legislation provides for such re-
issue  (i.e.  banking)  of  allowances  in  accordance  with  Article  13(2)  second
subparagraph.

59. 

The Commission notes that having new entrants buy allowances in an auction is in
accordance  with  the  principle  of  equal  treatment  for  the  same  reasons  as  indicated
above with respect to having new entrants buy on the market.

13

 
60. 

61. 

62. 

63. 

64. 

Setting aside a reserve

A Member State may provide access to allowances free of charge out of a reserve. If
a reserve is set aside a Member State should indicate in the national allocation plan
the size of the reserve by stating the absolute quantity of allowances out of the total
quantity of allowances. The Member State should justify the size of the reserve with
reference to an informed estimate of the expected number of new entrants during the
trading  period.  Up  to  the  quantity  in  the  reserve,  new  entrants  would  be  issued
allowances  free  of  charge  according  to  transparent  and  objective  rules  and
procedures  determined  in  the  national  allocation  plan.  A  Member  State  should
describe the methodology by which allowances would be granted to new entrants. If
such  a  method  is  used,  the  Commission  recommends  a  Member  State  to  give
applicants  in  possession  of  a  recently  granted  or  updated  greenhouse  gas  emission
permit access to allowances on a first-come first-served basis.

In order to respect the principle of equal treatment, the methodology that a Member
State uses in order to allocate allowances to new entrants should as far as possible be
the same as the one used for comparable incumbents. However, adaptations may be
made  for  justified  reasons  (cf.  guidance  criterion  (5)).  Similarly,  all  new  entrants
should  be  treated  in  the  same  way.  For  instance,  the  Commission  recommends  a
Member  State  not  to  create  several  reserves  dedicated  to  separate  activities,
technologies  or  specific  purposes,  since  they  could  result  in  unequal  treatment
between new entrants.

A  Member  State  should  further  specify  what  use  will  be  made  of  any  allowances
remaining  in  the  reserve  until  the  end  of  the  period.  A  Member  State  may  auction
any  remaining  allowances,  while  respecting  Article  10  of  the  Directive.  As  in  the
case  of  allowances  offered  for  auctioning  but  not  purchased,  a  Member  State  may
cancel  remaining  allowances  and  re-issue  a  corresponding  quantity  of  allowances
into a reserve for the subsequent period. Again, the Commission notes that at the end
of  the  first  period  this  option  is  only  available,  if  a  Member  State’s  national
legislation provides for such re-issue (i.e. banking) of allowances in accordance with
Article 13(2) second subparagraph.

A  Member  State  should  also  state  in  the  national  allocation  plan  what  transparent
procedure  it  will  follow,  if  new  entrants  apply  for  allowances  and  the  reserve  set
aside for the period is already exhausted.

The Commission notes that the operation of a reserve for new entrants increases the
complexity and administrative costs of the emissions trading scheme.

In case a Member State decides to set aside a reserve from which to grant allowances
free of charge, the Commission recommends a Member State not to create dedicated
reserves for specific activities, technologies or purposes.

14

 
2.1.7.  Criterion (7) – Early action

The  plan  may  accommodate  early  action  and  shall  contain  information  on  the
manner  in  which  early  action  is  taken  into  account.  Benchmarks  derived  from
reference documents concerning the best available technologies may be employed by
Member States in developing their National Allocation Plans, and these benchmarks
can incorporate an element of accommodating early action.

2.1.7.1.  Introduction

65. 

66. 

67. 

The accommodation of early  action is considered as desirable from a fairness point
of view. Those installations  that have  already  reduced  greenhouse  gas  emissions in
the absence of or beyond legal mandates should not be disadvantaged vis-à-vis other
installations  that  have  not  undertaken  such  efforts.  The  application  of  this  criterion
necessarily  implies  fewer  allowances  available  for  installations  that  have  not
undertaken early action.

Neither  the  criterion  nor  the  Directive  contains  a  definition  of  early  action  and  in
which  way  it  may  be  accommodated.  Therefore,  a  Member  State  has  a  degree  of
freedom  how  to  define,  and  whether  and  how  to  accommodate  early  action.  This
freedom is only limited by other Annex III criteria and provisions derived from the
Treaty.  The  guidance  on  this  criterion  outlines  limitations  imposed  by  these  other
criteria and provisions, and contains options how to accommodate early action, if a
Member State decides to do so.

The  second  sentence  of  the  criterion  builds  on  the  reference  to  benchmarks  in
criterion  (3).  It  repeats  the  possibility  for  Member  States  to  use  benchmarks  and
points  out  that  such  benchmarks  are  one  possible  option  to  accommodate  early
action.  Furthermore,  the  reference  documents  developed  under  Directive  96/61/EC
concerning  integrated  pollution  prevention  and  control8  are  inferred  as  a  potential
source for developing benchmarks.

