Cogeneracion

Version 3 – last updated on 29th March 2011 by Thomas Esdaile-Bouquet

A CHP guide to the
Revised EU ETS Directive
-rules applying as of 1st January 2013Table of content
Executive summary
EU ETS Basics
Graphic representation of overall cap
Auctioning
Benchmarking
Graphic representation of free allocation if no exposure to carbon leakage
Carbon leakage
Registries and accounting
Q&A:allocation to CHP plants
Graphic representation of free allocation to a CHP plant (conditions applying)

Executive summary
CHP plants have been the direct recipients of free EU ETS allowances since the EU ETS’s inception and entry into
force in 2005. With the revised EU ETS Directive, which will enter into force on 1 st January 2013, the rules
governing free allocation of allowances have beendramatically modified.
Under the new system, CHP heat produced by plants supplying installations covered by the EU ETS, as well as
CHP plants included in the EU ETS but supplying non-ETS installations, is eligible for free allowances. The amount
of free allowances eligible for this heat is a function of a number of factors, in particular the Carbon Leakage
status of the heat consumer and theexistence of product benchmarks for the end product using the CHP heat.
The exact amount of free allowances to be distributed relies on a complex calculation process, bringing into play
several documents: the revised EU ETS Directive, the Decision on benchmarking (agreed on 15 December 2010),
as well as the Guidance documents still under preparation by the Ecofys-Entec consulting consortium onbehalf
of DG Climate Action.
In addition, electricity can also get a limited amount of free allowances in a limited number of Member States.

EU ETS Basics
Key documents :
European Commission Portal on EU ETS: http://ec.europa.eu/clima/policies/ets/index_en.htm
Link to full text of revised EU ETS Directive 2009/29/EC:http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0063:0087:en:PDF
The Commission Decision determining transitional Union-wide rules for the harmonized free allocation of
emission allowances pursuant to Article 10a of Directive 2003/87/EC, agreed on 15 December 2010, has yet to
be formally published. It is available on the DG Climate Action website, under the “documentation” icon:
http://ec.europa.eu/clima/documentation/ets/benchmarking_en.htm1

Version 3 – last updated on 29th March 2011 by Thomas Esdaile-Bouquet

The EU ETS, a system based on the "cap and trade" principle
Launched in 2005, the EU ETS works on the "cap and trade" principle. This means there is a "cap", or limit, on
the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other
installations in the system. Within thiscap, companies receive emission allowances which they can sell to or buy
from one another as needed. The limit on the total number of allowances available ensures that they have a
value. At the end of each year each company must surrender enough allowances to cover all its emissions,
otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances tocover its future needs or else sell them to another company that is short of allowances. The flexibility that
trading brings ensures that emissions are cut where it costs least to do so. The number of allowances is reduced
over time so that total emissions fall. In 2020 emissions will be 21% lower than in 2005.

Graphic representation of overall cap

Auctioning
The EU Emissions Trading Systemenables participating installations like factories and power plants in 30
countries to receive emission allowances (a certain amount of greenhouse gases that they can emit) which
they can sell to or buy from one another as needed. While auctioning of carbon allowances is limited during
the first and second trading period (i.e. until end 2012), it will be the main allocation method as of 2013....