(1)

Directive 2003/87/EC of the European Parliament and of the Council (15) established a system for greenhouse gas emission allowance trading within the Union in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner.

(1)

Directive 2003/87/EC of the European Parliament and of the Council (15) established a system for greenhouse gas emission allowance trading within the Union in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner as well as the sustainable strengthening of Union industry against the risk of carbon and investment leakage .

(2)

The European Council of October 2014 made a commitment to reduce the overall greenhouse gas emissions of the Union by at least 40 % below 1990 levels by 2030. All sectors of the economy should contribute to achieving these emission reductions and the target will be delivered in the most cost-effective manner through the Union emission trading system (EU ETS) delivering a reduction of 43 % below 2005 levels by 2030. This was confirmed in the intended nationally determined reduction commitment of the Union and its Member States submitted to the Secretariat of the UN Framework Convention on Climate Change on 6 March 2015 (16).

(2)

The European Council of October 2014 made a commitment to reduce the overall greenhouse gas emissions of the Union by at least 40 % below 1990 levels by 2030. All sectors of the economy should contribute to achieving those emission reductions and the target is to be delivered in the most cost-effective manner through the Union emission trading system (EU ETS) delivering a reduction of 43 % below 2005 levels by 2030. This was confirmed in the intended nationally determined reduction commitment of the Union and its Member States submitted to the Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) on 6 March 2015. The effort of emission reductions should be fairly shared between the sectors covered by the EU ETS.

(2a)

In order to honour the agreed commitment that all sectors of the economy contribute to the fulfilment of the target of reducing the overall greenhouse gas emissions of the Union by at least 40 % below 1990 levels by 2030, it is important that the EU ETS, despite being the Union's primary tool to achieve its long-term climate and energy targets, is complemented by equivalent additional actions taken in other legal acts and instruments dealing with greenhouse gas emissions from sectors not covered by the EU ETS.

(2b)

Under the Agreement adopted in Paris at the 21st Conference of the Parties of the UNFCCC of 12 December 2015 (the ‘Paris Agreement’), countries are required to put policies in place to achieve more than 180 Intended Nationally Determined Contributions (INDCs) that cover some 98 % of global greenhouse gas emissions. The Paris Agreement is aimed at limiting the increase in the global average temperature to well below 2o C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1,5 o C above pre-industrial levels. Many of those policies are expected to involve carbon pricing or similar measures, and therefore a revision clause should be laid down in this Directive to allow the Commission, where appropriate, to propose stricter emissions reductions after the first stocktaking exercise under the Paris Agreement in 2023, an adjustment to the provisions for transitional carbon leakage to reflect the development of carbon pricing mechanisms outside the Union, and additional policy measures and tools to enhance the greenhouse gas reduction commitments of the Union and its Member States. The revision clause should also ensure that a communication is adopted within six months of the facilitative dialogue under the UNFCCC in 2018 assessing the consistency of the Union’s climate change legislation with the Paris Agreement goals.

(2c)

In accordance with the Paris Agreement and in line with the commitment of the co-legislators expressed in Directive 2009/29/EC of the European Parliament and of the Council  (1a) and Decision No 406/2009/EC of the European Parliament and of the Council  (1b) , all sectors of the economy are required to contribute to the reduction of carbon dioxide (CO2) emissions. To this end, efforts to limit international maritime emissions through the International Maritime Organisation (IMO) are under way and should be encouraged, with the aim of establishing a clear IMO action plan for climate policy measures to reduce CO2 emissions from shipping at a global level. The adoption of clear targets to reduce international maritime emissions through the IMO has become a matter of great urgency and a prerequisite for the Union to refrain from acting further on the inclusion of the maritime sector within the EU ETS. If, however, any such agreement is not reached by the end of 2021, the sector should be included under the EU ETS and a fund should be established for ship operators' contributions and collective compliance relating to CO2 emissions already covered by the Union system for monitoring, reporting and verification (MRV system) laid down in Regulation (EU) 2015/757 of the European Parliament and of the Council  (1c) (emissions released in Union ports and during voyages to and from such ports). A share of revenues from the auction of allowances to the maritime sector should be used to improve energy efficiency and support investments in innovative technologies for the reduction of CO2 emissions in the maritime sector, including short sea shipping and ports.

(3)

The European Council confirmed that a well-functioning, reformed EU ETS with an instrument to stabilise the market will be the main European instrument to achieve this target, with an annual reduction factor of 2,2  % from 2021 onwards, free allocation not expiring but existing measures continuing after 2020 to prevent the risk of carbon leakage due to climate policy, as long as no comparable efforts are undertaken in other major economies, without reducing the share of allowances to be auctioned. The auction share should be expressed as a percentage figure in the legislation, to enhance planning certainty as regards investment decisions, to increase transparency and to render the overall system simpler and more easily understandable.