2.1.7.2.  Analysis

68. 

69. 

Criterion (7) is optional and should, if applied, be used to determine the quantity of
allowances allocated to individual installations.

“Early  action” is to be understood  as  actions  undertaken  in  covered  installations  to
reduce  covered  emissions  before  the  national  allocation  plan  is  published  and
notified to the Commission. In line with  criterion (4),  only  measures  that  operators
undertook  beyond  requirements  arising  from  Community  legislation  can  qualify  as
early action. More stringent national legislation, applying to all covered installations
in  total  or  carrying  out  an  activity,  will  be  reflected  in  the  potential  to  reduce
emissions  (cf.  criterion  (3)).  Thus,  early  action  is  limited  to  reductions  of  covered
emissions beyond reductions made pursuant to Community or national legislation, or
to actions undertaken in the  absence of any such legislation. A parallel  can  also  be
drawn to the Community guidelines on State aid for environmental protection, which

8

OJ L 257, 10.10.1996, p. 26.

15

 
                                                
70. 

71. 

72. 

73. 

74. 

prohibit  public  investment  aid  with  respect  to  investments  that  merely  bring
companies into line with Community standards already adopted but not yet in force.

Member States have several options to accommodate early action that operators have
undertaken  in  existing  installations.  Three  possible  methods  are  elaborated  below,
but the Commission will also assess other methods.

Choosing an early base period

The  first  option  to  accommodate  early  action  is  to  base  the  allocation  on  historical
emissions  by  applying  a  relatively  early  base  period.  If  operators  are  allocated
allowances  corresponding  to  a  proportion  of  the  historical  emissions  from
installations,  those  operators  who  have  invested  to  reduce  emissions  since  the  base
period  will  receive  an  allocation  which  covers  a  larger  share  of  current  emissions
than  an  operator  who  has  not  made  such  investments.  A  Member  State  using  this
approach  would have to verify that the  difference in emission levels  over time was
not due to installations having implemented legal requirements.

The drawback of this approach is that reliable and comparable data for emissions in
an early base period may not be available, and the number of operator changes since
the base period will increase with time, making it more difficult to establish reliable
and complete records.

An alternative is to use a recent multi-year base period and then allow an operator to
choose one early year when it had higher emissions. Emissions data from one of the
years in the recent period would then be replaced by data from the  early  year. This
would increase the average annual emissions on which the allocation was based. In
line with the restrictions described above, a Member State wanting to substitute data
in this way would have to verify that the difference in emission levels over time was
not due to installations implementing legal requirements.

Making a two-round allocation at installation level

After  determining  the  total  quantity  of  allowances,  a  share  of  the  available
allowances is set aside. The allowances set aside would be used in a second round,
after an initial distribution to all installations, to give a bonus to those installations in
which operators have undertaken early action. Operators would have to apply to be
taken  into  account  in  the  second  round  and  would  have  to  demonstrate  that  the
measures they propose to be accepted as early action comply with a pre-established
definition of early action. A Member State should indicate in the national allocation
plan  the  list  of  measures  recognised  as  early  action,  and  should  specify  for  the
relevant installations which  measures have been  accommodated as early  action and
the corresponding number of allowances allocated.

Using benchmarks

75. 

A Member State may accommodate early action by using benchmarks derived from
reference  documents  concerning 
techniques.  Benchmarks
accommodate  early  action  because  they  imply  that  a  more  carbon  efficient
installation receives more  allowances than  a less  carbon  efficient  one,  which  is  not
necessarily the case with a base period driven allocation formula.

the  best  available 

16

 
76. 

77. 

78. 

79. 

80. 

81. 

In  contrast  to  criterion  (3),  in  which  benchmarks  (average  emissions  by  product
incorporating  achievable  progress)  may  be  applied  to  determine  the  quantity  of
allowances  by  activity,  under  this  criterion  the  benchmark  would  be  applied  to
determine the quantity of allowances by installation.

In  order  to  apply  the  benchmarking  approach,  a  Member  State  should  first  group
homogenous  installations  and  then  apply  a  benchmark  to  each  of  these  groups.
Installations in a group should be sufficiently homogenous with respect to their input
or output characteristics, such that it is feasible to apply the same type of benchmark
to  them.  If  benchmarking  is  used  to  determine  allocations  per  installation  carrying
out  energy  activities,  the  Commission  recommends  to  group  installations  by  input
fuels and to apply separate input-derived benchmarks.  It should be described in the
national  allocation  plan  on  what  basis  the  grouping  of  installations  was  carried  out
and the respective benchmarks chosen (cf. criterion. (3)).

In  order  to  determine  the  allocation  to  an  installation,  the  benchmark  needs  to  be
multiplied  by  an  output  value.  A  Member  State  should  indicate  in  the  national
allocation  plan  the  output  values  applied  and  justify  why  it  considers  them
appropriate. A Member State may use the most recent actual output data or a forecast
for the trading period, which should be clearly substantiated in the national allocation
plan.

