Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community {COM(2008) 30 final} {SEC(2008) 52} {SEC(2008) 53} {SEC(2008) 85}
Date: 2008-01-23
Institutions: European Commission
Subjects: EU environmental policy, greenhouse gas, pollution control measures, reduction of gas emissions, tradeable emission permit

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.1.2008 
COM(2008) 16 final 

2008/0013 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 2003/87/EC so as to improve and extend the greenhouse gas 
emission allowance trading system of the Community 

(presented by the Commission) 

{COM(2008) 30 final} 
{SEC(2008) 52} 
{SEC(2008) 53} 
{SEC(2008) 85} 

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EXPLANATORY MEMORANDUM 

1. 

INTRODUCTION 

On  1  January  2005,  the  European  Emission  Trading  System  (EU  ETS)  started  operation.  It 
represents the spearhead and “one of the most important instruments”1 of EU climate policy 
due to its ability to achieve absolute emission reductions in an economically efficient manner.  

The 1st phase of the EU ETS (2005 to 2007) successfully established free trade of emission 
allowances  across  the  EU,  set  up  the  necessary  infrastructure  for  monitoring,  reporting, 
verification including registries and has so far successfully concluded two compliance cycles. 
It  developed  into  the  world’s  largest  single  carbon  market  accounting  for  67%  in  terms  of 
volume and 81% in terms of value of the global carbon market2 and also worked as the driver 
of  the  global  credit  market  and  in  that  triggered  investments  in  emission  reduction  projects 
today indirectly linking 147 countries to the EU ETS through JI/CDM projects. 

However, the environmental outcome of the 1st phase of the EU ETS could have been more 
significant but was limited due to excessive allocation of allowances in some Member States 
and  some  sectors,  which  must  mainly  be  attributed  to  reliance  on  projections  and  a  lack  of 
verified emission data. Once such data became available, it swiftly corrected the market price 
of allowances demonstrating convincingly that the carbon market is working. 

The principles and mechanisms resulting in problems during the 1st trading period recurred in 
most  2nd  phase  National  Allocation  Plans  (NAP)  of  Member  States.  However,  thanks  to 
verified  emission  data  and  experience  gathered,  the  Commission  could  much  better  ensure 
that  national  allocation  plans  result  in  real  emission  reductions.  Approved  NAP  decisions 
show  an  absolute  emission  reduction  of  6.5%  compared  to  2005  verified  emissions,  thus 
ensuring  that  the  EU  ETS,  designed  as  a  cap-and-trade  system,  will  deliver  real  emission 
reductions. However, experience of the 1st period and the NAP assessment of the 2nd period 
gave strong reason to believe that the overall functioning of the EU ETS could be improved in 
a number of aspects.  

Against  this  background  and  responding  to  Article  30  of  the  EU  ETS  Directive3,  the 
Commission, in November 2006, issued a Communication “Building a global carbon market 
–  Report  pursuant  to  Article  30  of  Directive  2003/87/EC”4,  where  it  identified  the  main 
subjects to be reviewed with a view to streamlining the EU ETS. 

In  March  2007,  the  European  Council  endorsed  an  EU  objective  of  a  30%  reduction  in 
greenhouse  gas  emissions  (GHG)  by  2020  provided  that  other  developed  countries  would 
commit  themselves  to  comparable  emission  reductions  and  economically  more  advanced 
developing  countries  contribute  adequately  according  to  their  responsibilities  and  respective 
capabilities.  The  Council  also  made  a  firm  independent  commitment  of  at  least  a  20% 
reduction  of  GHG  emissions  by  2020,  irrespective  of  any  international  agreement.  In  the 

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4 

Emissions Trading Scheme – Council Conclusions of 26 June 2007, available from 
http://register.consilium.europa.eu/pdf/en/07/st11/st11429.en07.pdf 
The World Bank, State and Trends of the Carbon Market, May 2007. 
Directive 2003/87/EC. 
COM(2006) 676, 13.11.2006. 

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longer  term,  by  2050,  the  European  Council  reaffirmed  that  developed  countries  should 
collectively reduce their emissions by 60% to 80% by 2050 compared to 19905.  

Against this background and with a view to enhancing the certainty and predictability of the 
emissions  trading  system,  the  Directive  should  provide  for  automatic  and  predictable 
adjustments upon the conclusion of a future international agreement. They should increase the 
level of contribution of the EU ETS to achieving the reduction of 30% and should concern the 
allocation  mechanism,  the  adjustment  of  the  EU-wide  cap,  the  use  of  credits  from  JI/CDM 
and potentially additional types of credits and/or mechanisms foreseen under the agreement. 

In  its  conclusions  of  20  February  2007,  the  Council  emphasised  the  EU  commitment  of 
transforming  Europe  into  a  highly  energy  efficient  and  low  greenhouse-gas-emitting 
economy. It also called on the Commission to “bring forward proposals which create the right 
incentives for forward-looking, low-carbon investment decisions”6.  

All  these  elements  have  been  discussed  in  the  framework  of  the  European  Climate  Change 
Program (ECCP) Working Group on Emissions Trading, which met four times for eight days 
between March and  June 2007.  The outcome of these  meetings  provided  major  input  to  the 
review of the EU ETS Directive7. The provisions of the proposed amendments to the EU ETS 
Directive are guided by three overall objectives to be achieved:  

1. Fully exploiting the potential of the EU ETS to contribute to the EU's overall greenhouse 
gas reduction commitments in an economically efficient manner. 

2. Refining and improving the EU ETS in the light of experience gathered. 

3.  Contributing  to  transforming  Europe  into  a  low  greenhouse-gas-emitting  economy  and 
creating  the  right  incentives  for  forward  looking  low  carbon  investment  decisions  by 
reinforcing a clear, undistorted and long-term carbon price signal. 

2. 

SCOPE 

Streamlining and increasing the scope of the EU ETS… 

Codifying  the  interpretation  of  combustion  installation  set  out  in  the  2nd  NAP  guidance 
document  of  the  Commission  would  end  the  inconsistent  application  of  the  scope  of  the 
Directive and would broadly reflect the approach taken by the Commission in the assessment 
of the National Allocation Plans in the 2nd period. In combination with an explicit definition 
of  "combustion  installation",  which  encompasses  all  stationary  combustion  apparatuses,  the 
operation  of  which  would  result  in  the  release  of  greenhouse  gases,  it  would  provide  the 
necessary legal and technical clarity for a consistent application of the Directive. An explicit 
list of activities, also in Annex I of the Directive, should supplement this approach, in order to 
clarify the coverage of process emissions possibly not clearly addressed by codification of the 

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ibid 
EU  objectives  for  the  further  development  of  the  international  climate  regime  beyond  2012,  Council 
Conclusions of 20 February 2007, available from: 
http://register.consilium.europa.eu/pdf/en/07/st06/st06621.en07.pdf 
The  reports  reflecting  the  issues  discussed  and  the  outcome  of  the  discussions  are  available  from: 
http://ec.europa.eu/environment/climat/emission/review_en.htm 

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above interpretation of combustion installation. New sectors and gases, currently not covered 
by the EU ETS (see below), should also be covered by the activity list. 

Expanding the coverage of the EU ETS by inclusion of new sectors and gases would enhance 
the  environmental  effectiveness  of  the  system  and  would  introduce  new  and  additional 
abatement  opportunities  to  the  system,  thereby  offering  a  higher  abatement  potential  and 
potentially lower abatement costs8.  

The level of abatement potential or costs may not strictly represent a criterion for including a 
certain sector in the EU ETS, since there are already sectors included the abatement potential 
of  which  might  be  limited,  but  which  include  considerable  GHG  emission  sources. 
Furthermore, it is important to highlight the need to attach an economic value to the emission 
of GHG. This has to be seen in the light of the new emission reduction objectives set by the 
European  Council.  They  will  only  be  achieved,  if  forward-looking,  low-carbon  investments 
are triggered by the necessary economic signals emerging from a clear and undistorted carbon 
price applicable to as many industrial sectors as possible. 

For  these  reasons,  CO2  emissions  from  petrochemicals,  ammonia  and  aluminium  should  be 
included  in  the  EU  ETS.  This  also  goes  for  N2O  emissions  from  the  production  of  nitric, 
adipic  and  glyoxalic  acid  production  and  PFC  emissions  from  the  aluminium  sector,  all  of 
which can be measured and verified with sufficient accuracy. 

Inclusion  of  these  sectors  and  gases  would  increase  the  coverage  of  the  EU  ETS  by  up  to 
roughly  estimated  100  MtCO2  or  up  to  4.6%  of  Phase  II  allowances.  In  combination  with 
streamlining  the  scope  of  the  EU  ETS  through  a  codified  interpretation  of  combustion 
installation,  overall  coverage  of  the  EU  ETS  would  roughly  increase  by  up  to  140  to  150 
MtCO2 or 6.6 to 7.1% compared to Phase II allowances9. 

The  emissions  trading  system  should  only  be  extended  to  emissions  which  are  capable  of 
being monitored, reported and verified with the same level of accuracy as applies under the 
monitoring, reporting and verification requirements currently applicable under the Directive. 
This is the case for shipping, which is not included in this proposal but might be included at a 
later  stage  following  a  full  fledged  dedicated  impact  assessment.  It  is  not  the  case  for 
emissions  from  agriculture  or  forestry,  although  the  EU  ETS  considers  the  combustion  of 
biomass to be emission-neutral. The European Parliament and the Council have endorsed the 
use  of  proceeds  from  auctioning  of  allowances  within  the  EU  ETS  to  be  used  for  reducing 
emissions, in particular by avoiding deforestation10. 

In addition, expansion of the scope will be further facilitated by enabling the Commission, in 
its  approval  of  an  application  for  unilateral  inclusion  of  additional  activities  and  gases  not 
listed  in  Annex  I  of  the  Directive  to  authorise  other  Member  States  to  also  undertake  the 
inclusion of such additional activities and gases. 

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10 

It has been suggested that compliance costs could potentially be reduced by up to 30-40% through the 
inclusion  of  new  sectors  and  gases  provided,  however,  that  certain  conditions  including  accurate 
monitoring, reporting and verification issues are met. See Final Report of the 1st meeting of the ECCP 
Working  Group  on  Emissions  Trading  on  the  Review  of  the  EU  ETS  on  the  Scope  of  the  Directive, 
http://ec.europa.eu/environment/climat/emission/review_en.htm 
These figures are estimations, which can be refined further. 
First  reading  opinion  of  the  European  Parliament  and  political  agreement  of  the  Council,  on  the 
Commission proposal to include aviation in the EU ETS. 

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… while potentially lowering its overall costs through allowing alternative measures for 

small emitters… 

Since the contribution of small and large emitters to the overall emissions covered by the EU 
ETS  is  uneven:  the  largest  7%  of  installations  represent  60%  of  total  emissions,  while  the 
1 400 smallest installations (approximately 14%) only account for 0.14%. For this reason, the 
cost-effectiveness  of  small  installations'  contributions  to  emission  reductions  might  be 
improved.  While  the  currently  applicable  threshold  of  20  MW  of  rated  thermal  input  for 
combustion installations will be maintained, it should be combined with an emission threshold 
of  10 000  tCO2/yr  (but  excluding  emissions  from  biomass),  as  long  as  their  rated  thermal 
input does not exceed 25 MW. This means that combustion installations with a rated thermal 
input of more than 20 MW, but less than 25 MW and an annual emission of less than 10 000 
tonnes of carbon dioxide in each of the three years preceding the year of application, can be 
excluded from the EU ETS, if  

(1) 

as  a  matter  of  fairness,  and  in  order  to  ensure  that  the  internal  market  will  not  be 
distorted, there are measures (such as taxation) in place that will achieve an equivalent 
contribution  of  installations  excluded  from  the  system  to  the  overall  emission 
reduction objectives; 

(2)  Member  States  apply  to  the  Commission  for  excluding  installations  and  continuing 
such measures and monitoring, and the Commission does not object within a period of 
six months. 

The threshold of 10 000 tonnes of carbon dioxide offers, in relative terms, the maximum gain 
in  terms  of  reduction  of  administrative  costs  for  each  tonne  (potentially)  excluded  from  the 
system. This would lead to saving administrative costs under the EU ETS in the order of € 4.2 
for  each  tonne  excluded  with  unknown  administrative  costs  to  equivalent  administrative 
measures. Around 4 200 installations could be opted out accounting for approximately 0.70% 
of total ETS emissions.  

A  change  of  the  aggregation  rule,  in  line  with  the  second  guidance  document  of  the 
Commission,  resulting  in  excluding  installations  with  less  than  3  MW  rated  thermal  input 
from  the  scope  of  the  aggregation  clause  may  lead  to  the  exclusion  of  another  (roughly 
estimated) 800 very small installations, currently covered under the system.  

… with new opportunities offered by Carbon Capture and Storage …  

In view of the long-term potential for emissions reductions from CCS, and pending the entry 
into force of Directive 2008/xx/EC on the geological storage of carbon dioxide, installations 
undertaking  the  capture,  transport  and  geological  storage  of  greenhouse  gases  should  be 
included in the Community system. While Article 24 offers the appropriate legal framework 
for unilateral inclusion of such installations pending the entry into force of the said Directive, 
activities  concerning  capture,  transport  and  geological  storage  of  greenhouse  gas  emissions 
should be explicitly mentioned in Annex I of the Directive, in order to provide clarity. 

With a view to providing the necessary incentives for geological storage of emissions, there 
would be no need to surrender allowances for emissions stored. However, no free allocation 
should be given for capture, transport or storage of greenhouse gas emissions.  

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… but without replacing other transport measures… 

Although  greenhouse  gas  emissions  from  road  transport  and  shipping,  are  still  increasing, 
more detailed analysis including a comprehensive cost-benefit analysis is necessary, in order 
to  allow  the  Commission  to  decide  on  whether  emissions  trading  is  the  most  appropriate 
means to deal with these issues. Emissions from road transport and shipping are therefore not 
included in this proposal.  

3. 

MONITORING, REPORTING, VERIFICATION 

Improvements of monitoring and reporting rules… 

Experience  with  monitoring  and  reporting  so  far  showed  some  degree  of  divergence  of 
Member  States'  practices.  In  order  to  improve  overall  performance  of  the  monitoring  and 
reporting system across the EU, a regulation adopted through comitology should replace the 
current guidelines.  