(3)

A well-functioning, reformed EU ETS with an enhanced instrument to stabilise the market will be the main European instruments to achieve this target, with an annual reduction factor of 2,2  % from 2021 onwards, free allocation not expiring but measures continuing after 2020 to prevent the risk of carbon leakage due to climate policy, as long as no comparable efforts are undertaken in other major economies. The auction share should be expressed as a percentage figure in the legislation, which should decline on application of a cross-sectoral correction factor to enhance planning certainty as regards investment decisions, to increase transparency, to render the overall system simpler and more easily understandable, and to protect those sectors most at risk of carbon leakage from a cross-sectoral correction factor . Those provisions should be kept under review in line with the Paris Agreement and adjusted accordingly if necessary to fulfil the Union’s climate obligations pursuant to that agreement.

(3a)

Least Developed Countries (LDCs) are particularly vulnerable to the effects of climate change and are responsible only for very low levels of greenhouse gas emissions. Therefore, particular priority should be given to addressing the needs of LDCs through the use of EU ETS allowances to finance climate action, in particular adaptation to the impacts of climate change through the UNFCCC Green Climate Fund.

(4)

It is a key Union priority to establish a resilient Energy Union to provide secure, sustainable, competitive and affordable energy to its citizens. Achieving this requires continuation of ambitious climate action with the EU ETS as the cornerstone of Europe’s climate policy, and progress on the other aspects of Energy Union (17). Implementing the ambition decided in the 2030 framework contributes to delivering a meaningful carbon price and continuing to stimulate cost-efficient greenhouse gas emission reductions.

(4)

It is a key Union priority to establish a resilient Energy Union to provide secure, sustainable, competitive and affordable energy to its citizens and industries . Achieving this requires continuation of ambitious climate action with the EU ETS as the cornerstone of Union’s climate policy, and progress on the other aspects of Energy Union (17). The interaction of the EU ETS with other Union and national climate and energy policies that have an impact on the demand for EU ETS allowances needs to be taken into account. Implementing the ambition decided in the 2030 framework and adequately addressing the progress on other aspects of the Energy Union contributes to delivering a meaningful carbon price and to continuing to stimulate cost-efficient greenhouse gas emission reductions.

(4a)

Increased ambition in energy efficiency compared to the 27 % target adopted by the Council should lead to more free allowances for industry at risk of carbon leakage.

(5)

Article 191(2) of the Treaty on the Functioning of the European Union requires that Union policy is based on the principle that the polluter should pay and, on this basis, Directive 2003/87/EC provides for a transition to full auctioning over time. Avoiding carbon leakage is a justification to postpone full transition , and targeted free allocation of allowances to industry is justified in order to address genuine risks of increases in greenhouse gas emissions in third countries where industry is not subject to comparable carbon constraints as long as comparable climate policy measures are not undertaken by other major economies.

(5)

Article 191(2) of the Treaty on the Functioning of the European Union requires that Union policy is based on the principle that the polluter should pay and, on this basis, Directive 2003/87/EC provides for a transition to full auctioning over time. Avoiding carbon leakage is a justification to temporarily postpone full auctioning , and targeted free allocation of allowances to industry is a justified exception to the principle that the polluter should pay, provided that no over-allocation occurs , in order to address genuine risks of increases in greenhouse gas emissions in third countries where industry is not subject to comparable carbon constraints as long as comparable climate policy measures are not undertaken by other major economies. To that end, allocation of free allowances should be more dynamic in accordance with thresholds provided for in this Directive.

(6)

The auctioning of allowances remains the general rule, with free allocation as the exception. Consequently, and as confirmed by the European Council, the share of allowances to be auctioned, which was 57 % over the period 2013-2020 , should not be reduced. The Commission's Impact Assessment (18) provides details on the auction share and specifies that this 57 % share is made up of allowances auctioned on behalf of Member States, including allowances set aside for new entrants but not allocated, allowances for modernising electricity generation in some Member States and allowances which are to be auctioned at a later point in time because of their placement in the Market Stability Reserve established by Decision (EU) 2015/… of the European Parliament and of the Council (19).

(6)

The auctioning of allowances remains the general rule, with free allocation as the exception. Consequently, the share of allowances to be auctioned, which should be 57 % over the period 2021-2030 , should be reduced on application of the cross sectoral correction factor to protect those sectors most exposed to the risk of carbon leakage . The Commission's Impact Assessment provides details on the auction share and specifies that this 57 % share is made up of allowances auctioned on behalf of Member States, including allowances set aside for new entrants but not allocated, allowances for modernising electricity generation in some Member States and allowances which are to be auctioned at a later point in time because of their placement in the Market Stability Reserve established by Decision (EU) 2015/1814 of the European Parliament and of the Council (19). A just Transition Fund should be established to support regions with a high share of workers in carbon-dependent sectors and a GDP per capita well below the Union average.