Due  to  the  ex-ante  nature  of  the  allocation  decision  pursuant  to  Article  11(1)  a
Member State may not base the allocation to an installation on actual output data in
the  trading  period,  i.e.  data  unknown  at  the  time  the  national  allocation  plan  is
established but known during the course of the trading period.

A  benchmarking  approach  should  not  result  in  an  allocation  to  installations  in  an
activity of more allowances than determined per activity in accordance with criterion
(3). A Member State would also have to verify that the installations whose emissions
are lower than the benchmark have not arrived at their particular level of emissions,
as a result of the implementation of legal requirements.

Alternatively,  a  Member  State  may  use  benchmarks  in  a  simplified  way  to
accommodate  early  action.  If  a  Member  State  determines  allocations  at  installation
level with a base period approach, it may use benchmarks in order to determine and
apply an installation-specific correction factor to a base period driven formula. In this
way the allocation to installations performing better than average is increased, while
the  allocation  to  installations  performing  below  average  is  decreased.  Such
corrections should result in a net balance of zero across all installations concerned.

If a Member State applies this criterion, it should be used in determining the quantity
of  allowances  allocated  to  individual  installations.  A  Member  State  should  not
include  measures  as  early  action  if  they  were  taken  in  order  to  comply  with
legislative requirements.

If benchmarks are used to determine allocations per installation for energy activities,
the  Commission  recommends  to  group  installations  by  input  fuels  and  to  apply
separate input-derived benchmarks.

17

 
2.1.8.  Criterion (8) – Clean technology

The  plan  shall  contain  information  on  the  manner  in  which  clean  technology,
including energy efficient technologies, are taken into account.

2.1.8.1.  Introduction

82. 

83. 

This criterion enables a Member State to take account of clean technologies in setting
allocations, but does not define what constitutes such clean technology.

While  emission  trading  will  promote  and  reward  the  application  of  low-carbon
technologies, this criterion is related to the criteria on potential and early action. This
guidance outlines these links.

2.1.8.2.  Analysis

84. 

85. 

86. 

87. 

88. 

89. 

Criterion (8) is optional and should, if applied, be used to determine the quantity of
allowances allocated at installation level.

Information  is  required  from  a  Member  State  on  the  application  of  criterion  (8).
Thus, the criterion will be deemed as fulfilled if a Member State states that it makes
no  specific  provisions  to  take  clean  technologies,  including  energy  efficient
technologies, into account.

Criterion (8) can be seen as the extension of criterion (3) to the installation level. An
installation  using  a  clean  or  energy  efficient  technology  has  a  lower  technological
reduction  potential  than  a  comparable  installation  not  using  such  a  technology.  It
follows that the use of a clean or energy efficient technology should not be rewarded
under this criterion with respect to an installation belonging to an activity which has
a  relatively  low  technological  reduction  potential.  The  reduced  technological
reduction  potential  of  such  an  installation  would  already  have  been  covered  in  the
implementation of criterion (3).

Moreover, there is a link between criterion (7) on early action and criterion (8), since
an early action will typically have been an investment in a clean or energy efficient
technology. The Commission recommends a Member State not to apply both criteria
(7) and (8) to the same installation, unless it can be shown that the early  action did
not consist of an investment in a clean or energy efficient technology.

In  addition,  the  use  of  clean  technologies,  including  energy  efficient  technologies,
should  only  be  taken  into  account  under  this  criterion  with  respect  to  installations
using such technologies before the national allocation plan is published and notified
to the Commission. The Commission notes that this criterion should not be applied to
clean technologies that do not result in emissions covered by the Directive.

By clean or energy efficient technologies, the Commission understands technologies
that  have  resulted  in  lower  direct  emissions  of  covered  greenhouse  gases  than  the
alternative  technologies  that  could  realistically  have  been  deployed  by  the
installation concerned  would have led to.  In  determining the difference in emission
levels  between  direct  emissions  from  combined  heat  and  power  and  an  alternative
technology, the latter may consist of on-site separate power and heat production.

18

 
90. 

As  regards  energy  production,  the  Commission  will  accept  as  clean  or  energy
efficient  technologies  those  technologies  for  which  it  has  approved  State  aid  under
the Community guidelines on State aid for environmental protection. The following
list is not exhaustive:

91. 

92. 

– 

High  efficiency  combined  heat  and  power  production.  Member  States  may
apply national definitions of “high efficiency” cogeneration production, unless
such a definition has been adopted in Community law.

– 

District heating, other than high efficiency combined heat and power.