… in combination with harmonised rules for verification and accreditation … 

The  current  Directive  and  its  Annexes  only  regulate  some  fundamental  requirements  and 
aspects of the verification process. As a consequence, verification practices in Member States 
differ and may not necessarily ensure the level playing field required to maintain the overall 
credibility of verification. A regulation adopted through comitology should provide common 
requirements for verification, in order to guarantee a certain level of quality of the verification 
process, while further improvements should be enabled through amendments to Annexes IV 
and V of the Directive. 

This regulation should also enable Community-wide accreditation for verifiers for the benefit 
of the internal market. 

… and updated compliance provisions … 

In order to ensure that the penalties for non-compliance remain sufficiently high to ensure that 
the market functions properly, the excess emissions penalty should be indexed to the annual 
inflation rate of the Eurozone. This provision would ensure the deterrent effect of the current 
provision without having to review it frequently. 

… increases confidence in and credibility of the EU ETS… 

Monitoring, reporting and verification play a fundamental role for the functioning and overall 
credibility  of  the  EU  ETS,  inside  and  outside  the  EU.  Its  environmental  effectiveness  and 
integrity and thus its overall reputation and acceptance depends to a large extent on a robust, 
reliable and trustworthy monitoring, reporting and verification system that ensures a sufficient 
degree  of  accuracy  of  the  respective  level  of  emissions  of  each  installation  covered  by  the 
system.  

Against  this  background,  potentially  higher  administrative  costs  in  the  short-term  accruing 
from  a  regulation  for  the  Commission  seem  to  be  justified,  as  administrative  costs  in  the 
longer  term  would  be  much  lower.  In  addition,  it  would  provide  greater  certainty, 
transparency  and  reliability  with  respect  to  the  actual  emission  levels  and  thus  enhance  the 
trust  of  the  market  in  the  system.  In  the  longer  term,  these  benefits  are  expected  to  largely 

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offset  any  short-term  higher  administrative  costs  and  indeed  will  reduce  overall  costs  for 
monitoring,  reporting  and  verification  for  operators  and  national authorities,  once  electronic 
tools play a more important role. 

… with a simple and robust registry system 

Allowances  must  be  transferable  between  persons  within  the  Community  without  any 
restriction. For this reason and due to the technical, political and administrative risks related 
to  the  current  registry  system  and  in  the  light  of  the  uncertainty  concerning  the  future 
development  of  the  UN  registry  system,  EU  ETS  allowances  issued  from  1  January  2013 
onwards should be held in the Community registry. As well as simplifying the system, this is 
also necessary to ensure that the EU ETS can link to other emissions trading systems in third 
countries and administrative entities. 

4. 

FURTHER HARMONISATION AND INCREASED PREDICTABILITY 

An  EU-wide  cap  ensures  achieving  the  20%  reduction  target  and  a  linear  reduction 
provides long-term predictability … 

A  system  based  on  national  cap-setting  does  not  provide  sufficient  guarantees  that  the 
emission  reduction  objectives  endorsed  by  the  European  Council  in  March  2007  will  be 
achieved. Moreover, such a system is not likely to lead to minimise overall cost of emissions 
reductions  than  necessary.  Therefore,  in  order  to  achieve  these  objectives,  an  EU-wide  cap 
should be determined in the Directive.  

It  also  provides  a  long-term  perspective  and  increased  predictability,  which  is  required  for 
long-term investments in efficient abatement. This can be best achieved by an 8-year trading 
period until 2020 and a linear reduction of the cap that continues the reduction path beyond 
2020, thereby giving a clear message to investors.  

The level of the EU-wide cap for the EU ETS needs to be cost-effective and consistent with 
the  EU's  commitment  of  an  overall  reduction  in  emissions  of  20%  by  2020.  The  linear 
reduction  which  is  consistent  with  this  principle  amounts  to  1.74%  per  year,  arriving  at  a 
reduction of 21% below reported 2005 emissions. This path has been calculated by starting at 
the  mid-point  of  the  2008-12  period  average  annual  total  quantity  of  allowances  issued  by 
Member  States  pursuant  to  Commission  Decisions  on  Member  States'  national  allocation 
plans for the period 2008-12. 

…  while  auctioning  is  the  basic  principle  for  allocation  subject  to  the  need  to  avoid 
carbon leakage … 

Auctioning best ensures efficiency of the ETS, transparency and simplicity of the system and 
avoids undesirable distributional effects. Auctioning also best complies with the polluter-pays 
principle and rewards early action to reduce emissions. For these reasons auctioning should be 
the basic principle for allocation. The efforts to be made by the European economy to reach 
the  greenhouse  gas  reduction  targets  set  for  2020  will,  however,  be  more  significant  than 
those currently required by 2012 and in the absence of comparable constraints for industry in 
third countries, there may arise a risk of "carbon leakage", i.e. relocation of greenhouse gas 
emitting activities from the EU to third countries and thereby increasing global emissions. 

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In  this  context,  taking  into  account  their  ability  to  pass  through  opportunity  costs,  full 
auctioning should be the rule from 2013 onwards for the power sector and carbon capture and 
storage. In order to encourage a more efficient generation of electricity, electricity generators 
could  however  receive  free  allowances  for  heat  delivered  to  district  heating  or  industrial 
installations. 

For  installations  in  other  sectors,  a  gradual  transition  is  appropriate,  starting  with  free 
allocation  at  a  level  of  80%  of  their  share  in  the  total  quantity  of  allowances  to  be  issued, 
decreasing by equal amounts each year, arriving at zero free allocation by 2020. 

In the event that other developed countries and other major emitters of greenhouse gases do 
not participate in an international agreement that will achieve the objective of limiting global 
temperature  increase  to  2°C,  certain  energy-intensive  sectors  and  sub-sectors  in  the 
Community  subject  to  international  competition  could  be  exposed  to  the  risk  of  carbon 
leakage.  This  could  undermine  the  environmental  integrity  and  benefit  of  actions  by  the 
Community. The European industry should receive a clear commitment that the Community 
will  take  appropriate  action.  The  Commission  will  review  the  situation  by  June  2011  at  the 
latest,  consult  with  all  relevant  social  partners,  and,  in  the  light  of  the  outcome  of  the 
international  negotiations,  submit  a  report  accompanied  by  appropriate  proposals.  In  this 
context, the Commission will identify by 30 June 2010 which energy intensive sectors or sub-
sectors are likely to be subject to carbon leakage. It will base its analysis on the assessment of 
the  inability  to  pass  through  the  cost  of  required  allowances  in  product  prices  without 
significant loss of market share to installations outside the EU not taking comparable action to 
reduce  emissions.  Energy-intensive  industries  which  are  determined  to  be  exposed  to 
significant risk of carbon leakage could receive up to 100% of allowances free of charge or an 
effective carbon equalisation system could be introduced with a view to putting installations 
from  the  Community  which  are  at  a  significant  risk  of  carbon  leakage  and  those  from  third 
countries on a comparable footing. Such a system could apply requirements to importers that 
would be no less favourable than those applicable to installations within the EU, for example 
by  requiring  the  surrender  of  allowances.  Any  action  taken  would  need  to  be  in  conformity 
with the principles of the UNFCCC, in particular the principle of common but differentiated 
responsibilities and respective capabilities, taking into account the particular situation of Least 
Developed Countries. It would also need to be in conformity with the international obligations 
of the Community including the WTO agreement.  

Overall,  it  is  estimated  that,  at  least  two  thirds  of  the  total  quantity  of  allowances  will  be 
auctioned in 2013. 

The  Directive  determines  the  shares  of  the  total  quantity  of  allowances  that  Member  States 
will  auction.  The  proposal  foresees  that  90%  of  the  total  quantity  of  allowances  to  be 
auctioned  is  distributed  according  to  the  relative  share  of  2005  emissions  in  the  EU  ETS11. 
For reasons of fairness and solidarity, and taking into account national circumstances, 10% of 
the total quantity of allowances to be auctioned should be redistributed from Member States 
with  an  average  level  of  income  per  head  that  is  more  than  20%  above  the  EU  average. 
Redistribution is higher with low income levels per head and high growth prospects.  

11 

When complete emission figures are available for 2006, the Commission would be willing to consider 
using the average emissions in 2005 and 2006 in the EU ETS as the basis for this distribution. 

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Auctioning of allowances should be carried out without distorting competition in the internal 
market and without distorting the allowances market. The Directive therefore provides a legal 
basis for a regulation on the design and execution of auctions. 

Auctioning  will  generate  significant  revenues.  In  line  with  the  precautionary  principle  laid 
down  in  Article  174(2)  of  the  Treaty  establishing  the  European  Community,  a  certain 
percentage  of  the  proceeds  from  the  auctioning  of  allowances  should  be  used  to  reduce 
greenhouse  gas  emissions,  to  adapt  to  the  impacts  of  climate  change,  to  fund  research  and 
development for reducing emissions and adapting, to develop renewable energies to meet the 
EU's commitment to using 20% renewable energies by 2020, for the capture and geological 
storage  of  greenhouse  gases,  to  contribute  to  the  Global  Energy  Efficiency  and  Renewable 
Energy  Fund,  for  measures  to  avoid  deforestation  and  facilitate  adaptation  in  developing 
countries, and for addressing social aspects such as possible increases in electricity prices in 
lower and middle incomes. 

In December 2006, the Commission made a legislative proposal to reduce the climate impact 
attributable  to  aviation  by  including  carbon  dioxide  emissions  from  aviation  in  the 
Community  system  for  greenhouse  gas  emission  allowance  trading.  While  the  Commission 
made clear in its impact assessment that the aviation industry was expected to be able to pass 
on, to a large extent or even in full, the costs of participating in the system to their customers, 
the  Commission  did  not  take  a  position  on  the  appropriate  percentage  of  allowances  to  be 
auctioned beyond 2012, stating instead that, for future periods, the percentage to be auctioned 
shall  take  into  account  the  general  review  of  this  Directive.  This  review  has  now  been 
completed  Aviation  should  be  treated  as  other  industries  which  receive  transitional  free 
allocation rather than as electricity generators, which means that from 2013 onwards, 80% of 
allowances should be allocated for free in 2013, and thereafter the free allocation to aviation 
should  decrease  each  year  by  equal  amounts  resulting  in  no  free  allocation  in  2020.  The 
Community and its Member States should continue to seek to reach an agreement on global 
measures to reduce greenhouse gas emissions from aviation. 

…any  transitional  allocation  for  free,  also  for  new  entrants,  is  to  be  based  on 
Community-wide rules … 

In order to avoid distortions of competition, the transitional free allocation should be based on 
harmonised Community-wide rules. These rules should take account of the most greenhouse 
gas  and  energy  efficient  techniques,  substitutes,  alternative  production  processes,  use  of 
biomass  and  greenhouse  gas  capture  and  storage.  Any  such  rules  must  avoid  perverse 
incentives to increase emissions. 

Installations  that  have  closed  shall  no  longer  receive  any  allowances  for  free.  The  proposal 
foresees  the  creation  of  a  Community-wide  new  entrants'  reserve.  Allocations  from  this 
reserve should mirror the allocation rules for existing installations. 

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5. 

LINKING  WITH  EMISSIONS  TRADING  SYSTEMS  IN  THIRD  COUNTRIES,  AND 
APPROPRIATE  MEANS  TO  INVOLVE  DEVELOPING  COUNTRIES  AND  COUNTRIES  IN 
ECONOMIC TRANSITION 

Linking with other emission trading systems to build a global carbon market… 

The  EU  ETS  should  be  able  to  link  to  other  mandatory  emission  trading  systems  capping 
absolute emissions in third countries or administrative entities by means of arrangements and 
agreements  to  provide  for  the  recognition  of  allowances  between  the  EU  ETS  and  the 
emission trading system to be linked to the EU ETS. 

In line with the conclusions of the European Council of March 2007, the EU is committed to 
reduce its greenhouse gas emissions by 30% in the event of an international agreement. The 
terms of such an agreement will affect the combined number of allowances available in the 
EU  ETS  linked  with  another  emission  trading  systems.  For  this  reason,  enabling  provisions 
must be foreseen to provide for the necessary adjustments, where needed and appropriate. 

…  which  exists  already  in  terms  of  project  credits,  but  there  is  a  need  for 
harmonisation… 

Project credits allow EU operators to meet obligations under the ETS by investing in projects 
to reduce emissions outside the EU. This can be an incentive for countries to come within an 
international  agreement  and  a  short  term  cost-efficient  way  for  companies  to  meet  their 
obligations.  

Under the conditions for phase 2 around 1 400 million tonnes of credits are allowed to enter 
the  EU  ETS,  or  a  yearly  average  of  280  million  tonnes.  Relative  to  2005  emissions  the 
estimated phase 2 cap represents a reduction of approximately 130 million tonnes. If full use 
of credits is made by operators, few domestic reductions would occur and in an extreme case 
emissions  in  the  EU  ETS  could  even  increase  making  it  more  difficult  to  achieve  the  EU's 
overall 2020 reduction targets. Therefore, CDM credits up to the remainder of the level which 
they  were  allowed  in  the  2nd  trading  period  (2008-12)  should  be  allowed  in  the  3rd  trading 
period.  Accordingly,  operators  should  be  given  certainty  about  their  potential  after  2013  to 
use them by requiring Member States to allow operators to exchange certain CERs issued in 
respect  of  emission  reductions  before  2012  for  allowances  valid  from  2013  onwards.  This 
should  also  apply  to  high  quality  CERs  issued  in  respect  of  emission  reductions  from  2013 
onwards from projects that have been established before 2013. 

In order to ensure equal conditions of competition within the Community, the use of credits 
for emission reductions by operators within the Community emissions trading system should 
be  harmonised.  Upon  the  conclusion  by  the  Community  of  a  satisfactory  international 
agreement,  access  to  credits  from  projects  in  third  countries  should  be  increased  in  tandem 
with the increase in the level of emission reductions to be achieved through the EU emissions 
trading system (i.e. from 20% rising to 30%). In the absence of such agreement, providing for 
further use of CERs would undermine this incentive and make it more difficult to achieve the 
EU's objectives on increasing renewable energy use.  