(7)

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

(7)

To preserve the environmental benefit of emission reductions in the Union while actions by other countries do not provide comparable incentives to industry to reduce emissions, free allocation should temporarily continue to installations in sectors and sub-sectors at genuine risk of carbon leakage. Experience gathered during the operation of the EU ETS confirmed that sectors and sub-sectors are at risk of carbon leakage to varying degrees, and that free allocation has prevented carbon leakage. While some sectors and sub-sectors can be deemed at a higher risk of carbon leakage, others are able to pass on a considerable share of the costs of allowances to cover their emissions in product prices without losing market share and only bear the remaining part of the costs so that they are at a low risk of carbon leakage. The Commission should determine and differentiate the relevant sectors based on their trade intensity and their emissions intensity to better identify sectors at a genuine risk of carbon leakage. Where, based on these criteria, a threshold determined by taking into account the respective possibility for sectors and sub-sectors concerned to pass on costs in product prices is exceeded, the sector or sub-sector should be deemed at risk of carbon leakage. Others should be considered at a low risk or at no risk of carbon leakage. Taking into account the possibilities for sectors and sub-sectors outside of electricity generation to pass on costs in product prices should also reduce windfall profits. The risk of carbon leakage in sectors and subsectors for which free allocation is calculated on the basis of the benchmark values for aromatics, hydrogen and syngas should also be assessed considering that these products are produced both in chemical plants and refineries.

(8)

In order to reflect technological progress in the sectors concerned and adjust them to the relevant period of allocation, provision should be made for the values of the benchmarks for free allocations to installations, determined on the basis of data from the years 2007-8 , to be updated in line with observed average improvement. For reasons of predictability, this should be done through applying a factor that represents the best assessment of progress across sectors, which should then take into account robust, objective and verified data from installations so that sectors whose rate of improvement differs considerably from this factor have a benchmark value closer to their actual rate of improvement. Where the data shows a difference from factor reduction of more than 0,5  % of the 2007-8 value higher or lower per year over the relevant period, the related benchmark value shall be adjusted by that percentage. To ensure a level playing field for the production of aromatics, hydrogen and syngas in refineries and chemical plants, the benchmark values for aromatics, hydrogen and syngas should continue to be aligned to the refineries benchmarks.

(8)

In order to reflect technological progress in the sectors concerned and adjust them to the relevant period of allocation, provisions should be made for the values of the benchmarks for free allocations to installations, determined on the basis of data from the years 2007 and 2008 , to be updated in line with observed average improvement. For reasons of predictability, this should be done through applying a factor that represents the actual assessment of progress by the 10 % most efficient installations in sectors, which should then take into account robust, objective and verified data from installations so that sectors whose rate of improvement differs considerably from this factor have a benchmark value closer to their actual rate of improvement. Where the data shows a difference from factor reduction of more than 1,75  % of the value corresponding to the years of 2007 and 2008 (either higher or lower) per year over the relevant period, the related benchmark value should be adjusted by that percentage. Where, however, the data shows an improvement rate of either 0,25 or less over the relevant period, the related benchmark value should be adjusted by that percentage. To ensure a level playing field for the production of aromatics, hydrogen and syngas in refineries and chemical plants, the benchmark values for aromatics, hydrogen and syngas should continue to be aligned to the refineries benchmarks.

(9)

Member States should partially compensate, in accordance with state aid rules , certain installations in sectors or sub-sectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices. The Protocol and accompanying decisions adopted by the Conference of the Parties in Paris need to provide for the dynamic mobilisation of climate finance, technology transfer and capacity building for eligible Parties, particularly those with least capabilities. Public sector climate finance will continue to play an important role in mobilising resources after 2020. Therefore, auction revenues should also be used for climate financing actions in vulnerable third countries, including adaptation to the impacts of climate. The amount of climate finance to be mobilised will also depend on the ambition and quality of the proposed Intended Nationally Determined Contributions (INDCs) , subsequent investment plans and national adaptation planning processes. Member States should also use auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy.

(9)

In pursuing the goal of a level playing field, Member States should partially compensate, through a centralised system at Union level , certain installations in sectors or sub-sectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices. Public sector climate finance will continue to play an important role in mobilising resources after 2020. Therefore, auction revenues should also be used for climate financing actions in vulnerable third countries, including adaptation to the impacts of climate change . The amount of climate finance to be mobilised will also depend on the ambition and quality of the proposed INDCs , subsequent investment plans and national adaptation planning processes. Member States should also address the social aspects of decarbonising their economies and use auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy. It should be possible for Member States to add to the compensation received through the centralised system at Union level. Such financial measures should not exceed the levels referred to in the relevant state aid guidelines.

