Mineral Products Association
MPA
The MPA represents the UK mineral products industry, including materials and products such as aggregates, asphalt, cement, concrete, industrial sand and lime
ID: 570960214458-53
Lobbying Activity
Response to Revising the rules for free allocation in the EU Emissions Trading System
9 Jul 2019
1. The only way to ensure there is no over or under allocation as a result of ALC is to have a truly linear system.
a. The adjustment mechanism must ensure that allowance allocation is as closely aligned with actual production as possible in order to minimise the risk of system “optimisation” which will inevitably lead to over or under allocation. The latter is highly undesirable, as experience in Phase III shows. Using the linear approach would mean allocation is fully aligned with the real activity level and actual GHG emissions. MPA strongly supports the use of a fully linear approach rather than the proposal in the regulation.
b. For highly carbon intensive sectors, such as cement and lime production that have a high proportion of process emissions, a small change in activity level can result in a large increase in emissions. Under the current proposal, an increase in activity level change from 15.1% to 19.9% would not receive a change in allocation because it is within the 15-20% band. However, on a plant with an activity level of 1 million tonnes per year, a 4.8% change equates to 48,000 tonnes, which for cement results in emissions of around 34,000 tonnes of CO2. At the current allowance price of around €25 per tonne this is €850,000 that wouldn’t be received in allocation. Equally if activity level reduced from 19.9% to 15.1% it would be €850,000 of over allocation. Across all sectors in EU ETS, this equates to considerable sums. The only way to avoid this is to use a linear approach.
2. Equal treatment is given to new sub-installations at incumbent sites and new entrants but not all large investments at existing sites will result in a new sub-installation. There is still therefore a difference in treatment between new entrants/new sub-installations at incumbent sites and the same investment at an incumbent site that doesn’t result in a new sub-installation.
a. For example, an existing cement plant has a single product benchmark sub-installation. The company decides to build a new kiln on the same site. This would be using the same inputs and producing the same output as the current product benchmark sub-installation. Therefore MPA understanding is that this would not form a new sub-installation but its output would contribute to an activity level change and if this is above 15% the allocation for the sub-installation will be adjusted. In this case “the adjustment shall apply as of the year following the two calendar years used for determining the average activity level, provided that the adjustment is at least 100 emission allowances” (Article 5(1)). This means that if the kiln started operation in June 2022 it wouldn’t receive any updated allocation until 2024 and the update would only apply from 2024 onwards i.e. no allocation would be received for operation of the new kiln from June 2022-December 2023.
b. If this is then compared to the same new kiln being built at a new entrant site, Article 6(5) states that “the free allocation of emissions allowances shall not be adjusted and shall be based on the activity level of each of the two years respectively” and Article 18(1) of Delegated Regulation 2019/331, rules for harmonized free allocation of emission allowances states “Member States shall calculate the preliminary annual number of emission allowances allocated free of charge as of the start of normal operation”, i.e. the same kiln at a new entrant site will receive allocation for the operation of that kiln based on its actual activity level from the start of normal operation It therefore doesn’t lose out on any free allocation as the kiln built at an incumbent site described above.
c. This discrepancy is a huge issue when considering a new cement kiln costing €millions. The lack of allocation from the start of normal operation of the kiln at an incumbent site, because it is not a new sub-installation, could prevent investment in the latest most energy and carbo
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