While  ERUs  cannot  exist  in  respect  of  emissions  reductions  from  2013  onwards  before  the 
entry  into  force  of  a  future  international  agreement  on  climate  change,  projects  which 
generated ERUs beforehand could continue to be recognised through bilateral or multilateral 
agreements with third countries. Once a future international agreement on climate change has 

EN 

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been  reached,  CDM  credits  shall  only  be  accepted  in  the  EU  ETS  from  third  countries  that 
have  ratified  the  international  agreement.  Provisions  should  be  included  to  discourage  'free-
riding' by companies in States which have not concluded an international agreement, except 
where those companies are based in third countries or administrative entities which are linked 
to the EU emissions trading system. 

The use of CERs should be consistent with the EU's goal of generating 20% of energy from 
renewable  sources  by  2020,  and  promoting  energy  efficiency,  innovation  and  technological 
development.  Where  it  is  consistent  with  achieving  these  goals,  the  possibility  should  be 
foreseen to conclude agreements with third countries to trigger investments in these countries 
which bring about real, additional reductions in greenhouse gas emissions while stimulating 
innovation  in  European  companies  and  technological  development  in  third  countries.  Such 
agreements may be ratified by more than one country.  

Projects that reduce greenhouse gas emissions in the Community should be allowed to issue 
allowances  provided  they  comply  with  certain  conditions  necessary  to  safeguard  the  proper 
functioning of the EU ETS. Such conditions would encompass adoption of harmonised rules 
for  these  projects  at  Community  level,  exclude  double-counting  of  emission  reductions  and 
any impediment of the scope of the Community emissions allowance trading system as well 
as the undertaking of other policy measures to reduce emissions not covered by the EU ETS. 
Finally, these projects must not entail a huge administrative burden, but should be based on 
simple, easily administered rules.  

6. 

ENTRY INTO FORCE 

The requirement to submit national allocation plans will be superseded by this proposal when 
it enters into force. In the event that this were delayed, Member States are required, under the 
EU  ETS  as  it  stands,  to  draw  up  and  submit  national  allocation  plans  by  June  2011  for  the 
period  2013-17.  From  2013  onwards,  the  current  Directive  allows  all  allowances  to  be 
auctioned. Allocation for free would constitute state aid which must be justified under Article 
87  and  88  of  the  EC  Treaty.  With  a  view  to  enhancing  certainty  and  predictability,  at  this 
stage,  the  Commission  considers  that  national  allocation  plans  would  only  be  acceptable,  if 
the  total  quantity  were  to  decrease  at  least  in  line  with  this  proposal  and  free  allocations 
proposed do not exceed the amount either set out in this proposal or developed under it.  

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2008/0013 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 2003/87/EC so as to improve and extend the greenhouse gas 
emission allowance trading system of the Community 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
175(1) thereof, 

Having regard to the proposal from the Commission12, 

Having regard to the opinion of the European Economic and Social Committee13, 

Having regard to the opinion of the Committee of the Regions14, 

Acting in accordance with the procedure laid down in Article 251 of the Treaty15, 

Whereas: 

(1) 

(2) 

12 
13 
14 
15 
16 

17 

Directive  2003/87/EC  of  the  European  Parliament  and  of  the  Council  of  13  October 
2003 establishing a scheme for greenhouse gas emission allowance trading within the 
Community  and  amending  Council  Directive  96/61/EC16  established  a  system  for 
greenhouse gas emission allowance trading within the Community in order to promote 
reductions of greenhouse gas emissions in a cost-effective and economically efficient 
manner. 

The  ultimate  objective  of  the  United  Nations  Framework  Convention  on  Climate 
Change,  which  was  approved  on  behalf  of  the  European  Community  by  Council 
Decision  94/69/EC  of  15  December  1993  concerning  the  conclusion  of  the  United 
Nations  Framework  Convention  on  Climate  Change  (UNFCCC)17,  is  to  stabilise 
greenhouse  gas  concentrations  in  the  atmosphere  at  a  level  that  would  prevent 
dangerous  anthropogenic  interference  with  the  climate  system.  In  order  to  meet  that 
objective,  the  overall  global  annual  mean  surface  temperature  increase  should  not 

OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ L 275, 25.10.2003, p. 32. Directive as amended by Directive 2004/101/EC (OJ L 338, 13.11.2004, p. 
18). 
OJ L 33, 7.2.1994, p. 11. 

EN 

12 

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exceed 2°C above pre-industrial levels. The latest Intergovernmental Panel on Climate 
Change Assessment (IPCC) report18 shows that, in order to reach that objective, global 
emissions  of  greenhouse  gases  must  peak  by  2020.  This  implies  the  increasing  of 
efforts  by  the  Community  and  the  quick  involvement  of  developed  countries  and 
encouraging  the  participation  of  developing  countries  in  the  emission  reduction 
process. 

The  European  Council19  has  made  a  firm  commitment  to  reduce  the  overall 
greenhouse  gas  emissions  of  the  Community  by  at  least  20%  below  1990  levels  by 
2020,  and  by  30%  provided  that  other  developed  countries  commit  themselves  to 
comparable  emission  reductions  and  economically  more  advanced  developing 
countries  contribute  adequately  according  to  their  responsibilities  and  respective 
capabilities. By 2050, global greenhouse gas emissions should be reduced by at least 
50%  below  their  1990  levels.  All  sectors  of  the  economy  should  contribute  to 
achieving these emission reductions. 

In order to contribute to achieving those long-term objectives, it is appropriate to set 
out a predictable path according to which the emissions of installations covered by the 
Community scheme should be reduced. To achieve cost-effectively the commitment of 
the Community to at least a 20% reduction in greenhouse gas emissions below 1990 
levels, emission allowances allocated in respect of  those installations should be 21% 
below their 2005 emission levels by 2020.  

In  order  to  enhance  the  certainty  and  predictability  of  the  Community  scheme, 
provisions should be specified to increase the level of contribution of the Community 
scheme to achieving an overall reduction of more than 20%, in particular in view of 
the objective of the European Council for a 30% reduction by 2020 that is considered 
scientifically necessary to avoid dangerous climate change. 

Once  the  Community  and  third  countries  conclude  an  international  agreement 
according to which appropriate global action will be taken beyond 2012, considerable 
support  should  be  given  to  credit  emission  reductions  made  in  those  countries.  In 
advance  of  such  an  agreement,  greater  certainty  should  nonetheless  be  given  on  the 
continued use of credits from outside the Community.  

(3) 

(4) 

(5) 

(6) 

(7)  While  experience  gathered  during  the  first  trading  period  shows  the  potential  of  the 
Community  scheme  and  the  finalisation  of  national  allocation  plans  for  the  second 
trading  period  will  deliver  significant  emission  reductions  by  2012,  the  review  has 
confirmed that a more harmonised emission trading system is imperative, in order to 
better  exploit  the  benefits  of  emission  trading,  to  avoid  distortions  in  the  internal 
market  and  to  facilitate  the  linking  of  emissions  trading  systems.  Furthermore,  more 
predictability  should  be  ensured  and  the  scope  of  the  system  should  be  extended  by 
including new sectors and gases with a view to both reinforcing a carbon price signal 
necessary  to  trigger  the  necessary  investments  and  offering  new  abatement 
opportunities,  which  will  lead  to  lower  overall  abatement  costs  and  increased 
efficiency of the system. 

18 

19 

Intergovernmental Panel on Climate Change 4th Assessment report, adopted on 17 November 2007 in 
Valencia, Spain, and available at www.ipcc.ch  
Conclusions of the meeting of the European Council of 8-9 March 2007 in Brussels. 

EN 

13 

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(8) 

(9) 

The definition of greenhouse gases should be aligned with the definition contained in 
the UNFCCC, and greater clarity should be given on the setting and updating of global 
warming potentials for individual greenhouse gases.  

The Community scheme should be extended to other installations whose emissions are 
capable of being monitored, reported and verified with the same level of accuracy as 
applies  under  the  monitoring,  reporting  and  verification  requirements  currently 
applicable.  

(10)  Where equivalent measures to reduce greenhouse gas emissions, in particular taxation, 
are  in  place  for  small  installations  whose  emissions  do  not  exceed  a  threshold  of 
10 000  tonnes  of  CO2  per  year,  there  should  be  a  procedure  for  enabling  Member 
States  to  exclude  such  small  installations  from  the  emissions  trading  system  for  so 
long as those measures are applied. This threshold relatively offers the maximum gain 
in terms of reduction of administrative costs for each tonne excluded from the system, 
for reasons of administrative simplicity. As a consequence of the move from five-year 
allocation  periods,  and  in  order  to  increase  certainty  and  predictability,  provisions 
should be set on the frequency of revision of greenhouse gas emission permits. 

(11)  The  Community-wide  quantity  of  allowances  should  decrease  in  a  linear  manner 
calculated from the mid-point of the period 2008 to 2012, ensuring that the emissions 
trading system delivers gradual and predictable reductions of emissions over time. The 
annual decrease of allowances should be equal to 1.74% of the allowances issued by 
Member  States  pursuant  to  Commission  Decisions  on  Member  States'  national 
allocation  plans  for  the  period  2008  to  2012,  so  that  the  Community  scheme 
contributes  cost-effectively  to  achieving  the  commitment  of  the  Community  to  an 
overall reduction in emissions of at least 20% by 2020.  

(12)  This contribution is equivalent to a reduction of emissions in 2020 in the Community 
scheme of 21% below reported 2005 levels, including the effect of the increased scope 
from the period 2005 to 2007 to the period 2008 to 2012 and the 2005 emission figures 
for the trading sector used for the assessment of the Bulgarian and Romanian national 
allocation plan for the period 2008 to 2012, leading to an issue of a maximum of 1 720 
million allowances in the year 2020. Exact quantities of emissions will be calculated 
once  Member  States  have  issued  allowances  pursuant  to  Commission  Decisions  on 
their  national  allocation  plans  for  the  period  2008  to  2012,  as  the  approval  of 
allocations  to  some  installations  was  contingent  upon  their  emissions  having  been 
substantiated and verified. Once the issue of allowances for the period 2008 to 2012 
has  taken  place,  the  Commission  will  publish  the  Community-wide  quantity. 
Adjustments  should  be  made  to  the  Community-wide  quantity  in  relation  to 
installations which are included in the Community scheme during the period 2008 to 
2012 or from 2013 onwards.  

(13)  The additional effort to be made by the European economy requires inter alia that the 
revised  Community  scheme  operate  with  the  highest  possible  degree  of  economic 
efficiency  and  on  the  basis  of  fully  harmonised  conditions  of  allocation  within  the 
Community. Auctioning should therefore be the basic principle for allocation, as it is 
the  simplest  and  generally  considered  to  be  the  most  economically  efficient  system. 
This  should  also  eliminate  windfall  profits  and  put  new  entrants  and  higher  than 
average growing economies on the same competitive footing as existing installations. 

EN 

14 

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(14)  All  Member  States  will  need  to  make  substantial  investments  to  reduce  the  carbon 
intensity  of  their  economies  by  2020  and  those  Member  States  where  income  per 
capita is still significantly below the Community average and whose economies are in 
the  process  of  catching  up  with  the  richer  Member  States  will  need  to  make  a 
significant  effort  to  improve  energy  efficiency.  The  objectives  of  eliminating 
distortions  to  intra-Community  competition  and  of  ensuring  the  highest  degree  of 
economic efficiency  in the transformation  of  the EU economy towards  a  low carbon 
economy  make  it  inappropriate  to  treat  economic  sectors  differently  under  the 
Community scheme in individual Member States. It is therefore necessary to develop 
other mechanisms to support the efforts of those Member States with relatively lower 
income  per  capita  and  higher  growth  prospects.  90%  of  the  total  quantity  of 
allowances to be auctioned should be distributed amongst Member States according to 
their relative share of 2005 emissions in the Community scheme. 10% of this quantity 
should  be  distributed  to  the  benefit  of  those  Member  States  for  the  purpose  of 
solidarity and growth in the Community, to be used to reduce emissions and adapt to 
the  effects  of  climate  change.  This  distribution  of  this  10%  should  take  into  account 
levels  of  income  per  capita  in  the  year  2005  and  the  growth  prospects  of  Member 
States,  and  be  higher  for  Member  States  with  low  income  levels  per  head  and  high 
growth  prospects.  Member  States  with  an  average  level  of  income per  capita  that  is 
more  than  20%  higher  than  the  average  in  the  Community  should  contribute  to  this 
distribution,  except  where  the  direct  costs  of  the  overall  package  estimated  in 
SEC(2008) 85 exceed 0.7% of GDP.  

(15)  Given  the  considerable  efforts  of  combating  climate  change  and  of  adapting  to  its 
inevitable  effects,  it  is  appropriate  that  at  least  20%  of  the  proceeds  from  the 
auctioning of allowances should be used to reduce greenhouse gas emissions, to adapt 
to  the  impacts  of  climate  change,  to  fund  research  and  development  for  reducing 
emissions  and  adaptation,  to  develop  renewable  energies  to  meet  the  EU’s 
commitment to using 20% renewable energies by 2020, to meet the commitment of the 
Community  to  increase  energy  efficiency  by  20%  by  2020,  for  the  capture  and 
geological storage of greenhouse gases, to contribute to the Global Energy Efficiency 
and  Renewable  Energy  Fund20,  for  measures  to  avoid  deforestation  and  facilitate 
adaptation in developing countries, and for addressing social aspects such as possible 
increases in electricity prices in lower and middle income households. This proportion 
is significantly below the expected net revenues for public authorities from auctioning, 
taking  into  account  potentially  reduced  income  from  corporate  taxes.  In  addition, 
proceeds  from  auctioning  of  allowances  should  be  used  to  cover  administrative 
expenses  of  the  management  of  the  Community  scheme.  Provisions  should  be 
included  on  monitoring  the  use  of  funds  from  auctioning  for  these  purposes.  Such 
notification does not release Member States from the obligation laid down in Article 
88(3)  of  the  Treaty,  to  notify  certain  national  measures.  The  Directive  does  not 
prejudice  the  outcome  of  any  future  State  aid  procedures  that  may  be  undertaken  in 
accordance with Articles 87 and 88 of the Treaty.  

(16)  Consequently,  full  auctioning  should  be  the  rule  from  2013  onwards  for  the  power 
sector,  taking  into  account  their  ability  to  pass  on  the  increased  cost  of  CO2,  and  no 
free allocation should be given for carbon capture and storage as the incentive for this 
arises  from  allowances  not  being  required  to  be  surrendered  in  respect  of  emissions 

20 

COM(2006) 583, 6.10.2006. 