(10)

The main long-term incentive from this Directive for the capture and storage of CO2 (CCS), new renewable energy technologies and breakthrough innovation in low-carbon technologies and processes is the carbon price signal it creates and that allowances will not need to be surrendered for CO2 emissions which are permanently stored or avoided. In addition, to supplement the resources already being used to accelerate demonstration of commercial CCS facilities and innovative renewable energy technologies, EU ETS allowances should be used to provide guaranteed rewards for deployment of CCS facilities, new renewable energy technologies and industrial innovation in low-carbon technologies and processes in the Union for CO2 stored or avoided on a sufficient scale, provided an agreement on knowledge sharing is in place. The majority of this support should be dependent on verified avoidance of greenhouse gas emissions, while some support may be given when pre-determined milestones are reached taking into account the technology deployed. The maximum percentage of project costs to be supported may vary by category of project.

(10)

The main long-term incentive from this Directive for carbon capture and storage (CCS) and carbon capture and use (CCU), new renewable energy technologies and breakthrough innovation in low-carbon technologies and processes is the carbon price signal it creates and that allowances will not need to be surrendered for CO2 emissions which are permanently stored or avoided. In addition, to supplement the resources already being used to accelerate demonstration of commercial CCS and CCU facilities and innovative renewable energy technologies, EU ETS allowances should be used to provide guaranteed rewards for deployment of CCS and CCU facilities, new renewable energy technologies and industrial innovation in low-carbon technologies and processes in the Union for CO2 stored or avoided on a sufficient scale, provided an agreement on knowledge sharing is in place. The majority of this support should be dependent on verified avoidance of greenhouse gas emissions, while some support may be given when pre-determined milestones are reached taking into account the technology deployed. The maximum percentage of project costs to be supported may vary by category of project.

(11)

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

(11)

A Modernisation Fund should be established from 2 % of the total EU ETS allowances, and auctioned in accordance with the rules and modalities for auctions taking place on the Common Auction Platform set out in Regulation (EU) No 1031/2010. Member States which in 2013 had a GDP per capita at market exchange rates below 60 % of the Union average should be eligible for funding from the Modernisation Fund . Member States which in 2014 had a GDP per capita in EUR at market prices below 60 % of the Union average should be able, up to 2030, to derogate from the principle of full auctioning for electricity generation by using the option of free allocation in order to transparently promote real investments modernising and diversifying their energy sector, in line with the Union 2030 and 2050 climate and energy goals, while avoiding distortions of the internal energy market. The rules for governing the Modernisation Fund should provide a coherent, comprehensive and transparent framework to ensure the most efficient implementation possible, taking into account the need for easy access by all participants. Such rules should be transparent, balanced and commensurate with the purpose of ensuring the appropriate use of the funds. That governance structure should be composed of an investment board, an advisory board and a management committee. Due account should be taken of the expertise of the EIB in the decision-making process unless support is provided to small projects through loans from national promotional banks or through grants via a national programme sharing the objectives of the Modernisation Fund. Investments financed from the fund should be proposed by the Member States and all financing from the fund should comply with specific eligibility criteria . To ensure that the investment needs in low income Member States are adequately addressed, the distribution of funds will take into account in equal shares verified emissions and GDP criteria. The financial assistance from the Modernisation Fund could be provided through different forms.

(12)

The European Council confirmed that the modalities, including transparency, of the optional free allocation to modernise the energy sector in certain Member States should be improved. Investments with a value of € 10 million or more should be selected by the Member State concerned through a competitive bidding process on the basis of clear and transparent rules to ensure that free allocation is used to promote real investments modernising the energy sector in line with the Energy Union objectives. Investments with a value of less than € 10 million should also be eligible for funding from the free allocation. The Member State concerned should select such investments based on clear and transparent criteria. The results of this selection process should be subject to public consultation. The public should be duly kept informed at the stage of the selection of investment projects as well as of their implementation.

(12)

The European Council confirmed that the modalities, including transparency, of the optional free allocation to modernise and diversify the energy sector in certain Member States should be improved. Investments with a value of EUR 10 million or more should be selected by the Member State concerned through a competitive bidding process on the basis of clear and transparent rules to ensure that free allocation is used to promote real investments modernising or diversifying the energy sector in line with the Energy Union objectives, including that of promoting the Third Energy Package. Investments with a value of less than EUR 10 million should also be eligible for funding from the free allocation. The Member State concerned should select such investments based on clear and transparent criteria. The selection process should be subject to public consultation and the results of such selection process, including rejected projects, should be made publically available . The public should be duly kept informed at the stage of the selection of investment projects as well as of their implementation. Member States should have the possibility of transferring part of or all the corresponding allowances to the Modernisation Fund if they are eligible to use both instruments. The derogation should be terminated by the end of the trading period in 2030.

(13)

EU ETS funding should be coherent with other Union funding programmes, including European Structural and Investment Funds, so as to ensure the effectiveness of public spending.

