13th Meeting of the Technical Working Group on Benchmarks for the ETS Subgroup of Working Group 3 under the Climate Change Committee Brussels 19 May 2010, 10.00-17.00 DRAFT DETAILED REPORT 1. Introduction The Commission welcomed the participants and the agenda was adopted. It was announced that the minutes of the previous meeting would be revised and circulated to the members of the Technical Working Group in the following days. 2. New entrants and closure rules The Commission gave a presentation on rules for new entrants and closures. One Member State informed the participants that according to their legal experts, new entrants entering due to the extension of the scope of the Directive should be allocated allowances from the NIMs pot (as opposed to from the NER). Regarding the definition of capacity, the participant prefers a definition that is related to maximum annual production quantity that is technically and legally possible. Furthermore, significant extensions and reductions should in their view relate to the whole installation, and concerning the capacity threshold they support 10% and an additional absolute emissions criterion, both criteria should be applied independently. Regarding the standard capacity utilisation factor, they prefer to base it on the average 10% best installations in the years 2007 and 2008. With regards to new entrants, another Member State commented they have many existing installations that belong to newly covered sectors and asked if these would be considered incumbents or new entrants. In their view it is not necessary to regard them as new entrants if they have IPPC permits already. It was also suggested taking into account capacity increases/reductions taking place after the period for historical production data but before mid-2011. One Member State expressed the need for further discussion on the definition of capacity in relation to product benchmarks. Concerning capacity increases, it was commented that a possibility to accumulate capacity increases to reach a defined threshold should be foreseen. It was also suggested applying the criteria of the percentage threshold and of the emissions threshold alternatively to make it easier for large installations to be eligible for significant extensions. Regarding the allowances that will remain from a closure of an installation, these should be added to the NER, as it is currently done under their NAP. They also asked for clarification on the standard capacity utilisation factor. Furthermore, reaffirming the necessity of a high level of harmonisation they asked about the level of detail of the legal text and about any annexes. One participant informed about their experience in the second trading period due to which they support the idea of proven/experimental capacity. Also, they support a definition that
does not allow debottlenecking. This point also needs to be addressed in the guidance because it is open to different interpretations by different Member States. Concerning the threshold, the participant proposed the wording of either 50,000 tons or 20%. However, they would prefer a 10% threshold. The Commission explained that, regarding the standard capacity utilisation factor, the relevant data would have to be collected during the data collection for the NIMs. Furthermore, the Commission commented that, as suggested by one Member State, basing this factor on the 10% most efficient installations may be considered to minimise the administrative burden. Concerning the suggestion for extended capacity is a useful comment that the Commission will take into consideration. Regarding the level of detail of the legal text, the Commission said that it aims to have as much detail as necessary while still being able to find a compromise. One participant agreed the data collection exercise could be used to establish the standard capacity utilisation factor, although they suggested basing the factor on a sample of installations in the benchmark curves. They also suggested considering literature values or Member States new entrant benchmarking in Phase II. Concerning the threshold in the definition of capacity, a 20% threshold was suggested in case of cumulative capacity extension and a 10% threshold for one-off extensions. The participant also presented some industry remarks on special cases where a significant extension may be spread across different products (product benchmarks and fallback approaches). Furthermore, they asked for a methodology on rationalization when an installation closes and the production is transferred to more efficient installations. One Member State asked for a clarification about a capacity increase of 20% and whether this would be a two-phase process where the Commission would first assess the capacity increase and then the increase in emissions. Also, the participant showed interest in the suggestion of 20% and 10% for cumulative and one-off extensions, respectively. Moreover, they contested any link of a capacity utilisation factor and the average of the 10% most efficient installations. In addition, it was commented that collecting such data from all installations during the data collection should be feasible and would even allow establishing sectoral standard capacity utilization factors. It was also mentioned that it could accept a reservation system. One Member State asked for a clarification whether the Art 9a is the legal basis for the 30 June 2011 deadline for incumbents and new entrants. The Commission explained that Article 9a of the Directive would not be the legal basis. The legal basis for the 30 June 2011 deadline for the distinction between incumbents and new entrants is the definition of new entrant in Article 3(h). It was also inquired if there is still a discussion if the CIM could be a regulation. Concerning the reservation the participant agreed that it seems like a practical solution to incorporate and they argue for a 50% criterion. They also asked if the procedure would include a description of this reservation and suggested to consider an annual quota. It was suggested that the significant extension/increase should refer to increase of capacity of Annex 1 activity only. Concerning the threshold they cannot accept the 20% increase which is too high for existing installations (e.g. in oil sector). Another suggestion was considering possibility for the CA to issue an official decision to determine if installations are considered incumbent or newly entering. Concerns were also expressed about having a too low threshold for partial closure to avoid giving incentives to be
inefficient. In their view ceasing operation is an emission-reducing measure which should be recognised and not punished. Therefore, the threshold should be at least 50%. It was inquired whether there is a possibility to have a definition of new entrants in the allocation rules as the definition in the Directive is confusing. Concerning the extension of capacity they prefer a threshold of 10%. One Member State announced their support for issuing simplified permits with a limited validity (e.g. until the end of 2012) and a subsequent permit including a complete monitoring plan. They also support a 10% threshold for significant extensions. It was also asked to consider that in their country the greenhouse gas permit and the IPPC permit (where the company ceases operation only after 3 years of inactivity) are connected. The Commission commented that this would be a good example for the need to have harmonised rules to ensure installations are treated equally across the Union. One Member State announced they are in general satisfied with the draft rules for new entrants and closures. Concerning the threshold the participant believes that 20% is acceptable as long as it is applied down to sub-installation level so that there will be no discrimination due to differences in permitting practices. 3. Sector specific issues The Commission gave a presentation on the sector specific issues. One Member State was concerned with a special case in exchangeability of fuel about how to treat an installation that receives a share and then changes this share during the period. The Commission replied that updates during the third trading period of the share of direct and indirect emissions are not foreseen in the Directive. Concerning the pulp and paper sector, it was inquired about the possibility to apply fallback approaches to the whole sector instead of using BREF and literature values. The Commission replied that while the official BREF documents are indeed dated, a new draft version of April 2010 is available, which the benchmarks could be based on. Applying fallback approaches would lead to over-allocation of the sector's installations' and may even trigger the crosssectoral correction factor. The Member State also inquired whether the glass sector glass also includes tableware. The Commission replied that no separate product benchmark would be foreseen due to unfeasibility and that therefore a fallback approach would be applied. A number of Member States again stressed the need for the availability of the rulebooks and benchmark curves to the Member States. The Commission agreed with the Member States regarding the need for availability of the benchmark values and rulebooks and explained that it is in a dialogue with the sector associations to make this information available to the Member States once the sector associations have made the latest corrections and clarifications as requested by the Commission. Furthermore, the Commission promised to provide information on emissions, the number of installations, the coverage of product benchmarks and fallback approaches etc.