EN 

15 

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which are stored. Electricity generators may receive free allowances for heat produced 
through high efficiency cogeneration as defined by Directive 2004/8/EC in the event 
that  such  heat  produced  by  installations  in  other  sectors  were  to  be  given  free 
allocations, in order to avoid distortions of competition. 

(17)  For other sectors covered by the Community scheme, a transitional system should be 
foreseen  for  which  free  allocation  in  2013  would  be  80%  of  the  amount  that 
corresponded to the percentage of the overall Community-wide emissions throughout 
the period 2005 to 2007 that those installations emitted as a proportion of the annual 
Community-wide  total  quantity  of  allowances.  Thereafter,  the  free  allocation  should 
decrease each year by equal amounts resulting in no free allocation in 2020. 

(18)  Transitional free allocation to installations should be provided for through harmonised 
Community-wide rules ("benchmarks") in order to minimise distortions of competition 
with the Community. These rules should take account of the most greenhouse gas and 
energy  efficient  techniques,  substitutes,  alternative  production  processes,  use  of 
biomass, renewables and greenhouse gas capture and storage. Any such rules should 
not give incentives to increase emissions and ensure that an increasing proportion of 
these allowances is auctioned. Allocations must be fixed prior to the trading period so 
as to enable the market to function properly. They shall also avoid undue distortions of 
competition on the markets for electricity and heat supplied to industrial installations. 
These rules should apply to new entrants carrying  out the same activities as existing 
installations  receiving  transitional  free  allocations.  To  avoid  any  distortion  of 
competition within the internal market, no free allocation should be made in respect of 
the  production  of  electricity  by  new  entrants.  Allowances  which  remain  in  the  set-
aside for new entrants in 2020 should be auctioned. 

(19)  The  Community  will  continue  to  take  the  lead  in  the  negotiation  of  an  ambitious 
international agreement that will achieve the objective of limiting global temperature 
increase  to  2°C  and  is  encouraged  by  the  progress  made  in  Bali21  towards  this 
objective.  In  the  event  that  other  developed  countries  and  other  major  emitters  of 
greenhouse gases do not participate in this international agreement, this could lead to 
an increase in greenhouse gas emissions in third countries where industry would not 
be subject to comparable carbon constraints (“carbon leakage”), and at the same time 
could put certain energy-intensive sectors and sub-sectors in the Community which are 
subject  to  international  competition  at  an  economic  disadvantage.  This  could 
undermine  the  environmental  integrity  and  benefit  of  actions  by  the  Community.  To 
address  the  risk  of  carbon  leakage,  the  Community  will  allocate  allowances  free  of 
charge  up  to  100%  to  sectors  or  sub-sectors  meeting  the  relevant  criteria.  The 
definition of these sectors and sub-sectors and the measures required will be subject to 
re-assessment  to  ensure  that  action  is  taken  where  necessary  and  to  avoid 
overcompensation.  For  those  specific  sectors  or  sub-sectors  where  it  can  be  duly 
substantiated  that  the  risk  of  carbon  leakage  cannot  be  prevented  otherwise,  where 
electricity constitutes a high proportion of production costs and is produced efficiently, 
the  action  taken  may  take  into  account  the electricity  consumption  in  the  production 
process, without changing the total quantity of allowances.  

21 

13th Conference of the Parties to the UNFCCC, and 3rd Meeting of the Parties to the Kyoto Protocol, 
held in Bali, Indonesia from 3-14 December 2007. 

EN 

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(20)  The  Commission  should  therefore  review  the  situation  by  June  2011  at  the  latest, 
consult  with  all  relevant  social  partners,  and,  in  the  light  of  the  outcome  of  the 
international negotiations, submit a report accompanied by any appropriate proposals. 
In  this  context,  the  Commission  should  identify  which  energy  intensive  industry 
sectors or sub-sectors are likely to be subject to carbon leakage not later than 30 June 
2010. It should base its analysis on the assessment of the inability to pass on the cost 
of  required  allowances  in  product  prices  without  significant  loss  of  market  share  to 
installations outside the Community not taking comparable action to reduce emissions. 
Energy-intensive industries which are determined to be exposed to a significant risk of 
carbon leakage could receive a higher amount of free allocation or an effective carbon 
equalisation system could be introduced with a view to putting installations from the 
Community  which  are  at  significant  risk  of  carbon  leakage  and  those  from  third 
countries  on  a  comparable  footing.  Such  a  system  could  apply  requirements  to 
importers that would be no less favourable than those applicable to installations within 
the EU, for example by requiring the surrender of allowances. Any action taken would 
need  to  be  in  conformity  with  the  principles  of  the  UNFCCC,  in  particular  the 
principle  of  common  but  differentiated  responsibilities  and  respective  capabilities, 
taking  into  account  the  particular  situation  of  Least  Developed  Countries.  It  would 
also  need  to  be  in  conformity  with  the  international  obligations  of  the  Community 
including the WTO agreement. 

(21) 

In order to ensure equal conditions of competition within the Community, the use of 
credits for emission reductions outside the Community to be used by operators within 
the  Community  scheme  should  be  harmonised.  The  Kyoto  Protocol  to  the  UNFCCC 
sets  out  quantified  emission  targets  for  developed  countries  for  the  period  2008  to 
2012,  and  provides  for  the  creation  of  Certified  Emission  Reductions  (CERs)  and 
Emission Reduction Units (ERUs) from Clean Development Mechanism (CDM) and 
Joint  Implementation  projects  respectively  and  their  use  by  developed  countries  to 
meet  part  of  these  targets.  While  the  Kyoto  framework  does  not  enable  ERUs  to  be 
created from 2013 onwards without new quantified emission targets being in place for 
host countries, CDM credits can potentially continue to be generated. Additional use 
of  Certified  Emission  Reductions  (CERs)  and  Emission  Reduction  Units  (ERUs) 
should  be  provided  for  once  there  is  an  international  agreement  on  climate  change, 
from  countries  which  have  concluded  that  agreement.  In  the  absence  of  such 
agreement,  providing  for  further  use  of  CERs  and  ERUs  would  undermine  this 
incentive  and  make  it  more  difficult  to  achieve  the  objectives  of  the  Community  on 
increasing  renewable  energy  use.  The  use  of  CERs  and  ERUs  should  be  consistent 
with  the  goal  set  by  the  Community  of  generating  20%  of  energy  from  renewable 
sources  by  2020,  and  promoting  energy  efficiency,  innovation  and  technological 
development. Where it is consistent with achieving these goals, the possibility should 
be  foreseen  to  conclude  agreements  with  third  countries  to  provide  incentives  for 
reductions in emissions in these countries which bring about real, additional reductions 
in  greenhouse  gas  emissions  while  stimulating  innovation  by  companies  established 
within  the  Community  and  technological  development  in  third  countries.  Such 
agreements  may  be  ratified  by  more  than  one  country.  Upon  the  conclusion  by  the 
Community of a satisfactory international agreement, access to credits from projects in 
third  countries  should  be  increased  simultaneously  with  the  increase  in  the  level  of 
emission reductions to be achieved through the Community scheme. 

EN 

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(22) 

In  order  to  provide  predictability,  operators  should  be  given  certainty  about  their 
potential after 2012 to use CERs and ERUs up to the remainder of the level which they 
were  allowed  to  use  in  the  period  2008  to  2012,  from  project  types  which  were 
accepted  by  all  Member  States  in  the  Community  scheme  during  the  period  2008  to 
2012. As carry-over by Member States of CERs and ERUs held by operators between 
commitments periods under international agreements (‘banking’ of CERs and ERUs) 
cannot take place before 2015, and only if Member States choose to allow the banking 
of those CERs and ERUs within the context of limited rights to bank such credits, this 
certainty should be given by requiring Member States to allow operators to exchange 
such  CERs  and  ERUs  issued  in  respect  of  emission  reductions  before  2012  for 
allowances  valid  from  2013  onwards.  However,  as  Member  States  should  not  be 
obliged  to  accept  CERs  and  ERUs  which  it  is  not  certain  they  will  be  able  to  use 
towards their existing international commitments, this requirement should not extend 
beyond 31 December 2014. Operators should be given the same certainty concerning 
such CERs issued from projects that have been established before 2013 in respect of 
emission reductions from 2013 onwards.  

(23) 

In  the  event  that  the  conclusion  of  an  international  agreement  is  delayed,  the 
possibility  should  be  foreseen  for  using  credits  from  high  quality  projects  in  the 
Community trading system through agreements with third countries. Such agreements, 
which  may  be  bilateral  or  multilateral,  could  enable  projects  to  continue  to  be 
recognised  in  the  Community  scheme  that  generated  ERUs  until  2012  but  are  not 
longer able to do so under the Kyoto framework. 

(24)  Least Developed Countries are especially vulnerable to the effects of climate change, 
and are responsible only for a very low level of greenhouse gas emissions. Therefore, 
particular  priority  should  be  given  to  addressing  the  needs  of  Least  Developed 
Countries when revenues generated from auctioning are used to facilitate developing 
countries'  adaptation  to  the  impacts  of  climate  change.  Given  that  very  few  CDM 
projects have been established in those countries, it is appropriate to give certainty on 
the acceptance of credits from projects started there after 2012, even in the absence of 
an  international  agreement.  This  entitlement  should  apply  to  Least  Developed 
Countries until 2020 provided that they have by then either ratified a global agreement 
on climate change or a bilateral or multilateral agreement with the Community. 

(25)  Once  a  future  international  agreement  on  climate  change  has  been  reached,  CDM 
credits from third countries should only be accepted in the Community scheme once 
those countries have ratified the international agreement. 

(26)  The Community and its Member States should only authorise project activities where 
all  project  participants  have  headquarters  either  in  a  country  that  has  concluded  the 
international  agreement  relating  to  such  projects,  so  as  to  discourage  'free-riding'  by 
companies  in  States  which  have  not  concluded  an  international  agreement,  except 
where those companies are based in third countries or sub-federal or regional entities 
which are linked to the EU emissions trading system.  

(27) 

In  the  light  of  experience,  the  provisions  of  the  Community  scheme  relating  to 
monitoring, reporting and verifying emissions should be improved. 

EN 

18 

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(28) 

(29) 

In  order  to  clarify  the  coverage  of  all  kinds  of  boilers,  burners,  turbines,  heaters, 
furnaces,  incinerators,  kilns,  ovens,  dryers,  engines,  flares,  and  thermal  or  catalytic 
afterburning by this Directive, a definition of combustion installation should be added. 

In  order  to  ensure  that  allowances  can  be  transferred  between  persons  within  the 
Community without any restriction, and to ensure that the Community scheme can be 
linked  to  emissions  trading  systems  in  third  countries  and  sub-federal  and  regional 
entities, from January 2013 onwards, all allowances should be held in the Community 
registry established under Decision No 280/2004/EC of the European Parliament and 
of  the  Council  of  11  February  200422.  This  should  be  without  prejudice  to  the 
maintenance  of  national  registries  for  emissions  not  covered  by  the  Community 
scheme. 

(30)  From 2013 onwards, the capture, transport and geological storage of greenhouse gases 

should be covered by the Community scheme in a harmonised manner. 

(31)  Arrangements  should  be  provided  to  enable  the  mutual  recognition  of  allowances 
between  the  Community  scheme  and  other  mandatory  greenhouse  gas  emissions 
trading  systems  capping  absolute  emissions  established  in  any  third  country  or  sub-
federal or regional entity. 

(32)  Taking into account experience under the Community scheme, it should be possible to 
issue allowances in respect of projects that reduce greenhouse gas emissions, provided 
that  these  projects  take  place  in  accordance  with  harmonised  rules  adopted  at 
Community  level  and  these  projects  would  not  result  in  the  double-counting  of 
emissions reductions or impede the extension of the scope of the Community scheme 
or  the  undertaking  of  other  policy  measures  to  reduce  emissions  not  covered  by  the 
Community scheme. 

(33) 

[As  regards  the  approach  to  allocation,  aviation  should  be  treated  as  other  industries 
which  receive  transitional  free  allocation  rather  than  as  electricity  generators.  This 
means that 80% of allowances should be allocated for free in 2013, and thereafter the 
free allocation to aviation should decrease each year by equal amounts resulting in no 
free  allocation  in  2020.  The  Community  and  its  Member  States  should  continue  to 
seek  to  reach  an  agreement  on  global  measures  to  reduce  greenhouse  gas  emissions 
from aviation and review the situation of this sector as part of the next review of the 
Community scheme.] 

(34)  The measures necessary for the implementation of this Directive should be adopted in 
accordance  with  Council  Decision  1999/468/EC  of  28  June  1999  laying  down  the 
procedures for the exercise of implementing powers conferred on the Commission23. 
In particular power should be conferred on the Commission to adopt measures for the 
auctioning  of  allowances,  for  transitional  Community-wide  allocation  of  allowances, 
for  the  monitoring,  reporting  and  verification  of  emissions,  for  the  accreditation  of 
verifiers and for implementing harmonised rules for projects. Since those measures are 
of  general  scope  and  are  designed  to  amend  non-essential  elements  of  this  Directive 
and to supplement this Directive by the addition or modification of new non-essential 

22 
23 

OJ L 49, 19.2.2004, p. 1. 
OJ L 184, 17.7.1999, p. 23. Decision as amended by Decision 2006/512/EC (OJ L 200, 22.7.2006, p. 
11). 

EN 

19 

   EN 

 
                                                 
elements,  they  should  be  adopted  in  accordance  with  the  regulatory  procedure  with 
scrutiny provided for in Article 5a of Decision 1999/468/EC. 

(35)  Directive 2003/87/EC should therefore be amended accordingly. 

(36) 

(37) 

It is appropriate to provide for an early transposition of those provisions which prepare 
for the revised operation of the Community scheme from 2013 onwards.  

In  order  to  correctly  complete  the  trading-period  2008  to  2012,  the  provisions  of 
Directive  2003/87/EC,  as  amended  by  Directive  2004/101/EC,  should  continue  to 
apply  without  affecting  the  possibility  for  the  Commission  to  adopt  the  measures 
necessary for revised operation of the Community scheme from 2013 onwards. 

(38)  The application of this Directive is without prejudice to Article 87 and 88 of the EC 

Treaty. 