(13)

EU ETS funding should be coherent with other Union funding programmes, including Horizon 2020, the European Fund for Strategic Investments, European Structural and Investment Funds , and the European Investment Bank (EIB) Climate Investment Strategy , so as to ensure the effectiveness of public spending.

(14)

The existing provisions which are in place for small installations to be excluded from the EU ETS allow the installations which are excluded to remain so, and it should be made possible for Member States to update their list of excluded installations and for Member States currently not making use of this option to do so at the beginning of each trading period.

(14)

The existing provisions which are in place for small installations to be excluded from the EU ETS should be extended to cover installations operated by small to medium enterprises (SMEs) emitting less than 50 000 tonnes of CO2 equivalent in each of the three years preceding the year of the application for exclusion. It should be made possible for Member States to update their list of excluded installations and for Member States currently not making use of this option to do so at the beginning of each trading period and halfway through the period. It should also be possible for installations emitting less than 5 000 tonnes of CO2 equivalent in each of the three years preceding the beginning of each trading period to be excluded from the EU ETS, subject to revision every five years . Member States should ensure that alternative equivalent measures for installations that have opted out do not result in higher compliance costs. Monitoring, reporting and verification requirements should be simplified for small emitters covered by the EU ETS.

(16a)

In order to considerably reduce the administrative burden faced by companies, it should be left open to the Commission to consider measures such as automating the submission and verification of emissions reports, fully exploiting the potential of information and communication technologies.

(17a)

The delegated acts referred to in Articles 14 and 15 should simplify the rules of monitoring, reporting and verification as far as possible in order to reduce red tape for operators. The delegated act referred to in Article 19(3) should facilitate access to and the use of the registry, especially for small operators.

(-1)

(-1a)

(-1b)

(-1c)

Throughout the Directive , the words ‘regulatory procedure referred to in Article 23(2)’ are replaced by the words ‘examination procedure referred to in Article 30c(2)’.

(-1d)

In Article 3 g, in point (d) of Article 5(1), in point (c) of Article 6(2), in the second subparagraph of Article 10a(2), in Article 14(2), (3) and (4), in Article 19(1) and (4) and in Article 29a(4) t he word ‘regulation’ is replaced by the word ‘act’ and any necessary grammatical changes are made.

(-1f)

‘(h)

“new entrant” means:

‘(h)

“new entrant” means:

—

any installation carrying out one or more of the activities indicated in Annex I, which has obtained a greenhouse gas emissions permit for the first time after 30 June 2011 ,

—

any installation carrying out one or more of the activities indicated in Annex I, which has obtained a greenhouse gas emissions permit for the first time after 30 June 2018 ,

—

any installation carrying out an activity which is included in the Community scheme pursuant to Article 24(1) or (2) for the first time, or

—

any installation carrying out an activity which is included in the Union scheme pursuant to Article 24(1) or (2) for the first time, or

—

any installation carrying out one or more of the activities indicated in Annex I or an activity which is included in the Community scheme pursuant to Article 24(1) or (2), which has had a significant extension after 30 June 2011 , only in so far as this extension is concerned;’

—

any installation carrying out one or more of the activities indicated in Annex I or an activity which is included in the Union scheme pursuant to Article 24(1) or (2), which has had a significant extension after 30 June 2018 , only in so far as this extension is concerned;’

(-1 g)

‘(ua)

“small emitter” means an installation with low emissions which is operated by a small or medium-sized enterprise  (1a) and that meets at least one of the following criteria:

(-1h)

(-1i)

(-1j)

(1)

In Article 3d(3), the second subparagraph is replaced by the following:

(1)

In Article 3d, paragraph 3 is replaced by the following:

‘The Commission shall be empowered to adopt a delegated act in accordance with Article 23 .’;

‘3.    The Commission is empowered to adopt delegated acts in accordance with Article 30b to supplement this Directive by laying down detailed arrangements for the auctioning by Member States of allowances not required to be issued free of charge in accordance with paragraphs 1 and 2 of this Article or Article 3f(8). The number of allowances to be auctioned in each period by each Member State shall be proportionate to its share of the total attributed aviation emissions for all Member States for the reference year reported pursuant to Article 14(3) and verified pursuant to Article 15. For the period referred to in Article 3c(1), the reference year shall be 2010 and for each subsequent period referred to in Article 3c the reference year shall be the calendar year ending 24 months before the start of the period to which the auction relates.’

(1a)

(1b)

‘1a.     From 2021 onwards, no free allocation of allowances under this Directive shall be granted to the aviation sector unless it is confirmed by a subsequent decision adopted by the European Parliament and the Council, since ICAO Resolution A-39/3 envisages that a global market-based measure is to apply from 2021. In that respect, the co-legislators shall take into account the interaction between that market-based measure and the EU ETS.’