As  regards  other  industrial  technologies  than  energy  production,  a  Member  State
should  justify  why  a  particular  technology  is  to  be  considered  as  clean  or  energy
efficient. A minimum requirement is that the technology constitutes a “best available
technique”  as  defined  in  Council  Directive  96/61/EC  of  24  September  1996
concerning integrated pollution prevention and control and that it was being used by
the  installation  at  the  date  of  submission  of  the  national  allocation  plan.  However,
since  a  “best”  available  technique  is  defined  as  one  which  is  “most  effective  in
achieving a high general level of protection of the environment as a whole”, it will,
in addition, have to be shown that the technique is particularly performing in limiting
emissions of covered greenhouse gases.

Where a waste gas from a production process is used as a fuel by another operator,
the distribution of allowances between the two installations is a matter for Member
States to decide. For that purpose, a Member State may choose to allocate allowances
to the operator of the installation transferring the waste gas, provided this is done on
the basis of a pre-established criterion, compatible with the existing criteria of Annex
III and the Treaty. This paragraph applies independently of whether a Member State
chooses to apply criterion (7) or criterion (8) in accordance with paragraph 108.

If  a  Member  State  takes  clean  technology,  including  energy  efficient  technologies,
into account, it should do so by applying either criterion (7) or criterion (8) but not
both.

2.1.9.  Criterion (9) – Involvement of the public

The  plan  shall  include  provisions  for  comments  to  be  expressed  by  the  public,  and
contain information on the arrangements by which due account will be taken of these
comments before a decision on the allocation of allowances is taken.

2.1.9.1.  Analysis

93. 

94. 

This criterion is of a mandatory nature.

A Member State will be considered to have implemented criterion (9), if it describes
in  the  national  allocation  plan  how  it  makes  the  plan  available  to  the  public  for
comments,  and  how  it  provides  for  due  account  to  be  taken  of  any  comments
received. The plan should be made available in a manner which enables the public to
comment  on  it  effectively  and  at  an  early  stage.  This  means  that  the  public  is
informed,  whether  by  public  notices  or  other  appropriate  means  such  as  electronic

19

 
95. 

96. 

media, about the plan, including its text, and that also  other  relevant  information  is
made  available,  including  inter  alia  information  about  the  competent  authority  to
which comments or questions may be submitted.

A  Member  State  should  provide  for  a  reasonable  time  frame  for  submitting
comments, and co-ordinate the deadline for comments to be submitted by the public
with  the  national  decision-making  procedure,  so  that  due  account  can  be  taken  of
comments before the decision on the national allocation plan. “Due account” is to be
understood  as  meaning  that  comments  are  to  be  taken  into  account  if  appropriate
with reference to the criteria in Annex  III  or  to  any other objective and  transparent
criteria applied by the Member State in the national allocation plan. A Member State
should  inform  the  Commission  of  any  intended  modifications  following  public
participation subsequent to the publication and notification of the national allocation
plan  and  before  taking  its  final  decision  pursuant  to  Article  11.  Feedback  is  to  be
provided,  in  a  general  form,  to  the  public  about  the  decision  taken  and  the  main
considerations upon which it is based.

It  should  be  noted  that  the  possibility  for  the  public  to  comment  on  the  national
allocation plan provided for under this criterion constitutes a second round of public
consultation. Pursuant to Article 9(1) of the Directive, the comments resulting from a
first round of consultation of the public on the basis of the draft plan should, where
pertinent,  already  have  been  integrated  into  the  national  allocation  plan  prior  to
notification of the plan to the Commission and to the other Member States. For the
overall  public  participation  (consultation  and  taking  account  of  comments)  to  be
effective, the first round of public consultation is of particular importance. The rules
described  under  this  criterion  should  also  be  applied  to  the  first  round  of
consultation.

A  Member  State  should  inform  the  Commission  of  any  intended  modifications
subsequent to the publication and notification of the national allocation  plan before
taking its final decision pursuant to Article 11.

2.1.10.  Criterion (10) – List of installations

The  plan  shall  contain  a  list  of  the  installations  covered  by  this  Directive  with  the
quantities of allowances intended to be allocated to each.

2.1.10.1. Introduction

97. 

This criterion provides for the transparency of the national allocation plan. It implies
that the quantities of allowances per installation are indicated, and therefore visible to
the general public, when the plan is submitted to the Commission and other Member
States.

2.1.10.2. Analysis

98. 

This  criterion  will  be  deemed  as  fulfilled  if  a  Member  State  has  respected  its
obligation  to  list  all  the  installations  covered  by  the  Directive.  This  includes
installations to be temporarily excluded in the first period pursuant to Article 27 and
installations to be unilaterally included in any period pursuant to Article 24.

20

 
99. 

100. 

101. 

As mentioned under criterion (5), combustion installations with a rated thermal input
of  more  than  20  MW  can  be  found  in  several  sectors.  A  Member  State  should
therefore  indicate  the  main  activity  carried  out  at  the  site  where  the  combustion
installation is located, e.g. “paper” for a combustion installation which is part of the
paper production process. A Member State should list installations by main activity,
and provide subtotals of all data at activity level.