(39)  This Directive respects the fundamental rights and observes the principles recognised 

in particular by the Charter of Fundamental Rights of the European Union. 

(40)  Since the objectives of this Directive cannot be sufficiently achieved by the Member 
States acting individually, and can therefore, by reason of its scale and effects be better 
achieved  at  Community  level,  the  Community  may  adopt  measures,  in  accordance 
with  the  principle  of  subsidiarity  as  set  out in Article 5 of the  Treaty.  In accordance 
with the principle of proportionality, as set out in that Article, this Directive does not 
go beyond what is necessary in order to achieve that objective, 

HAVE ADOPTED THIS DIRECTIVE: 

Article 1 
Amendments to Directive 2003/87/EC 

Directive 2003/87/EC is amended as follows: 

(1) 

The following paragraph is added to Article 1: 

"It  also  provides  for  the  reductions  of  greenhouse  gas  emissions  to  be  increased  so  as  to 
contribute  to  the  levels  of  reductions  that  are  considered  scientifically  necessary  to  avoid 
dangerous climate change." 

(2) 

Article 3 is amended as follows: 

(a) 

point (c) is replaced by the following: 

"(c)  'greenhouse  gases'  means  the  gases  listed  in  Annex  II  and  other  gaseous 
constituents of the atmosphere, both natural and anthropogenic, that absorb and 
re-emit infrared radiation;" 

(b)  point (h) is replaced by the following: 

"(h) 

'new  entrant'  means  any  installation  carrying  out  one  or  more  of  the 
activities  indicated  in  Annex  I,  which  has  obtained  a  greenhouse  gas 

EN 

20 

   EN 

 
emission permit subsequent to the submission to the Commission of the 
list referred to in Article 11(1);" 

(c)  The following points are added:  

"[(t)] 'Combustion  installation'  means  any  stationary  technical  unit  in  which 
fuels are oxidised producing heat or mechanical energy or both, and other 
directly  associated  activities  including  waste  gas  scrubbing  are  carried 
out; 

[(u)]  'Electricity  generator'  means  an  installation  that,  on  or  after  1  January 
2005, has produced electricity for sale to third parties, and which is only 
covered by the category 'Supply of power or heat' in Annex I." 

(3) 

Article 5(d) is replaced by the following: 

"(d)  the measures planned to monitor and report emissions in accordance with 

the Regulation referred to in Article 14." 

(4) 

The following subparagraph is added to Article 6(1): 

"The competent authority shall, at least every five years, review the greenhouse gas 
emissions permit and make any amendments as are appropriate." 

(5) 

Article 9 is replaced by the following: 

"Article 9 
Community-wide quantity of allowances 

The Community-wide quantity of allowances issued each year starting in 2013 shall decrease 
in  a  linear  manner  beginning  from  the  mid-point  of  the  period  2008  to  2012.  The  quantity 
shall  decrease  by  a  linear  factor  of  1.74%  compared  to  the  average  annual  total  quantity  of 
allowances issued by Member States in accordance with the Commission Decisions on their 
national allocation plans for the period 2008 to 2012. 

The Commission shall, by 30 June 2010, publish the absolute quantity of allowances for 2013, 
based on the total quantities of allowances issued by the Member States in accordance with 
the Commission Decisions on their national allocation plans for the period 2008 to 2012. 

The Commission shall review the linear factor no later than 2025." 

(6) 

The following Article 9a is inserted: 

"Article 9a 
Adjustment of the Community-wide quantity of allowances  

1. 

In  respect  of  installations  that  were  included  in  the  Community  scheme  during  the 
period 2008 to 2012 pursuant to Article 24(1), the quantity of allowances to be issued 
from  1  January  2013  shall  be  adjusted  to  reflect  the  average  annual  quantity  of 
allowances  issued  in  respect  of  those  installations  during  the  period  of  their 
inclusion, adjusted by the linear factor referred to in Article 9.  

EN 

21 

   EN 

 
2. 

In  respect  of  installations  which  are  only  included  in  the  Community  scheme  from 
2013  onwards,  Member  States  shall  ensure  that  the  operators  of  such  installations 
may  submit  to  the  relevant  competent  authority  independently  verified  emissions 
data in order for them to be taken into account for the quantity of allowances to be 
issued. 

Any  such  data  shall  be  submitted,  by  30  April  2010  at  the  latest,  to  the  relevant 
competent  authority  in  accordance  with  the  provisions  adopted  pursuant  to  Article 
14(1). 

If the data submitted are duly substantiated, the competent authority shall notify the 
Commission  thereof  by  30  June  2010  and  the  quantity  of  allowances  to  be  issued, 
adjusted by the linear factor referred to in Article 9, shall be adjusted accordingly. 

3. 

The Commission shall publish the adjusted quantities referred to in paragraphs 1 and 
2." 

(7) 

Article 10 is replaced by the following: 

"Article 10 
Auctioning of allowances 

1. 

2. 

From  2013  onwards,  Member  States  shall  auction  all  allowances  which  are  not 
allocated free of charge in accordance with Article 10a. 

The  total  quantity  of  allowances  to  be  auctioned  by  each  Member  State  shall  be 
composed as follows: 

(a) 

90%  of  the  total  quantity  of  allowances  to  be  auctioned  being  distributed 
amongst  Member  States  in  shares  that  are  identical  to  the  share  of  verified 
emissions  under  the  Community  scheme  in  2005  of  the  Member  State 
concerned;  

(b)  10%  of  the  total  quantity  of  allowances  to  be  auctioned  being  distributed 
amongst certain Member States for the purpose of solidarity and growth within 
the  Community,  thereby  increasing  the  amount  of  allowances  that  those 
Member States auction under point (a) by the percentages specified in Annex 
IIa. 

For the purposes of point (a), in respect of Member States which did not participate 
in the Community scheme in 2005, their share shall be calculated using their verified 
Community scheme emissions under the Community scheme in 2007. 

If necessary, the percentages referred to in point (b) of the first subparagraph shall be 
adapted in a proportional manner to ensure that the redistribution is 10%. 

3. 

At least 20% of the revenues generated from the auctioning of allowances referred to 
in  paragraph  2,  including  all  revenues  from  the  auctioning  referred  to  in  point  (b) 
thereof, should be used for the following: 

EN 

22 

   EN 

 
(a) 

(b) 

(c) 

(d) 

to  reduce  greenhouse  gas  emissions,  including  by  contributing  to  the  Global 
Energy  Efficiency  and  Renewable  Energy  Fund,  to  adapt  to  the  impacts  of 
climate  change  and  to  fund  research  and  development  for  reducing  emissions 
and  adapting,  including  participation  in  initiatives  within  the  framework  of 
European Strategic Energy Technology Plan;  

to  develop  renewable  energies  to  meet  the  commitment  of  the  Community  to 
using  20%  renewable  energies  by  2020,  and  to  meet  the  commitment  of  the 
Community to increase energy efficiency by 20% by 2020; 

for the capture and geological storage of greenhouse gases, in particular from 
coal power stations; 

for  measures  to  avoid  deforestation,  in  particular  in  Least  Developed 
Countries; 

(e) 

to facilitate developing countries' adaptation to the impacts of climate change;  

(f) 

(g) 

to address social aspects in lower and middle income households, for example 
by increasing their energy efficiency and insulation; and 

to  cover  administrative  expenses  of  the  management  of  the  Community 
scheme. 

Member  States  shall  include  information  on  the  use  of  revenues  for  each  of  these 
purposes in their reports submitted under Decision No 280/2004/EC. 

By  31  December  2010,  the  Commission  shall  adopt  a  Regulation  on  timing, 
administration  and  other  aspects  of  auctioning  to  ensure  that  it  is  conducted  in  an 
open,  transparent  and  non-discriminatory  manner.  Auctions  shall  be  designed  to 
ensure  that  operators,  and  in  particular  any  small  and  medium  size  enterprises 
covered  by  the  Community  scheme,  have  full  access  and  any  other  participants  do 
not  undermine  the  operation  of  the  auction.That  measure,  designed  to  amend  non-
essential  elements  of  this  Directive  by  supplementing  it,  shall  be  adopted  in 
accordance  with  the  regulatory  procedure  with  scrutiny  referred  to  in  Article 
[23(3)]." 

4. 

5. 

(8) 

The following Articles 10a and 10b are inserted: 

“Article 10a 
Transitional Community-wide rules for harmonised free allocation 

1. 

The  Commission  shall,  by  30  June  2011,  adopt  Community  wide  and  fully-
harmonised  implementing  measures  for  allocating  the  allowances  referred  to  in 
paragraphs 2 to 6 and 8 in a harmonised manner. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article [23(3)]. 

EN 

23 

   EN 

 
The measures referred to in the first subparagraph shall, to the extent feasible, ensure 
that allocation takes place in a manner that gives incentives for greenhouse gas and 
energy efficient techniques and for reductions in emissions, by taking account of the 
most  efficient  techniques,  substitutes,  alternative  production  processes,  use  of 
biomass  and  greenhouse  gas  capture  and  storage,  and  shall  not  give  incentives  to 
increase  emissions.  No  free  allocation  shall  be  made  in  respect  of  any  electricity 
production. 

The  Commission  shall,  upon  the  conclusion  by  the  Community  of  an  international 
agreement  on  climate  change  leading  to  mandatory  reductions  of  greenhouse  gas 
emissions comparable to those of the Community, review those measures to provide 
that  free  allocation  only  takes  place  where  this  is  fully  justified  in  the  light  of  that 
agreement. 

Subject to paragraph 3, no free allocation shall be given to electricity generators, to 
installations  for  the  capture,  pipelines  for  the  transport  or  to  storage  sites  for 
greenhouse gas emissions. 

Free allocation may be given to electricity generators in respect of the production of 
heat  through  high  efficiency  cogeneration  as  defined  by  Directive  2004/8/EC  for 
economically  justifiable  demand  to  ensure  equal  treatment  with  regard  to  other 
producers  of  heat.  In  each  year  subsequent  to  2013,  the  total  allocation  to  such 
installations in respect of the production of that heat shall be adjusted by the linear 
factor referred to in Article 9. 

The  maximum  amount  of  allowances  that  is  the  basis  for  calculating  allocations  to 
installations which carry out activities in 2013 and received a free allocation in the 
period 2008 to 2012 shall not exceed, as a proportion of the annual Community-wide 
total  quantity,  the  percentage  of  the  corresponding  emissions  in  the  period  2005  to 
2007  that  those  installations  emitted.  A  correction  factor  shall  be  applied  where 
necessary. 

The  maximum  amount  of  allowances  that  is  the  basis  for  calculating  allocations  to 
installations which are only included in the Community scheme from 2013 onwards 
shall not exceed, in 2013, the total verified emissions of those installations in 2005 to 
2007.  In  each  subsequent  year,  the  total  allocation  to  such  installations  shall  be 
adjusted by the linear factor referred to in Article 9. 

Five  percent  of  the  Community-wide  quantity  of  allowances  determined  in 
accordance with Articles 9 and 9a over the period 2013 to 2020 shall be set aside for 
new entrants, as the maximum that may be allocated to new entrants in accordance 
with the rules adopted pursuant to paragraph 1 of this Article. 

Allocations shall be adjusted by the linear factor referred to in Article 9. 

No  free  allocation  shall  be  made  in  respect  of  any  electricity  production  by  new 
entrants. 

Subject  to  Article  10b,  the  amount  of  allowances  allocated  free  of  charge  under 
paragraphs 3 to 6 of this Article [and paragraph 2 of Article 3c] in 2013 shall be 80% 
of the quantity determined in accordance with the measures referred to in paragraph 

2. 

3. 

4. 

5. 

6. 

7. 

EN 

24 

   EN 

 
8. 

9. 

1  and  thereafter  the  free  allocation  shall  decrease  each  year  by  equal  amounts 
resulting in no free allocation in 2020. 

In  2013  and  in  each  subsequent  year  up  to  2020,  installations  in  sectors  which  are 
exposed to a significant risk of carbon leakage shall be allocated allowances free of 
charge up to 100 percent of the quantity determined in accordance with paragraphs 2 
to 6. 

At  the  latest  by  30  June  2010  and  every  3  years  thereafter  the  Commission  shall 
determine the sectors referred to in paragraph 8.  

That  measure,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article [23(3)]. 

In the determination referred to in the first subparagraph the Commission shall take 
into account the extent to which it is possible for the sector or sub-sector concerned 
to  pass  on  the  cost  of  the  required  allowances  in  product  prices  without  significant 
loss  of  market  share  to  less  carbon  efficient  installations  outside  the  Community, 
taking into account the following: 

(a) 

(b) 

the  extent  to  which  auctioning  would  lead  to  a  substantial  increase  in 
production cost; 

the  extent  to  which  it  is  possible  for  individual  installations  in  the  sector 
concerned  to  reduce  emission  levels  for  instance  on  the  basis  of  the  most 
efficient techniques; 

(c)  market structure, relevant geographic and product market, the exposure of the 

sectors to international competition; 

(d) 

the  effect  of  climate  change  and  energy  policies  implemented,  or  expected  to 
be implemented outside the EU in the sectors concerned. 

For  the  purposes  of  evaluating  whether  the  cost  increase  resulting  from  the 
Community  scheme  can  be  passed  on,  estimates  of  lost  sales  resulting  from  the 
increased  carbon  price  or  the  impact  on  the  profitability  of  the  installations 
concerned may inter alia be used. 

Article 10b 
Measures to support certain energy intensive industries in the event of carbon leakage 

Not  later  than  June  2011,  the  Commission  shall,  in  the  light  of  the  outcome  of  the 
international  negotiations  and  the  extent  to  which  these  lead  to  global  greenhouse  gas 
emission  reductions,  and  after  consulting  with  all  relevant  social  partners,  submit  to  the 
European  Parliament  and  to  the  Council  an  analytical  report  assessing  the  situation  with 
regard to energy-intensive sectors or sub-sectors that have been determined to be exposed to 
significant risks of carbon leakage. This shall be accompanied by any appropriate proposals, 
which may include: 

– 

adjusting the proportion of allowances received free of charge by those sectors 
or sub-sectors under Article 10a; 

EN 

25 

   EN 

 
– 

inclusion in the Community scheme of importers of products produced by the 
sectors or sub-sectors determined in accordance with Article 10a. 