(2a)

(2b)

(2c)

(2d)

(a)

three new subparagraphs are added to paragraph 1:

(a)

paragraph 1 is replaced by the following:

‘1.     From 2019 onwards, Member States shall either auction or cancel allowances that are not allocated free of charge in accordance with Articles 10a and 10c and are not placed in the MSR.’

—

creating redeployments and/or mobility cells,

—

education/training initiatives to re-skill or upskill workers,

—

support in job-seeking,

—

business creation, and

—

monitoring and pre-emptive measures to avoid or minimise the negative impact of the restructuring process on physical and mental health.

(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.

(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 those Member States eligible to benefit from the Modernisation Fund as set out in Article 10d, their share of allowances specified in Annex IIa shall be transferred to their share in the Modernisation Fund.

(ba)

in paragraph 3, the introductory part is replaced by the following:

(bb)

in paragraph 3, point (b) is replaced by the following:

‘(b)

to develop renewable energies to meet the commitment of the Community to using 20 % renewable energies by 2020 , as well as to develop other technologies contributing to the transition to a safe and sustainable low-carbon economy and to help meet the commitment of the Community to increase energy efficiency by 20 % by 2020 ;’

(bc)

in paragraph 3, point (f) is replaced by the following:

‘(f)

to encourage a shift to low-emission and public forms of transport;’

(bd)

in paragraph 3, point (h) is replaced by the following:

‘(h)

measures intended to increase energy efficiency and insulation or to provide financial support in order to address social aspects in lower and middle income households;’

(j)

to fund financial measures in favour of sectors or subsectors that are exposed to a genuine risk of carbon leakage due to significant indirect costs that are actually incurred from greenhouse gas emission costs passed on in electricity prices, provided that these measures meet the conditions set out in Article 10a(6);

(j)

to fund financial measures in favour of sectors or subsectors that are exposed to a genuine risk of carbon leakage due to significant indirect costs that are actually incurred from greenhouse gas emission costs passed on in electricity prices, provided that not more than 20 % of revenues are used for this purpose, and that these measures meet the conditions set out in Article 10a(6);

(l)

to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy in close coordination with the social partners.

(l)

to address the social impact of the decarbonisation of their economies and promote skill formation and reallocation of labour affected by the transition of jobs in close coordination with the social partners.

(ca)

in paragraph 3, the following subparagraph is inserted:

‘This information shall be provided through a standardised template prepared by the Commission, including information on the use of auctioning revenues for the different categories and the additionality of the use of the funds. The Commission shall make this information public on its website.’

(cb)

in paragraph 3, the second subparagraph is replaced by the following:

(d)

the third subparagraph of paragraph 4 is replaced by the following:

(d)

in paragraph 4, the first, second and third subparagraphs are replaced by the following:

(da)

in paragraph 4, the following subparagraph is added:

‘Every two years Member States shall report to the Commission the closure of electricity generation in their territory capacity due to national measures. The Commission shall calculate the equivalent number of allowances that those closures represent and inform the Member States. Member States may cancel a corresponding volume of allowances out of the total quantity distributed in accordance with paragraph 2.’

(db)

paragraph 5 is replaced by the following:

(a)

the second paragraph of paragraph 1 is replaced by the following:

(a)

in paragraph 1, the first and second subparagraphs are replaced by the following:

(aa)

in paragraph 1, the third subparagraph is replaced by the following:

(-i)

(-ia)

(i)

On the basis of information submitted pursuant to Article 11, the Commission shall identify whether the values for each benchmark calculated using the principles in Article 10a differ from the annual reduction referred to above by more than 0,5  % of the 2007-8 value higher or lower annually. If so, that benchmark value shall be adjusted either 0,5  % or 1,5  % in respect of each year between 2008 and the middle of the period for which free allocation is to be made;

(i)

Where, on the basis of information submitted pursuant to Article 11 the rate of improvement does not exceed 0,25  %, the benchmark value shall therefore be reduced by that percentage in the period 2021-2025, in respect of each year between 2008 and 2023;

(ii)

By way of derogation regarding the benchmark values for aromatics, hydrogen and syngas, these benchmark values shall be adjusted by the same percentage as the refineries benchmarks in order to preserve a level playing field for producers of these products.

(ii)

Where, on the basis of information submitted pursuant to Article 11 the rate of improvement exceeds 1,75  %, the benchmark value shall therefore be reduced by that percentage in the period 2021-2025, in respect of each year between 2008 and 2023.

(ba)

in paragraph 2, the following subparagraph is added:

‘For the period between 2026 and 2030, the benchmark values shall be determined in the same manner on the basis of information submitted pursuant to Article 11 for the years 2021-2022 and with the annual reduction rate applying in respect of each year between 2008 and 2028.’