A  Member  State  has  to  indicate  the  total  quantity  of  allowances  intended  to  be
allocated to each installation and should indicate the quantity issued in each year to
each installation following Article 11(4).

Article 11(4)  constitutes an  obligation  to  issue  a  share  of  the  total  quantity  to  each
installation  each  year.  Hence  a  Member  State  could  issue  a  large  proportion  of  the
allowances  in  the  first  year(s)  of  a  period  and  issue  only  a  small  share  in  the
remaining  year(s)  of  a  period.  Alternatively,  a  Member  State  could  issue  a  small
proportion of the allowances in the first year(s) of a period and issue a large share in
the remaining year(s) of a period. Such approaches, in particular if taken by several
Member  States,  may  result  in  low  market  liquidity  in  the  initial  years,  so  that  the
market may fail to provide a sufficiently robust price signal. Such a signal is vital for
the allowance market to provide operators of covered installations with an orientation
whether to implement measures on-site or rather acquire allowances. Therefore, the
Commission makes a recommendation on the proportion to be issued in each year.

102. 

Furthermore,  a  Member  State  should  in  principle  issue  to  all  operators  included  in
the plan equivalent, but not necessarily equal, annual shares in order to avoid undue
discrimination (cf. criterion (5)).

The Commission recommends a Member State  to  issue  each  year  a  share that  does
not deviate substantially from equal proportions over the period.

2.1.11.  Criterion (11) – Competition from outside the Union

The  plan  may  contain  information  on  the  manner  in  which  the  existence  of
competition from countries or entities outside the Union will be taken into account.

2.1.11.1. Introduction

103. 

The  European  Union  has  repeatedly  affirmed  its  commitment  to  respect  the  Kyoto
target.  At  the  same  time,  the  European  Union,  at  the  Lisbon  European  Council  in
March 2000, set itself the strategic goal to become the most competitive and dynamic
knowledge-based  economy  in  the  world,  capable  of  sustainable  economic  growth
with more and better jobs and greater social cohesion. Emission allowance trading is
a  cost-effective  instrument,  which  allows  industrial  activities  covered  by  the
Directive  to  keep  the  costs  of  contributing  to  the  Community’s  climate  change
commitments low. The implementation of the Kyoto Protocol will give companies in
the European Union the chance for a head-start in the gradual transition to a carbon-
constrained global economy, since carbon efficiency may be an important source of
competitive advantage in the future, as much as labour or capital productivity today.

21

 
In the short-term these commitments may imply increased costs for some companies
and sectors.

2.1.11.2. Analysis

104. 

105. 

106. 

107. 

108. 

Criterion  (11)  is  optional  and  should  only  be  used,  if  applied,  in  determining  the
quantity of allowances per activity, since any effect from competition from countries
or entities outside the Union  would be one  affecting  all  installations  carrying  out  a
certain activity.

A Member State should not use the mere existence of competition from outside the
Union as a reason to apply this criterion. The Commission considers this criterion to
be applicable exclusively to cases where covered installations belonging to a specific
activity would be rendered significantly less competitive directly and predominantly
as  a  result  of  a  major  difference  in  climate  policies  between  the  EU  and  countries
outside the EU. In assessing any such differences in climate policy, a Member State
should take into account any relevant measures that competitors outside the EU are
subject  to,  including  voluntary  initiatives,  technical  regulation,  taxes  and  emissions
trading,  and  not  judge  solely  on  the  basis  of  whether  or  not  the  country  concerned
has a quantified emissions commitment and has ratified the Kyoto Protocol.

A Member State should not take the existence of competition from outside the Union
into account in such a manner as to improve the competitive position of installations
carrying out an activity vis-à-vis competitors outside the Union as compared to their
competitive position in the absence of the EU emissions trading scheme. It should be
noted that incorrect application of this criterion may  constitute export aid, which is
incompatible with the EC Treaty.

If a Member State deems it necessary to take account of competition from outside the
Union, it should also consider applying other options outside the national allocation
plan.

A  Member  State  should  keep  in  mind,  when  applying  this  criterion  to  individual
activities,  that  where  the  mandatory  criterion  (3)  is  applied  at  activity  level,
installations  carrying  out  activities  with  a  relatively  large  potential  to  reduce
emissions should still receive a smaller share of allowances in relation to emissions,
compared  to  installations  carrying  out  activities  with  a  relatively  small  potential  to
reduce emissions.

109. 

The  existence  of  competition  should  only  be  taken  into  account  in  the  national
allocation plan by a modification of the quantity of allowances per activity, without a
change in the total quantity of allowances determined in accordance with the criteria
(1) to (5).