Any binding sectoral agreements which lead to global emissions reductions of the magnitude 
required  to  effectively  address  climate  change,  and  which  are  monitorable,  verifiable  and 
subject  to  mandatory  enforcement  arrangements  shall  also  be  taken  into  account  when 
considering what measures are appropriate." 

(9) 

Articles 11 and 11a are replaced by the following: 

1. 

2. 

1. 

2. 

3. 

"Article 11 
National implementation measures 

Each  Member  State  shall  publish  and  submit  to  the  Commission,  by  30  September 
2011,  the  list  of  installations  covered  by  this  Directive  in  its  territory  and  any  free 
allocation to each installation in its territory calculated in accordance with the rules 
referred to in Article 10a(1). 

By  28  February  of  each  year,  the  competent  authorities  shall  issue  the  quantity  of 
allowances  that  are  to  be  distributed  for  that  year,  calculated  in  accordance  with 
Articles 10 and 10a.  

An installation which ceases to operate shall receive no further free allowances. 

Article 11a 
Use of CERs and ERUs from project activities in the Community scheme before the 
entry into force of a future international agreement on climate change 

Until a future international agreement on climate change has entered into force, and 
in advance of the application of paragraphs 3 and 4 of Article 28, paragraphs 2 to 7 
of this Article shall apply. 

Operators  may  request  the  competent  authority,  to  the  extent  that  the  levels  of 
CER/ERU use allowed to them by Member States for the period 2008 to 2012 have 
not been used up, to issue allowances to them valid from 2013 onwards in exchange 
for  CERs  and  ERUs  issued  in  respect  of  emission  reductions  up  until  2012  from 
project types which were accepted by all Member States in the Community scheme 
during  the  period  2008  to  2012.  Until  31  December  2014,  the  competent  authority 
shall make such an exchange on request. 

To the extent that the levels of CER/ERU use allowed to operators by Member States 
for the period 2008 to 2012 have not been used up, competent authorities shall allow 
operators to exchange CERs from projects that were established before 2013 issued 
in respect of emission reductions from 2013 onwards for allowances valid from 2013 
onwards. 

The  first  subparagraph  shall  apply  for  all  project  types  which  were  accepted  by  all 
Member States in the Community scheme during the period 2008 to 2012. 

EN 

26 

   EN 

 
4. 

5. 

6. 

7. 

To the extent that the levels of CER/ERU use allowed to operators by Member States 
for the period 2008 to 2012 have not been used up, competent authorities shall allow 
operators  to  exchange  CERs  issued  in  respect  of  emission  reductions  from  2013 
onwards  for  allowances  from  new  projects  started  from  2013  onwards  in  Least 
Developed Countries. 

The first subparagraph shall apply to CERs for all project types which were accepted 
by  all  Member  States  in  the  Community  scheme  during  the  period  2008  to  2012, 
until those countries have ratified an agreement with the Community or until 2020, 
whichever is the earlier. 

To the extent that the levels of CER/ERU use allowed to operators by Member States 
for  the  period  2008  to  2012  have  not  been  used  up  and  in  the  event  that  the 
conclusion of an international agreement on climate change is delayed, credits from 
projects or other emission reducing activities may be used in the Community scheme 
in  accordance  with  agreements  concluded  with  third  countries,  specifying  levels  of 
use. In accordance with such agreements, operators shall be able to use credits from 
project activities in those third countries to comply with their obligations under the 
Community scheme. 

Any agreements referred to in paragraph 5 shall provide for the use of credits in the 
Community scheme from renewable energy or energy efficiency technologies which 
promote  technological  transfer,  sustainable  development.  Any  such  agreement  may 
also provide for the use of credits from projects where the baseline used is below the 
level  of  free  allocation  under  the  measures  referred  to  in  Article  10a  or  below  the 
levels required by Community legislation. 

Once  an  international  agreement  on  climate  change  has  been  reached,  only  CERs 
from  third  countries  which  have  ratified  that  agreement  shall  be  accepted  in  the 
Community scheme."  

(10) 

In Article 11b(1) the following subparagraph is added: 

"The Community and its Member States shall only authorise project activities where 
all project participants have headquarters either in a country that has concluded the 
international  agreement  relating  to  such  projects  or  in  a  country  or  sub-federal  or 
regional entity which is linked to the Community scheme pursuant to Article 25." 

(11)  Article 13 is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

"1.  Allowances issued from 1 January 2013 onwards shall be valid for emissions 

during periods of eight years beginning on 1 January 2013." 

(b)  paragraph 2 is deleted; 

(c) 

In paragraph 3, the first subparagraph is replaced by the following:   

"Four  months  after  the  beginning  of  each  period  referred  to  in  paragraph  1, 
allowances  which  are  no  longer  valid  and  have  not  been  surrendered  and 

EN 

27 

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cancelled in accordance with Article 12(3) shall be cancelled by the competent 
authority." 

(12)  Article 14 is replaced by the following: 

"Article 14 
Monitoring and reporting of emissions 

1. 

2. 

3. 

The  Commission  shall  adopt  a  Regulation  for  the  monitoring  and  reporting  of 
emissions  and,  where  relevant,  activity  data,  from  the  activities  listed  in  Annex  I 
which shall be based on the principles for monitoring and reporting set out in Annex 
IV  and  shall  specify  the  global  warming  potential  of  each  greenhouse  gas  in  the 
requirements for monitoring and reporting emissions for that gas. 

That  measure,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article [23(3)]. 

The  Regulation  may  take  into  account  the  most  accurate  and  up-to-date  scientific 
evidence available, in particular from the IPCC, and may also specify requirements 
for  operators  to  report  on  emissions  associated  with  the  production  of  goods 
produced  by  energy  intensive  industries  which  may  be  subject  to  international 
competition, and for this information to be verified independently. 

Those  requirements  may  include  reporting  on  levels  of  emissions  from  electricity 
generation covered by the Community scheme associated with the production of such 
goods. 

Member States shall ensure that each operator of an installation reports the emissions 
from that installation during each calendar year to the competent authority after the 
end of that year in accordance with the regulation." 

(13)  Article 15 is amended as follows: 

(a) 

the title is replaced by the following: 

"Verification and Accreditation"  

(b) 

the following paragraphs are added: 

"The  Commission  shall  adopt  a  Regulation  for  the  verification  of  emission  reports 
and the accreditation of verifiers specifying conditions for the accreditation, mutual 
recognition  and  withdrawal  of  accreditation  for  verifiers,  and  for  supervision  and 
peer evaluation as appropriate. 

That  measure,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article [23(3)]." 

(14) 

In Article 16, paragraph 4 is replaced by the following: 

EN 

28 

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"4. 

The  excess  emissions  penalty  relating  to  allowances  issued  from  1  January  2013 
onwards shall increase in accordance with the European Index of Consumer Prices." 

(15)  Article 19 is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

"1.  Allowances  issued  from  1  January  2013  onwards  shall  be  held  in  the 

Community registry."  

(b) The following paragraph 4 is added: 

"4.  The Regulation on a standardised and secured system of registries shall contain 
appropriate  modalities  for  the  Community  registry  to  undertake  transactions 
and other operations to implement arrangements referred to in Article 25(1b)." 

(16)  Article 21 is amended as follows: 

(a) 

in paragraph 1, the second sentence is replaced by the following: 

"That  report  shall  pay  particular  attention  to  the  arrangements  for  the  allocation  of 
allowances, the operation of registries, the application of the implementing measures 
on  monitoring  and  reporting,  verification  and  accreditation  and  issues  relating  to 
compliance with this Directive and on the fiscal treatment of allowances, if any." 

(b)  paragraph 3 is replaced by the following: 

"3.  The  Commission  shall  organise  an  exchange  of  information  between  the 
competent  authorities  of  the  Member  States  concerning  developments  relating  to 
issues  of  allocation,  the  use  of  ERUs  and  CERs  in  the  Community  scheme,  the 
operation of registries, monitoring, reporting, verification, accreditation, information 
technology, and compliance with this Directive." 

(17)  Article 22 is replaced by the following: 

"Article 22 
Amendments to the Annexes 

The Commission may amend the Annexes to this Directive, with the exception of Annex I , in 
the light of the reports provided for in Article 21 and of the experience of the application of 
this  Directive.  Annexes  IV  and  V  may  be  amended  in  order  to  improve  the  monitoring, 
reporting and verification of emissions. 

Those measures, designed to amend non-essential elements of this Directive, shall be adopted 
in accordance with the regulatory procedure with scrutiny referred to in Article [23(3)]." 

(18) 

In Article 24, paragraphs 2 and 3 are replaced by the following: 

"2.  When  the  inclusion  of  additional  activities  and  gases  is  approved,  the 
Commission  may  at  the  same  time  authorise  other  Member  States  to  include  such 
additional activities and gases. 

EN 

29 

   EN 

 
3. 
The Commission may, on its own initiative or on request by a Member State, 
adopt  a  Regulation  on  the  monitoring  of,  and  reporting  on,  emissions  concerning 
activities, installations and greenhouse gases which are not listed as a combination in 
Annex I, if that monitoring and reporting can be carried out with sufficient accuracy. 

That  measure,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article [23(3)]." 

(19)  The following Article 24a is inserted: 

"Article 24a 
Harmonised rules for projects that reduce emissions 

1. 

In addition to the inclusions provided for in Article 24, the Commission may adopt 
implementing measures for issuing allowances in respect of projects administered by 
Member  States  that  reduce  greenhouse  gas  emissions  outside  of  the  Community 
scheme. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article [23(3)]. 

Any  such  measures  shall  not  result  in  the  double-counting  of  emissions  reductions 
and  impede  the  undertaking  of  other  policy  measures  to  reduce  emissions  not 
covered  by  the  Community  scheme.  Provisions  shall  only  be  adopted  where 
inclusion  is  not  possible  in  accordance  with  Article  24,  and  the  next  review  of  the 
Community  scheme  shall  consider  harmonising  the  coverage  of  those  emissions 
across the Community. 

2. 

The  Commission  may  adopt  implementing  measures  that  set  out  the  details  for 
crediting Community-level projects referred to in paragraph 1. 

Those  measures,  designed  to  amend  non–essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article [23(3)]." 

(20) 

In Article 25, the following paragraphs 1a and 1b are inserted: 

"1a. 

1b. 

Agreements may be made to provide for the recognition of allowances between the 
Community  scheme  and  mandatory  greenhouse gas  emissions trading systems with 
absolute emissions caps established in any other country or in sub-federal or regional 
entities. 

Non-binding arrangements may be made with third countries or with sub-federal or 
regional entities to provide for administrative and technical coordination in relation 
to allowances in the Community scheme or other greenhouse gas emissions trading 
systems with absolute emissions caps." 

EN 

30 

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(21)  Articles 27 and 28 are replaced by the following: 

"Article 27 
Exclusion of small combustion installations subject to equivalent measures 

1. 

Member States may exclude, from the Community scheme, combustion installations 
which have a rated thermal input below 25MW, reported emissions to the competent 
authority  of  less  than  10 000  tonnes  of  carbon  dioxide  equivalent,  excluding 
emissions from biomass, in each of the preceding 3 years, 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: 

(a) 

(b) 

(c) 

it notifies the Commission of each such installation, specifying the equivalent 
measures that are in place, 

it  confirms  that  monitoring  arrangements  are  in  place  to  assess  whether  any 
installation  emits  10 000  tonnes  or  more  of  carbon  dioxide  equivalent, 
excluding emissions from biomass, in any one calendar year; 

it  confirms  that  if  any  installation  emits  10 000  tonnes  or  more  of  carbon 
dioxide  equivalent,  excluding  emissions  from  biomass,  in  any  one  calendar 
year or the equivalent measures are no longer in place, the installation will be 
re-introduced into the system; 

(d) 

it  publishes  the  information  referred  to  in  points  (a),  (b)  and  (c)  for  public 
comment. 

2. 

If, following a period of three months from the date of notification for the public to 
comment, the Commission does not object within a further period of six months, the 
notification shall be considered to be granted. 

Following  the  surrender  of  allowances  in  respect  of  the  period  during  which  the 
installation is in the emissions trading system, the installation shall be excluded and 
the Member State shall issue no further free allowances to the installation pursuant to 
Article 10a. 

Article 28 
Adjustments applicable upon the conclusion of a future international agreement on 
climate change 

1. 

2. 

Upon  the  conclusion  by  the  Community  of  an  international  agreement  on  climate 
change  leading,  by  2020,  to  mandatory  reductions  of  greenhouse  gas  emissions 
exceeding  the  minimum  reduction  levels  agreed  upon  by  the  European  Council, 
paragraphs 2, 3 and 4 shall apply.  

From the year following the conclusion of the international agreement referred to in 
paragraph  1,  the  linear  factor  shall  increase  so  that  the  Community  quantity  of 
allowances in 2020 is lower than that established pursuant to Article 9, by a quantity 
of allowances equivalent to the overall reduction of greenhouse gas emissions by the 

EN 

31 

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3. 

4. 

Community  below  20%  to  which  the  international  agreement  commits  the 
Community, multiplied by the share of overall greenhouse gas emission reductions in 
2020 which the Community scheme is contributing pursuant to Articles 9 and 9a. 

Operators  may  use  CERs,  ERUs  or  other  credits  approved  in  accordance  with 
paragraph 4 from third countries which have concluded the international agreement, 
up to half of the reduction taking place in accordance with paragraph 2. 

The  Commission  may  adopt  measures  to  provide  for  the  use  of  additional  project 
types by operators in the Community scheme to those referred to in paragraphs 2 to 5 
of  Article  11a  or  the  use  by  such  operators  of  other  mechanisms  created  under  the 
international agreement, as appropriate.  

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article [23(3)].” 

(22)  Annex I is amended in accordance with Annex I to this Directive. 

(23)  Annex IIa is added, as set out in Annex II to this Directive .  

(24)  Annex III is deleted. 

Article 2 
Transposition 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  by  31  December  2012  at  the 
latest.  They  shall  forthwith  communicate  to  the  Commission  the  text  of  those 
provisions and a correlation table between those provisions and this Directive. 

However,  they  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  Article  9a(2)  of  Directive  2003/87/EC  as 
inserted by Article 1(6) of this Directive and with Article 11 of Directive 2003/87/EC 
as amended by Article 1(9) of this Directive by [31 December 2009] at the latest. 