(bb)

in paragraph 2, the following subparagraph is added:

(ii)

By way of derogation regarding the benchmark values for aromatics, hydrogen and syngas, these benchmark values shall be adjusted by the same percentage as the refineries benchmarks in order to preserve a level playing field for producers of these products.

bc)

in paragraph 3, the following subparagraph is added:

Subject to paragraphs 4 and 8, and notwithstanding Article 10c, no free allocation shall be given to electricity generators, to installations for the capture of CO2, to pipelines for transport of CO2 or to CO2 storage sites. Electricity generators producing electricity from waste gas are not electricity generators within the meaning of Article 3(u) of this Directive. In benchmark calculations, the full carbon content of waste gases used for electricity production shall be taken into account.

(bd)

paragraph 4 is replaced by the following:

(da)

in paragraph 6, a new subparagraph is inserted:

‘Member States may also adopt national financial measures in favour of sectors or sub-sectors which are exposed to a genuine risk of carbon leakage due to significant indirect costs that are actually incurred from greenhouse gas emission costs passed on in electricity prices, taking into account any effects on the internal market. Such financial measures to compensate part of those costs shall be in accordance with state aid rules and Article 10(3) of this Directive. Those national measures, when combined with the support referred to in the first subparagraph, shall not exceed the maximum level of compensation referred to in the relevant state aid guidelines and shall not create new market distortions. The existing ceilings on state aid compensation shall continue to decline throughout the trading period.’

(f)

in paragraph 8 , the first, second and third subparagraphs of paragraph 8 are replaced by the following:

(f)

paragraph 8 is replaced by the following:

(i)

Projects shall focus on the design and development of breakthrough solutions and implementation of demonstration programmes;

(ii)

The activities shall run close-to-market in production plants to demonstrate the viability of breakthrough technologies in overcoming technological as well as non-technological barriers;

(iii)

Projects shall address technological solutions that have the potential to be of widespread application, and may combine different technologies;

(iv)

Solutions and technologies shall ideally have the potential to be transferred within the sector and possibly to other sectors;

(v)

Projects where the anticipated emissions reductions are significantly below the relevant benchmark value shall be prioritised. Eligible projects shall either contribute to emissions reductions below the benchmark values referred to in paragraph 2 or shall have future prospects to significantly lower the cost of transitioning towards low-emissions energy production; and

(vi)

CCU projects shall deliver a net reduction in emissions and a permanent storage of CO2 across their lifetime.

(ia)

paragraph 20 is replaced by the following:

‘20.

The Commission shall, as part of the measures adopted under paragraph 1, include measures for defining installations that partially cease to operate or significantly reduce their capacity, and measures for adapting, as appropriate, the level of free allocations given to them accordingly.’

(a)

the extent to which it is possible for individual installations in the sector or sub-sectors concerned to reduce emission levels or electricity consumption;

(a)

the extent to which it is possible for individual installations in the sector or sub-sectors concerned to reduce emission levels or electricity consumption taking into account associated increases in costs of production ;

(b)

current and projected market characteristics;

(b)

current and projected market characteristics;

(c)

profit margins as a potential indicator of long-run investment or relocation decisions.

(c)

profit margins as a potential indicator of long-run investment or relocation decisions;

(ca)

commodities which are traded on worldwide markets for a common reference price.

(b)

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

(b)

ensure that only projects which contribute to the diversification of their energy mix and sources of supply, the necessary restructuring, environmental upgrading and retrofitting of the infrastructure, clean technologies (such as renewable technologies) or modernisation of the energy production, district heating networks, energy efficiency, energy storage, transmission and distribution sectors are eligible to bid;

(c)

define clear, objective, transparent and non-discriminatory selection criteria for the ranking of projects, so as to ensure that projects are selected which:

(c)

define clear, objective, transparent and non-discriminatory selection criteria in line with the Union 2050 climate and energy policy objectives for the ranking of projects, so as to ensure that projects are selected which:

(i)

on the basis of a cost-benefit analysis, ensure a net positive gain in terms of emission reduction and realise a pre-determined significant level of CO2 reductions;

(i)

on the basis of a cost-benefit analysis, ensure a net positive gain in terms of emission reduction and realise a pre-determined significant level of CO2 reductions proportionate to the size of the projects . Where projects relate to electricity production, total greenhouse gas emissions per kilowatt hour of electricity produced in the installation shall not exceed 450 g of CO2 equivalent after completion of the project. By 1 January 2021, the Commission shall adopt a delegated act in accordance with Article 30b in order to amend this Directive by defining for projects relating to heat production maximum total greenhouse gas emissions per kilowatt hour of heat produced in the installation that shall not be exceeded.

(ii)

are additional, clearly respond to replacement and modernisation needs and do not supply a market-driven increase in energy demand;

(ii)

are additional, although they may be used to meet the relevant targets set under the 2030 Climate and Energy Framework, clearly respond to replacement and modernisation needs and do not supply a market-driven increase in energy demand;

(iiia)

do not contribute to new coal-fired energy generation nor increase coal-dependency.