If competition from outside the Union is taken into account in the national allocation
plan, the criterion should only be applied in determining the quantity of allowances
allocated  at  activity  level,  without  a  change  in  the  total  quantity  of  allowances.

If a Member State deems it necessary to take account of competition from outside the
Union, it should also consider applying other options outside the national allocation
plan.

22

 
3. 

GUIDANCE ON CIRCUMSTANCES UNDER WHICH FORCE MAJEURE IS DEMONSTRATED

Article 29

During the period referred to in Article 11(1), Member States may apply to the
1.
Commission for certain installations to be issued with additional allowances in cases
of  force  majeure.  The  Commission  shall  determine  whether  force  majeure  is
demonstrated,  in  which  case  it  shall  authorise  the  issue  of  additional  and  non-
transferable allowances by that Member State to the operators of those installations.

2.
The  Commission  shall,  without  prejudice  to  the  Treaty,  develop  guidance  to
describe  the  circumstances  under  which  force  majeure  is  demonstrated,  by  31
December 2003 at the latest.

In principle, allocation decisions are made by Member Sates before the beginning of
the relevant trading period, thereby avoiding uncertainty in the allowance market. A
limited  provision  allows  the  issuance  of  additional  non-transferable  allowances  in
exceptional  and  unforeseeable  circumstances  in  the  first  period  of  the  Community
scheme.

Article  29  derogates  from  the  general  principle  of  the  Community  scheme,  under
which  Member  States  allocate  allowances  before  the  beginning  of  the  relevant
trading  period.  Applications  for  force  majeure  allowances  may  therefore  cause
uncertainty  in  the  allowance  market,  and,  if  granted,  give  an  advantage  to  certain
companies,  which  affects  trade  between  Member  States.  Article  29  is  therefore
explicitly  without  prejudice  to  the  Treaty,  and  the  Commission  will  carefully
consider the justification and potential effects of any application for such allowances.

Companies  may  seek  insurance  against  various  risks  that  could  result  in  increased
emissions,  but  insurance  policies  normally  do  not  cover  circumstances  of  force
majeure.  The  Commission  will  not  consider  circumstances  that  could  have  been
insured to constitute force majeure.

Circumstances  of  force  majeure  are,  by  their  nature,  difficult  to  anticipate.  The
Commission  considers  these  to  be  exceptional  and  unforeseeable  circumstances,
which  cause  a  substantial  increase  in  annual  direct  emissions  of  greenhouse  gases
covered  by  Directive  2003/87/EC  at  an  installation,  which  could  not  have  been
avoided  even if  all due care had  been  exercised.  The  circumstance  must  have  been
beyond the control of the operator of the installation concerned and of the Member
State submitting an application to the Commission under Article 29 of the Directive
with respect to the installation of that operator.

110. 

111. 

112. 

113. 

114. 

Circumstances  that  the  Commission  may  consider  to  be  force  majeure  include
notably natural disasters, war, threats of war, terrorist acts, revolution, riot, sabotage
or acts of vandalism.

115. 

The presence of force majeure has to be demonstrated at installation level and on a
case-by-case basis.

23

 
116. 

117. 

An application under  Article 29  of  the  Directive  should  include,  in  respect  of  each
installation, the Member State’s best estimate of the increase in emissions resulting
from the circumstance for which force majeure is pleaded and a substantiation of that
estimate.

A Member State should submit an application under Article 29 to the Commission by
31  January  the  year  following  the  year  of  the  trading  period  during  which  the
circumstance occurred for which force majeure is pleaded.

***

24

 
ANNEX

COMMON FORMAT FOR THE NATIONAL ALLOCATION PLAN 2005 TO 2007

1. 

DETERMINATION OF THE TOTAL QUANTITY OF ALLOWANCES

What is the Member State’s emission limitation or reduction obligation under Decision
2002/358/EC or under the Kyoto Protocol (as applicable)?

What principles, assumptions and data have been applied to determine the contribution
of the installations covered by the emissions trading  Directive to  the  Member  State’s
emission limitation or reduction obligation (total and sectoral historical emissions, total
and sectoral forecast emissions, least-cost approach)? If forecast emissions were used,
please describe the methodology and assumptions used to develop the forecasts.

What  is  the  total  quantity  of  allowances  to  be  allocated  (for  free  and  by  auctioning),
and  what  is  the  proportion  of  overall  emissions  that  these  allowances  represent  in
comparison  with  emissions  from  sources  not  covered  by  the  emissions  trading
Directive? Does this proportion deviate from the current proportion of emissions from
covered installations? If so, please give reasons for this deviation with reference to one
or more criteria in Annex III to the Directive and/or to one or more other objective and
transparent criteria.

What policies and measures will be applied to the sources not covered by the emissions
trading Directive? Will use be made of the flexible mechanisms of the Kyoto Protocol?
If  so,  to  what  extent  and  what  steps  have  been  taken  so  far  (e.g.  advancement  of
relevant legislation, budgetary resources foreseen)?