Member States shall apply the provisions referred to in the first subparagraph from 1 
January 2013. When Member States adopt the provisions referred to in the first and 
second subparagraphs, those provisions shall contain a reference to this Directive or 
be  accompanied  by  such  a  reference  on  the  occasion  of  their  official  publication. 
Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of  national  law  which  they  adopt  in  the  field  covered  by  this  Directive.  The 
Commission shall inform the Member States thereof. 

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32 

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Article 3 
Transitional provision 

The  provisions  of  Directive  2003/87/EC,  as  amended  by  Directive  2004/101/EC,  shall 
continue to apply until 31 December 2012. 

Article 4 
Entry into force 

This  Directive  shall  enter  into  force  on  the  twentieth  day  following  its  publication  in  the 
Official Journal of the European Union. 

Article 5 
Addressees 

This Directive is addressed to the Member States. 

Done at Brussels, […] 

For the European Parliament 
The President 

For the Council 
The President 

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33 

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ANNEX I 

Annex I to Directive 2003/87/EC is amended as follows: 

(1) 

Point 1 is replaced by the following: 

“1. 
Installations or parts of installations used for research, development and testing 
of  new  products  and  processes  and  combustion  installations  exclusively  using 
biomass are not covered by this Directive.” 

(2) 

In point 2 the following sentence is added: 

“When  calculating  the  total  capacity  of  combustion  installations,  units  with  a  rated 
thermal  input  under  3  MW  shall  not  be  taken  into  account  for  the  purposes  of  this 
calculation.” 

(3) 

The table is amended as follows: 

(a)  The first row of categories of activity is replaced by the following: 

“ 

Supply of power or heat 

Combustion installations with a rated thermal input exceeding 20 MW 
(except hazardous or municipal waste installations) 

Carbon dioxide 

Other Energy activities 

Mineral oil refineries 

Coke ovens 

Carbon dioxide 

Carbon dioxide 

” 

(b)  The second row of categories of activity is amended as follows: 

(i) 

in the heading the word "ferrous" is deleted; 

(ii) 

the following paragraphs are added : 

“ 

Production  and  processing  of  ferrous  metals  (including  ferro-alloys) 
where  combustion  installations  with  a  rated  thermal  input  exceeding 
20  MW  are  operated,  including  rolling  mills,  re-heaters,  annealing 
furnaces, smitheries, foundries, coating and pickling. 

Carbon dioxide 

Production of aluminium (primary, and secondary where combustion 
installations  with  a  rated  thermal  input  exceeding  20  MW  are 
operated) 

Carbon 
perfluorocarbons 

dioxide 

and 

including 
Production  and  processing  of  non-ferrous  metals, 
production  of  alloys, 
foundry  casting,  etc.,  where 
combustion installations with a rated thermal input exceeding 20 MW 
are operated. 

refining, 

Carbon dioxide 

EN 

34 

   EN 

 
 
 
 
 
 
 
 
” 

(c) 

the third row of categories of activity is amended as follows: 

(i) 

the first paragraph is replaced by the following: 

“Installations for the production of cement clinker in rotary kilns with a 
production capacity exceeding 500 tonnes per day or lime including the 
calcination  of  dolomite  and  magnesite in  rotary  kilns  with  a  production 
capacity  exceeding  50  tonnes  per  day  or  in  other  furnaces  with  a 
production capacity exceeding 50 tonnes per day”; 

(ii) 

in the third paragraph the following terms are deleted:  

“, and/or with a kiln capacity exceeding 4 m³ and with a setting density 
per kiln exceeding 300 kg/m³;”  

(iii) 

the following paragraphs are added: 

“ 

Installations  for  the  manufacture  of  rock  wool  or  stone  wool  with  a 
capacity exceeding 20 tonnes per day 

Carbon dioxide 

Installations  for  the  drying  or  calcination  of  gypsum  or  for  the 
production  of  plaster  boards  and  other  gypsum  products,  where 
combustion installations with a rated thermal input exceeding 20 MW 
are operated. 

Carbon dioxide 

(4) 

The following rows of categories of activity are added: 

“ 

Chemical industry 

Production  of  carbon  black  involving  the  carbonisation  of  organic 
substances  such  as  oils,  tars,  cracker  and  distillation  residues,  where 
combustion installations with a rated thermal input exceeding 20 MW 
are operated 

Carbon dioxide 

” 

Production of nitric acid 

Production of adipic acid 

Production of glyoxal and glyoxylic acid 

Carbon  dioxide  and  nitrous 
oxide 

Carbon  dioxide  and  nitrous 
oxide 

Carbon  dioxide  and  nitrous 
oxide  

Production of ammonia 

Carbon dioxide 

Production of basic organic chemicals by cracking, reforming, partial 

24 

Directive xxxx/xx/EC on the geological storage of carbon dioxide. 

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35 

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or  full  oxidation  or  by  similar  processes,  with  a  production  capacity 
exceeding 100 tonnes per day 

Carbon dioxide 

Production of hydrogen (H2) and synthesis gas by reforming or partial 
oxidation with a production capacity exceeding 25 tonnes per day 

Production of soda ash (Na2CO3) and sodium bicarbonate (NaHCO3) 

………………………………………………………………… 

Carbon dioxide 

Carbon dioxide 

Capture,  transport  and  geological  storage  of  greenhouse  gas 
emissions  

Installations to capture greenhouse gases for the purpose of transport 
and  geological  storage  in  a  storage  site  permitted  under  Directive 
xxxx/xx/EC24 

Pipelines for the transport of greenhouse gases for geological storage 
in a storage site permitted under Directive xxxx/xx/EC 

Storage sites for the geological storage of greenhouse gases permitted 
under Directive xxxx/xx/EC 

All  greenhouse  gases  listed 
in Annex II 

All  greenhouse  gases  listed 
in Annex II 

All  greenhouse  gases  listed 
in Annex II 

” 

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36 

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ANNEX II 

The following is added as Annex IIa to Directive 2003/87/EC: 

“ANNEX IIa 

Increases in the percentage of allowances to be auctioned by Member States pursuant to 
Article 10(2)(a), for the purpose of Community solidarity and growth in order to reduce 
emissions and adapt to the effects of climate change 

Member State share 

Belgium 

Bulgaria 

Czech Republic 

Estonia 

Greece 

Spain 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Poland 

Portugal  

Romania 

Slovenia 

Slovakia  

Sweden 

” 

10% 

53% 

31% 

42% 

17% 

13% 

2% 

20% 

56% 

46% 

10% 

28% 

23% 

39% 

16% 

53% 

20% 

41% 

10% 

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37 

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

NAME OF THE PROPOSAL: 

Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  amending 
Directive 2003/87/EC so as to improve and extend the EU greenhouse gas emission 
allowance trading system of the Community 

2. 

ABM/ABB FRAMEWORK 

Policy Area(s) concerned and associated Activity/Activities:  

Policy area: 07 Environment  

Activity ABB Code 0703: Implementation of Community environmental policy and 
legislation 

3. 

BUDGET LINES 

3.1. 

Budget  lines  (operational  lines  and  related  technical  and  administrative 
assistance lines (ex- BA lines)) including headings: 

Article  07  03  07  -  LIFE+  (Financial  Instrument  for  the  Environment  —  2007  to 
2013) 

3.2. 

Duration of the action and of the financial impact: 

For 2009-2013 the appropriations required will be covered by the resources already 
foreseen  for  the  LIFE+  programme.  As  the  revised  legislation  only  takes  effect  as 
from 2013, and there is no end date for the action, the proposal will continue to have 
an  impact  on  the  EU  budget  also  thereafter,  at  least  for  regular  monitoring  of  the 
functioning  of  the  system.  The  main  element  of  uncertainty  is  the  timing  of  an 
international climate change agreement, which may make adjustments to the system 
necessary.  

3.3. 

Budgetary characteristics (add rows if necessary): 

Budget 
line 

07 03 07 

Type of expenditure 

New 

EFTA 
contribution 

Contributions 
from applicant 
countries 

Heading in 
financial 
perspective 

Non-
comp 

Diff 

NO 

NO 

NO 

NO 2 

EN 

38 

   EN 

 
4. 

SUMMARY OF RESOURCES 

4.1. 

Financial resources 

4.1.1. 

Summary of commitment appropriations (CA) and payment appropriations (PA) 

EUR million (to 3 decimal places) 

Expenditure type 

2009 

2010 

2011 

2012 

2013 

Section 
no. 

Total 

2014 
and 
later 

Operational expenditure25 

Commitment  appropriations 
(CA) 

8.1. 

Payment 
(PA) 

appropriations 

a 

b 

0.900  1.850 

0.150 

0.150 

0.000 

0.000 

3.050 

0.270  1.185 

0.815 

0.675 

0.105 

0.000 

3.050 

Administrative expenditure within reference amount26 

Technical  &  administrative 
assistance (NDA) 

8.2.4. 

c 

TOTAL REFERENCE AMOUNT 

Commitment 
appropriations 

Payment appropriations 

a+c

b+c

0.000  0.000 

0.000 

0.000 

0.000 

0.000 

0.000 

0.900  1.850 

0.150 

0.150 

0.000 

0.000 

3.050 

0.270  1.185 

0.815 

0.675 

0.105 

0.000 

3.050 

Administrative expenditure not included in reference amount27 

Human 
associated 
(NDA) 

resources 

and 
expenditure 

Administrative  costs,  other 
than  human  resources  and 
not 
associated 
included 
reference 
in 
amount (NDA) 

costs, 

8.2.5. 

d 

8.2.6. 

e 

1.170  1.813 

1.287 

0.819 

0.819 

0.819 

6.727 

0.250  0.287 

0.341 

0.395 

0.277 

0.331 

1.881 

Total indicative financial cost of intervention 

TOTAL CA including cost 
of human resources 

TOTAL  PA  including  cost 
of human resources 

a+c
+d
+e 

b+c
+d
+e 

2.320  3.950 

1.778 

1.364 

1.096 

1.150 

11.658 

1.690  3.285 

2.443 

1.889 

1.201 

1.150 

11.658 

25 
26 
27 

Expenditure that does not fall under Chapter xx 01 of the Title xx concerned. 
Expenditure within Article xx 01 04 of Title xx. 
Expenditure within Chapter xx 01 other than Articles xx 01 04 or xx 01 05. 

EN 

39 

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Co-financing details 

If  the  proposal  involves  co-financing  by  Member  States  or  other  bodies  (please 
specify  which),  an  estimate  of  the  level  of  this  co-financing  should  be  indicated  in 
the table below (additional lines may be added if different bodies are foreseen for the 
provision of the co-financing): 

EUR million (to 3 decimal places) 

Year 
n 

n + 1

n + 2

n + 3

n + 4 

n + 5 
and 
later 

Total 

0.000  0.000 

0.000 

0.000 

0.000 

0.000 

0.000 

Co-financing body 

…………………… 

TOTAL  CA  including  co-
financing 

f 

a+c
+d
+e
+f 

4.1.2.  Compatibility with financial programming 

X 

Proposal is compatible with existing financial programming. 

(cid:133) 

(cid:133) 

Proposal  will  entail  reprogramming  of  the  relevant  heading  in  the  financial 
perspective. 

Proposal  may  require  application  of  the  provisions  of  the  Interinstitutional 
Agreement28 (i.e. flexibility instrument or revision of the financial perspective). 

4.1.3.  Financial impact on revenue 

X 

Proposal has no financial implications on revenue 

(cid:133) 

Proposal has financial impact – the effect on revenue is as follows: 

NB: All details and observations relating to the method of calculating the effect on revenue 
should be shown in a separate annex. 

28 

See points 19 and 24 of the Interinstitutional Agreement. 

EN 

40 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Budget line 

Revenue 

EUR million (to one decimal place) 

Situation following action 

[Yea
r n] 

[n+1] [n+2]  [n+3

] 

[n+4] [n+5]

29 

Prior to
action 
[Year 
n-1] 

a) Revenue in absolute terms 

b) Change in revenue 

 Δ 

(Please specify each revenue budget line involved, adding the appropriate number of rows to 
the table if there is an effect on more than one budget line.) 

4.2. 

Human resources FTE (including officials, temporary and external staff) – see 
detail under point 8.2.1. 

Annual requirements 

2009 

2010 

2011 

2012 

2013 

2014 
and 
later 

Total  number  of  human 
resources 

10 
A*/AD 

15.5 
A*/A
D 

11 
A*/A
D 

7 
A*/A
D 

7 
A*/A
D 

7 
A*/A
D 

5. 

CHARACTERISTICS AND OBJECTIVES 

5.1. 

Need to be met in the short or long term 

The EU Emission Trading System is one of the most important instruments for the 
EU's  contribution  towards  achieving  the  significant  emission  reductions  which  are 
necessary to prevent dangerous climate change.  

In the light of the experience with the first trading period and extensive stakeholder 
consultations,  it  is  clear  that  the  scheme  needs  to  be  strengthened  and  extended  to 
further  large  industrial  emitters,  so  that  it  can  become  a  solid  building  block  for  a 
global carbon market and for a future international agreement on climate change. To 
this end, financial resources are necessary for the development of tasks attributed to 
the Commission by the Directive, including: 

–  the  development  of  Regulations  setting  out  detailed  implementing  rules  on 
monitoring  and  reporting,  verification  of  emission  reports  and  accreditation  of 
verifiers, and auctioning, 

–  the development of Community-wide allocation rules,  

29 

Additional columns should be added if necessary, i.e. if the duration of the action exceeds 6 years. 

EN 

41 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
–  the  development  of  rules  in  relation  to  projects  that  reduce  greenhouse  gas 

emissions within or outside the Community,  

–  the  potential  development  of  methodologies  and  provisions  to  be  valid  until  an 

international agreement on climate change has been concluded, 

–  any necessary adjustment of the provisions of the Directive once an international 

agreement on climate change has been concluded, 

–  the setting up of arrangements and agreements for the recognition of allowances 
between  the  Community  system  and  compatible,  mandatory  GHG  emission 
trading systems in other parts of the world, 

–  the  procurement  of  studies  or  other  technical  assistance  related  to  the 

implementation, 

–  information and capacity-building activities. 