(i)

Contribute to energy savings, renewable energy systems, energy storage and electricity interconnection, transmission and distribution sectors; where projects relate to electricity production, total greenhouse gas emissions per kilowatt hour of electricity produced in the installation shall not exceed 450 g of CO2 equivalent after completion of the project. The Commission shall adopt a delegated act in accordance with Article 30b by 1 January 2021 in order to amend this Directive by defining, for projects relating to heat production, maximum total greenhouse gas emissions per kilowatt hour of heat produced in the installation that shall not be exceeded;

(ii)

On the basis of a cost-benefit analysis, ensure a net-positive gain in terms of emissions reductions and realise a pre-determined significant level of CO2 reductions;

(iii)

Be additional although they may be used to meet the relevant targets set under the 2030 Climate and Energy Framework, clearly respond to replacement and modernisation needs and shall not supply a market-driven increase in energy demand;

(iv)

Not contribute to new coal-fired energy generation nor increase coal dependency.

(8a)

‘From 2021 onwards, Member States shall also ensure that during each calendar year every operator reports production activity for adjustments to allocation in accordance with Article 10a paragraph 7.’

(8b)

‘3a.     In case of a reasonable suspicion of irregularities or a failure by a Member State to provide the list and the information set out in paragraphs 1 to 3, the Commission may start an independent investigation, where necessary assisted by a contracted third party. The Member State concerned shall provide all information and access necessary for the investigation, including access to installations and production data. The Commission shall respect the same confidentiality on commercially sensitive information as the Member State concerned and shall publish a report on that investigation.’

(10a)

(12)

In Article 14(1) , the second subparagraph is replaced by the following:

(12)

(13)

In Article 15, the fifth subparagraph is replaced by the following:

(13)

In Article 15, the fourth and fifth paragraphs are replaced by the following:

(13a)

7.   When requests such as those referred to in paragraph 5 are addressed to the Commission, the Commission shall inform the other Member States through their representatives on the Committee referred to in Article 30c(1) in accordance with the Committee’s Rules of Procedure.

(15)

In Article 19(3), the third sentence is replaced by the following:

(15)

In Article 19, paragraph 3 is replaced by the following:

‘ It shall also include provisions to put into effect rules on the mutual recognition of allowances in agreements to link emission trading systems. The Commission shall be empowered to adopt a delegated act in accordance with Article 23.’;

(15a)

(15b)

‘2a.     The report shall, using data provided through the cooperation referred to in Article 18b, include a list of operators subject to the requirements of this Directive who have not opened a registry account.’

(15c)

‘3a.     In case of a reasonable suspicion of irregularities or a failure by a Member State to report in accordance with paragraph 1, the Commission may undertake an independent investigation, where necessary assisted by a contracted third party. The Member State shall provide all information and access necessary for the investigation, including access to installations. The Commission shall publish a report on the investigation.’

(17)

The following Article 22a is inserted:

(17)

The following Article is inserted:

(b)

the second subparagraph of paragraph 3 is replaced by the following:

(b)

paragraph 3 is replaced by the following:

(a)

the second subparagraph of paragraph 1 is replaced by the following:

(a)

in paragraph 1 , the first and second subparagraphs are replaced by the following:

(22a)

(a)

it notifies the Commission of each such installation, specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place, before the list of installations pursuant to Article 11(1) has to be submitted and at the latest when this list is submitted to the Commission;

(a)

it notifies the Commission of each such installation, specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place and specifying how those measures would not result in higher compliance costs for such installations , before the list of installations pursuant to Article 11(1) has to be submitted and at the latest when this list is submitted to the Commission;

(b)

it confirms that monitoring arrangements are in place to assess whether any installation emits 25 000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year. Member States may allow simplified monitoring, reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year, in accordance with Article 14;

(b)

it confirms that monitoring arrangements are in place to assess whether any installation emits 50 000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year. Member States , following an operator’s request , shall allow simplified monitoring, reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5 000 tonnes a year, in accordance with Article 14;

(c)

it confirms that if any installation emits 25 000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place, the installation will be reintroduced into the Community scheme ;

(c)

it confirms that if any installation emits 50 000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place, the installation will be reintroduced into the EU ETS ;

(d)

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

(d)

it makes the information referred to in points (a), (b) and (c) available to the public .

(22b)

(a)

it notifies the Commission of each such installation before the list of installations pursuant to Article 11(1) is to be submitted or at the latest when that list is submitted to the Commission;

(b)

it confirms that monitoring arrangements are in place to assess whether any installation emits 5 000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year;

(c)

it confirms that if any installation emits 5 000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year the installation will be reintroduced into the EU ETS, unless Article 27 is applicable;

(d)

it makes the information referred to in points (a), (b) and (c) available to the public.

(22c)

(22d)

(22e)

'3.

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

‘3.

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