How  has  national  energy  policy  been  taken  into  account  when  establishing  the  total
quantity  of  allowances  to  be  allocated?  How  is  it  ensured  that  the  total  quantity  of
allowances intended to be allocated is consistent with a path towards achieving or over-
achieving the Member State’s target under Decision 2002/358/EC or under the Kyoto
Protocol (as applicable)?

How is it ensured that the total quantity of allowances to be allocated is not more than
is  likely  to  be  needed  for  the  strict  application  of  the  criteria  of  Annex  III?  How  is
consistency with the assessment of actual and projected emissions pursuant to Decision
93/389/EEC ensured?

Please  explain  in  Section  4.1  below  how  the  potential,  including  the  technological
potential, of  activities  to  reduce  emissions  was  taken  into  account  in  determining  the
total quantity of allowances.

Please list in Section 5.3 below the Community legislative and policy instruments that
were  considered in determining the total quantity of allowances and  state  which ones
have been taken into account and how.

If the Member State  intends to  auction allowances, please  state  the  percentage  of  the
total  quantity  of  allowances  that  will  be  auctioned,  and  how  the  auction  will  be
implemented.

25

 
2. 

DETERMINATION  OF  THE  QUANTITY  OF  ALLOWANCES  AT  ACTIVITY  LEVEL  (IF
APPLICABLE)

By  what  methodology  has  the  allocation  been  determined  at  activity  level?  Has  the
same  methodology  been  used  for  all  activities?  If  not,  explain  why  a  differentiation
depending on activity was considered necessary, how the differentiation was done, in
detail,  and  why  this  is  considered  not  to  unduly  favour  certain  undertakings  or
activities within the Member State.

If the potential, including the technological potential, of activities to reduce emissions
was taken into account at this level, please state so here and give details in Section 4.1
below.

If Community legislative and policy instruments have been considered in determining
separate  quantities  per  activity,  please  list  the  instruments  considered  in  Section  5.3
and state which ones have been taken into account and how.

If  the  existence  of  competition  from  countries  or  entities  outside  the  Union  has  been
taken into account, please explain how.

3. 

DETERMINATION  OF  THE  QUANTITY  OF  ALLOWANCES  AT  INSTALLATION  LEVEL
(+ ANNEX I)

By what methodology has the allocation been determined at installation level? Has the
same  methodology  been  used  for  all  installations?  If  not,  please  explain  why  a
differentiation  between  installations  belonging  to  the  same  activity  was  considered
necessary,  how the differentiation by  installation  was  done,  in  detail,  and  why  this  is
considered not to unduly favour certain undertakings within the Member State.

If historical emissions data were used, please state whether they have been determined
in accordance with the Commission’s monitoring and reporting guidelines pursuant to
Article  14  of  the  Directive  or  any  other  set  of  established  guidelines,  and/or  whether
they have been subject to independent verification.

If early action or clean technology were taken into account at this level, please state so
here and give details in Sections 4.2 and/or 4.3 below.

If the Member State intends to include unilaterally installations carrying out activities
listed  in  Annex  I  below  the  capacity  limits  referred  to  in  that  Annex,  please  explain
why, and address, in particular, the effects on the internal market, potential distortions
of competition and the environmental integrity of the scheme.

If  the  Member  State  intends  temporarily  to  exclude  certain  installations  from  the
scheme  until  31  December  2007  at  the  latest,  please  explain  in  detail  how  the
requirements set out in Article 27(2)(a)-(c) of Directive 2003/87EC are fulfilled.

26

 
4. 

TECHNICAL ASPECTS

4.1. 

Potential, including technological potential

Has criterion (3) been used to determine only the total quantity of allowances, or also
the distribution of allowances between activities covered by the scheme?

Please describe the methodology (including major assumptions made) and any sources
used  to  assess  the  potential  of  activities  to  reduce  emissions.  What  are  the  results
obtained? How is it ensured that the total quantity of allowances allocated is consistent
with the potential?

Please explain the method or formula(e) used to determine the quantity of allowances
to  allocate  at  the  total  level  and/or  activity  level  taking  the  potential  of  activities  to
reduce emissions into account.

If  benchmarking  was  used  as  a  basis  for  determining  the  intended  allocation  to
individual installations, please explain the type of benchmark used, and the formula(e)
used to arrive at the intended allocation in relation to the benchmark. What benchmark
was chosen, and why is it considered to be the best estimate to incorporate achievable
progress?  Why  is  the  output  forecast  used  considered  to  be  the  most  likely
development? Please substantiate the answers.

4.2. 