The  primary  beneficiaries  of  the  improved  certainty  and  predictability  and  the 
increased  harmonisation  of  the  scheme  are  the  operators  of  installations  that  are 
currently covered or are proposed to be covered in the future. Indirectly, also trading 
intermediaries benefit from the increased transparency and predictability.  

5.2. 

Value-added  of  Community  involvement  and  coherence  of  the  proposal  with 
other financial instruments and possible synergy 

Action to reduce greenhouse gas emissions can best be achieved through legislation 
and coordination at Community level. It appeared from the first phase of the EU ETS 
from 2005 to 2007 that increased harmonisation, e.g. of the application of the scope 
of the Directive and of the cap-setting and the allocation rules is needed in order to 
avoid distortions of competition on the internal market.  

Operational expenditure is envisaged within the part of the LIFE+ budget subject to 
central direct management. 

5.3. 

Objectives, expected results and related indicators of the proposal in the context 
of the ABM framework 

The European Council held on 8-9 March 2007 endorsed an EU objective of a 20%, 
and  under  certain  circumstances  30%,  reduction  in  greenhouse  gas  emissions  by 
2020 compared to 1990 as its contribution to a global and comprehensive agreement 
for  the  period  beyond  2012,  provided  that  other  developed  countries  commit 
themselves  to  comparable  emission  reductions  and  economically  more  advanced 
developing  countries  to  contributing  adequately  according  to  their  responsibilities 
and respective capabilities.  

Furthermore,  that  European  Council  confirmed  that  the  European  Union  Emissions 
Trading System (EU ETS) is and will remain one of the most important instruments 
for  the  EU's  contribution  towards  achieving  the  significant  emission  reductions 
which  are  necessary  to  meet  the  strategic  objective  of  limiting  the  global  average 
temperature increase to not more than 2°C above pre-industrial levels.  

EN 

42 

   EN 

 
In this context, it is vital that the EU ETS is improved and extended in the light of 
experience during the first "learning-by-doing" phase from 2005 to 2007, and that it 
is  prepared  for  linking  to  compatible  cap-and-trade  systems  in  other  parts  of  the 
world. The objectives of the proposal are set out in the Explanatory Memorandum.  

Objective 

Indicator 

To  streamline  and  extend  the  scope  of 
the EU ETS 

To  increase  the  harmonisation  and  the 
predictability of the system 

Fewer  complaints  from  industry  or  MS 
relating  to  differences  in  application  of 
the  scope  between  MS,  and  about 
disproportionate administrative costs for 
the smallest installations. 

No  distortion  of  competition  in  the 
internal  market  due  to  differences  in 
Member State implementation.  

Companies  having  sufficient  regulatory 
certainty 
to  decide  on 
medium-  to  long-term  investments  in 
low-carbon technologies.  

to  be  able 

To  have 
enforcement  

robust 

compliance 

and 

High  confidence  in  the  EU  ETS,  also 
internationally.  

To 
link  with  appropriate  emissions 
trading systems in third countries and to 
involve 
have  appropriate  means 
developing  countries  and  countries  in 
economic transition 

to 

Having  given  input  to  the  development 
of  emissions  trading  schemes  in  third 
countries  or  administrative  entities  with 
a  view  to  enabling  linking  to  the  EU 
ETS 
its 
without 
environmental integrity. 

jeopardizing 

5.4.  Method of implementation (indicative) 

X 

Centralised management 

X 

directly by the Commission 

(cid:133) 

indirectly by delegation to: 

(cid:133) 

executive Agencies 

(cid:133) 

bodies set up by the Communities as referred to in Article 185 of 
the Financial Regulation 

(cid:133) 

national public-sector bodies/bodies with a public-service mission 

(cid:133) 

Shared or decentralised management 

(cid:133)  with Member States 

(cid:133)  with third countries 

EN 

43 

   EN 

 
(cid:133) 

Joint management with international organisations (please specify) 

Relevant comments: 

6. 

MONITORING AND EVALUATION 

6.1.  Monitoring system 

Member  States  will  have  to  report  on  all  actions  and  measures  they  take  to 
implement the Directive (Article 1(7) and Article 2 of the proposal).  

Contracts  signed  by  the  Commission  for  the  purpose  of  the  implementation  of  the 
Directive must provide for supervision and financial control by the Commission (or 
any  representative  authorised  by  it)  and  for  audits  by  the  Court  of  Auditors,  if 
necessary on the spot. 

6.2. 

Evaluation 

6.2.1.  Ex-ante evaluation 

See the impact assessment accompanying this proposal. The economic, social, health 
and  environmental  impacts  of  the  measures  proposed  have  been  assessed.  It  was 
partly carried out internally and partly through external consultants during 2007.  

6.2.2.  Measures taken  following  an intermediate/ex-post evaluation (lessons  learned from 

similar experience in the past) 

The measures proposed and the accompanying impact assessment take into account 
lessons learned from the operation of the Community system in the period 2005 to 
2007.  

6.2.3.  Terms and frequency of future evaluation 

The progress of the work on implementing this proposal and the appropriateness of 
the  resources  allocated  will  be  evaluated  annually  in  connection  with  the 
management plan.  

7. 

ANTI-FRAUD MEASURES  

Internal control standards No 14, 15, 16, 18, 19, 20, and 21, and the principles laid 
down  in  Council  Regulation  (EC,  Euratom)  No  1605/2002  on  the  Financial 
Regulation  applicable  to  the  general  budget  of  the  European  Communities  will  be 
fully applied. 

EN 

44 

   EN 

 
8. 

DETAILS OF RESOURCES 

8.1. 

Objectives of the proposal in terms of their financial cost 

(Headings  of  Objectives, 
actions  and  outputs  should 
be provided) 

Type of output 

Av. 
cost 

2009 

2010 

2011 

2012 

2013 

2014 or later 

TOTAL 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

Commitment appropriations in EUR million (to 3 decimal places) 

OPERATIONAL 
OBJECTIVE  No.2  1Increase 
harmonisation 
and 
predictability 

Action 1 

Adopt 
allocation rules 

Community-wide 

 - Output 1 

Allocation rules 

0 

0.400 

1 

1.100 

1 

1.500 

Action 2 

Establish 
Community-wide registry 

and  maintain 

- Output 1  Software 

1 

0.750 

1 

0.750 

Action 3 

Provide  for  projects  in  EU 
outside the EU ETS 

EN 

45 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- Output 1  Provisions 

for 

issuing 
allowances 

Until  conclusion  of 
agreement 

int'l 

Action 7 

Address carbon leakage 

- Output 1  Report 

on 

potential 
carbon leakage 

Sub-total  

Objective 2 

OPERATIONAL 
OBJECTIVE  No.3  1Robust 
compliance and enforcement 

Action 1 

Improve 
guidelines 

and 

upgrade 

- Output 1  Regulation  on 
monitoring  and 
reporting 

- Output 2  Regulation  on 
verification  and 
accreditation 

Sub-total Objective 3 

OPERATIONAL 
OBJECTIVE  No.4  1Linking 
involvement  of  3rd 
and 
countries 

1 

1 

1 

1 

2 

1 

0.150 

1 

0.150 

0.350 

0.750 

2 

1.850 

1 

0.150 

0.100 

0.050 

0.150 

1 

5 

1 

1 

2 

0.350 

2.750 

0.100 

0.050 

0.150 

EN 

46 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upon 
agreement 

concl 

of 

int'l 

Action 1 

Provide  for  use  of  new 
credits/mechanisms 

- Output 1  Provisions 

Sub-total Objective 4 

TOTAL COST 

4 

0.900 

2 

1.850 

1 

1 

1 

0.150 

0.150 

0.150 

2 

0.150 

1 

1 

9 

0.150 

0.150 

3.050 

EN 

47 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8.2. 

Administrative expenditure 

8.2.1.  Number and type of human resources 

Types of post 

Staff to be assigned to management of the action using existing and/or 
additional resources (number of posts/FTEs) 

2009 

2010 

2011 

2012 

2013 

2014+ 

14.5 

1 

10 

1 

6 

1 

6 

1 

6 

1 

Officials or 
temporary 
staff30 (XX 01 
01) 

A*/AD 

B*, 
C*/AST 

9 

1 

financed31 

Staff 
Article XX 01 02 

by 

Other  staff32  financed by 
Article XX 01 04/05 

TOTAL 

10 

15.5 

11 

7 

7 

7 

8.2.2.  Description of tasks deriving from the action 

–  Prepare  regulations  on  auctioning;  monitoring  and  reporting;  verification  and 

accreditation 

–  Develop  Community-wide  allocation  rules  and  a  Community  wide  electronic 

registry 

–  Analyse  the  need  for  a  mechanism  to  apply  to  certain  energy  intensive 

installations until there is an international agreement on climate change 

–  Adjust the scheme, as and if appropriate, in the light of an international agreement 

on climate change 

–  Monitor the implementation in the Member States 

–  Capacity-building and information activities 

8.2.3. 

Sources of human resources (statutory) 

(cid:133) 

Posts currently allocated to the management of the programme to be replaced 
or extended 

(cid:133) 

Posts pre-allocated within the APS/PDB exercise for year n 

X 

Posts to be requested in the next APS/PDB procedure 

30 
31 
32 

Cost of which is NOT covered by the reference amount. 
Cost of which is NOT covered by the reference amount. 
Cost of which is included in the reference amount. 

EN 

48 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
(cid:133) 

(cid:133) 

Posts  to  be  redeployed  using  existing  resources  within  the  managing  service 
(internal redeployment) 

Posts  required  for  year  n  although  not  foreseen  in  the  APS/PDB  exercise  for 
the year in question 

8.2.4.  Other  administrative  expenditure  included  in  reference  amount  (XX  01  04/05  – 

Expenditure on administrative management) 

Budget line 

(number and heading) 

2009 

2010 

2011 

2012 

2013 

2014 
and 
later 

TOTAL 

EUR million (to 3 decimal places) 

Technical 

1 
and 
assistance (including related staff costs) 

administrative 

Executive agencies33 

Other 

technical 

and 

administrative 

assistance 

- intra muros  

- extra muros 

Total 
assistance 

technical  and  administrative 

8.2.5.  Financial cost of human resources and associated costs not included in the reference 

amount 

Type of human resources 

2009 

2010 

2011 

2012 

2013 

2014 

and later 

EUR million (to 3 decimal places) 

1.170 

1.813 

1.287 

0.819 

0.819 

0.819 

Officials  and  temporary  staff 
(XX 01 01) 

Staff  financed  by  Art  XX  01 
02  (auxiliary,  END,  contract 
staff, etc.) 

(specify budget line) 

of 

cost 

Total 
human 
resources  and  associated 
in  reference 
costs 
amount) 

(NOT 

1.170 

1.813 

1.287 

0.819 

0.819 

0.819 

33 

Refer to the specific legislative financial statement for the Executive Agency(ies) concerned. 

EN 

49 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Calculation– Officials and temporary agents 

The standard salary for 1A*/AD official as referred to in Point 8.2.1 is € 0.117 M 

Calculation– Staff financed under Article XX 01 02 

N/A 

8.2.6. Other administrative expenditure not included in reference amount 

EUR million (to 3 decimal places)

2009 

2010 

2011 

2012 

2013 

2014 

and 
later 

TOTAL 

XX 01 02 11 01 – Missions 

0.010 

0.010 

0.010 

0.030 

XX 01 02 11 02 – Meetings & conferences 

XX 01 02 11 03 – Committees34  

0.027 

0.081 

0.135 

0.027 

0.081 

0.351 

XX 01 02 11 04 – Studies & consultations 

XX 01 02 11 05 - Information systems 

2 Total other management expenditure 

0.000 

0.037 

0.091 

0.145 

0.027 

0.081 

0.381 

(XX 01 02 11) 

3  Other 

of 

an 
expenditure 
administrative  nature  (XX.010301 
(Equipment of the Data Centre, Services 
and  operating  expenditure  of  the  Data 
Centre)) 

administrative 
expenditure, 
than  human  resources  and 
in 

Total 
other 
associated  costs  (NOT 
reference amount 

included 

0.250 

0.250 

0.250 

0.250 

0.250 

0.250 

1.500 

0.250 

0.287 

0.341 

0.395 

0.277 

0.331 

1.881 

Calculation - Other administrative expenditure not included in reference amount 

Ten missions of Commission staff at a unit cost of € 1 000 are foreseen every year from 2010 
to  2012,  in  order  to  explain  the  new  legislation  and  facilitate  its  implementation  in  the 
Member States.  

34 

Specify the type of committee and the group to which it belongs. 

EN 

50 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Meetings  of  the  Climate  Change  Committee  (unit  cost:  € 27 000)  are  foreseen  for  the 
adoption of three new Commission Regulations and amendment of one existing Commission 
Regulation and of Community-wide rules on allocation. Once an international agreement on 
climate change has been concluded, certain elements of the EU ETS are likely to have to be 
adjusted through comitology. There may also be arrangements or agreements for linking the 
EU  ETS  to  schemes  in  third  countries  for  adoption  in  comitology.  The  meetings  of  the 
Climate Change Committee for adoption of the Commission Regulations and of Community-
wide allocation rules will be needed in the period 2010 to 2012. The timing of other meetings 
will depend on developments internationally.  

The € 250 000 per year. The costs included here relate to the hosting of the CITL/Community 
Registry  by  the  Commission,  as  well  as  to  the  purchase  and  maintenance  of  IT  and 
communication  tools  necessary  to  make  the  system  fully  operational.  The  CITL,  an 
independent transaction log recording the  issue, transfer and cancellation  of allowances  is a 
critical  IT  application  for  the  functioning  of  the  EU  Emissions  Trading  Scheme,  which  the 
Commission  is  obliged  to  operate  in  accordance  with  Article  20  of  Directive  87/2003/EC. 
According  to  Article  68  of  Regulation  (EC)  No  2216/2004  regulating  the  registries  system, 
the  Commission  must  ensure  that  both  the  CITL  and  the  CR  (a  separate  registry  that  the 
Kyoto Protocol requires the EC to operate) is operational 24 hours a day, 7 days a week, and 
that interruptions to the operations of these systems are kept to a minimum. 

The costs relating to development and maintenance of the system are covered by budget line 
07 03 07 (LIFE +) - cf section 8.1. 

The needs for human and administrative resources shall be within the allocation that can be 
granted to the managing DG in the framework of the annual allocation procedure in the light 
of budgetary constraints.  

EN 

51 

   EN