Early action (if applicable)

If early action has been taken into account in the allocation to individual installations,
please describe in which manner it is accommodated. Please  list  and  explain  in some
detail  the  measures  that  were  accepted  as  early  action  and  what  the  criteria  for
accepting 
to  be
accommodated led to a reduction of covered emissions beyond what followed from any
Community or national legislation in force at the time the action was taken.

them  were.  Please  demonstrate 

investments/actions 

that 

the 

If benchmarks are used, please describe on what basis the grouping of installations to
which the benchmarks are applied was made and why the respective benchmarks were
chosen.  Please  also  indicate  the  output  values  applied  and  justify  why  they  are
considered appropriate.

4.3. 

Clean technology (if applicable)

How  has  clean  technology,  including  energy  efficient  technologies,  been  taken  into
account in the allocation process?

If at all, which clean technology has been taken into account, and on what basis does it
qualify  as  such?  Have  any  energy  production  technologies  intended  to  be  taken  into
account  been  in  receipt  of  approved  State  aid  for  environmental  protection  in  any
Member  State?  Please  state  whether  any  other  industrial  technologies  intended  to  be
taken  into  account  constitute  “best  available  techniques”  as  defined  in  Council
Directive  96/61EC,  and  explain  in  what  way  it  is  particularly  performing  in  limiting
emissions of covered greenhouse gases.

27

 
5. 

COMMUNITY LEGISLATION AND POLICY

5.1. 

Competition policy (Articles 81-82 and 87-88 of the Treaty)

If the competent authority  has received an application from operators wishing
to  form  a  pool  and  if  it  is  intended  to  allow  it,  please  attach  a  copy  of  that
application  to  the  National  Allocation  Plan.  What  percentage  of  the  total
allocation  will  the  pool  represent?  What  percentage  of  the  relevant  sector’s
allocation will the pool represent?

5.2. 

Internal market policy – new entrants (Article 43 of the Treaty)

How  will  new  entrants  be  able  to  begin  participating  in  the  EU  emissions
trading scheme?

In  the  case  that  there  will  be  a  reserve  for  new  entrants,  how  has  the  total
quantity of allowances to set aside been determined and on what basis will the
quantity  of  allowances  be  determined  for  each  new  entrant?  How  does  the
formula  to  be  applied  to  new  entrants  compare  to  the  formula  applied  to
incumbents  of  the  relevant  activity?  Please  also  explain  what  will  happen  to
any allowances remaining in the reserve at the end of the trading period. What
will  apply  in  case  the  demand  for  allowances  from  the  reserve  exceeds  the
available quantity of allowances?

Is  information  already  available  on  the  number  of  new  entrants  to  expect
(through  applications  for  purchase  of  land,  construction  permits,  other
environmental  permits  etc.)?  Have  new  or  updated  greenhouse  gas  emission
permits  been  granted  to  operators  whose  installations  are  still  under
construction,  but  whose  intention  it  is  to  start  a  relevant  activity  during  the
period 2005 to 2007?

5.3. 

Other legislation or policy instruments

Please  list  other  Community  legislation  or  policy  instruments  that  were
considered  in  the  establishment  of  the  National  Allocation  Plan  and  explain
how each one has influenced the intended allocation and for which activities.

Has  any  particular  new  Community  legislation  been  considered  to  lead  to  an
unavoidable decrease or increase in emissions? If yes, please explain why the
change  in  emissions  is  considered  to  be  unavoidable,  and  how  this  has  been
taken into account.

28

 
6. 

PUBLIC CONSULTATION

How is this national allocation plan made available to the public for comments?

How  does  the  Member  State  provide  for  due  account  to  be  taken  of  any
comments received before a decision on the allocation of allowances is taken?

If any comments from the public received during the first round of consultation
have  had  significant  influence  on  the  national  allocation  plan,  the  Member
State should summarise those comments and explain how they have been taken
into account.

7. 

CRITERIA OTHER THAN THOSE IN ANNEX III TO THE DIRECTIVE

Have any criteria other than those listed in Annex III to the Directive been applied
for  the  establishment  of  the  notified  National  Allocation  Plan?  If  yes,  please
specify which ones and how they have been implemented.

Please also justify why any such criteria are not considered to be discriminatory.

8. 

ANNEX I – LIST OF INSTALLATIONS

Please submit a matrix containing the following information:
– 
– 
– 
– 
– 

Identification (e.g. name, address) of each installation
The name of the operator of each installation
The number of the greenhouse gas emissions permit
The unique (EPER) identifier of the installation
The main activity, and, if applicable, other activities carried out at the
installation
Total  quantity  of  allowances  to  be  allocated  for  the  period,  and  the
annual breakdown, for each installation
Whether the installation has been unilaterally included or temporarily
excluded and whether it is part of a pool
Annual  data  per  installation,  including  emission  factors  if  emissions
data are used, which have been used in the allocation formula(e)
A  subtotal  per  activity  of  data  used  and  number  of  allowances
allocated

– 

– 

– 

– 

29