One Member State was concerned with the difficulty to divide the emissions per product in the ceramics, glass, and pulp and paper sector and inquired what historic data it would be applied to. Another participant was concerned that using a fallback approach for pulp and paper would lead to serious over-allocation. They added that sinter pellets should be regarded as a separate product from sinter. There was also an inquiry regarding fallback approaches for the pulp and paper sector. They also asked about the state of play for clay blocks. The Commission replied that a product benchmark does not seem to be feasible, which is why fallback approaches would be considered. Two participants asked for an updated list of benchmark values. In addition one of them asked about the possibility of using BAT values for coke. Concerning the latter, the Commission confirmed that this is still an option and underlined that the coke and hot metal benchmarks depend on the treatment of waste gases. It was asked how the emission factor for electricity production was determined. The Commission replied that the emission factor used is the average factor of the EU electricity production provided by the EEA, which was also used for the carbon leakage list. It was also argued that outliers should in principle not be taken out of the benchmark curve and therefore the sinter pellets should remain under consideration as they would be comparable products. They also inquired about the NSCR technology in the fertiliser sector. The Commission commented that the issue of NSCR is complex and that it is too early to come to a conclusion. The Commission noted that 7 out of 90 installations in the sector use this technology. However, there needs to be consistency between the benchmark curve and the allocation of allowances to installations. One Member State asked about the state of play concerning a hybrid cement/clinker approach. The Commission replied that it is further working on the issue and added that the clinker benchmark curve is one of the flattest benchmark curves and that the allocation rate (expected allocation compared to historic emissions) therefore would be one of the highest. It was explained that the exchangeability of power and heat in pulp and paper depends on how the products are aggregated within a certain product group. They also raised the concern that the BREF documents for the pulp and paper sector are 13-14 years old with some data dating back twenty years. In this context they emphasised that some installations outperform the BREF values by factor 2. It was inquired about the use of the sinter pellet mix on the blast furnace emissions. A comment was made that outliers independent of the sector (sinter, pulp & paper etc.) should not be excluded from the BM curve. One Member State expressed their concern about using BREF values based on a draft that has not been officially reviewed. The Commission replied that there may be no other reliable source given that the old BREF report contains outdated data and added that it is in close touch with the relevant colleagues working on the BREF documents.
It was inquired about the treatment of biomass in the pulp and paper sector and expressed concerns about the possible unjustified excess of allowances possibly leading to overallocation. The Commission reminded that it is not to differentiate in terms of different fuels used. It was also commented that the sinter pellets are regarded as different products also in the BREF documents, which means that it is not an issue of outliers. 4. Verification The Commission gave a presentation on verification. One Member State asked why not all sectors are subject to full verification. The Commission replied that there were some sector benchmarks with a quite low level of emissions where the Commission did not require a deep level of verification but asked for the check of the rulebooks this concerned benchmarks with less than one million tons of CO 2 per year. There was also inquiry about the state of play of the data gaps filling exercise. The Commission replied that the data collection ended on 14 May 2010. There has been a low response rate and the consultants are currently analysing the responses. One participant gave a presentation on the requirement for data quality in the Community Implementing Measures (CIM). In addition, the Commission's consultant gave a presentation on the baseline data quality in the draft allocation rules. It was suggested for installations producing heat and CHP installations to use the data that was submitted to Member States' statistics offices between 2005 and 2009. This would ensure harmonisation because the statistics among the EU27 are harmonised. 5. Product definitions The Commission gave a presentation on the product definitions. It was inquired about the wording in the current version of the product definitions concerning products sold mentioned in the previous version. The Commission replied that the new version defines it as products produced. After an inquiry from one participant about the glass sector the Commission explained that the sector submitted benchmark values for both gross production and packed glass. Since the principle is to go for the end of the production chain, the Commission prefers to allocate based on packed glass (net production). Concerning the tableware the Commission stated it would be covered by a fallback approach. 6. Cross-boundary heat flows One Member State gave a presentation on a proposal for a modified Method 2b. They believe it ensures a regard of the carbon leakage risk if the heat consumer is not in the ETS.
One participant announced they do not agree with the aforementioned method and will soon present their own paper, which is based on a modified method 1. Two Member States expressed sympathy for the presented proposal. One participant sees benefits in method 2b but prefers method 1. Their two main concerns with method 2b are that consumers are not protected if there is a change of producers and the issue of negative allocation. One Member State announced it has no final position but for them method 2b is the lead option. According to the participant, negative allocation could be solved easily through a provision in the CIMs stating that the allocation would amount to 0 in such a case. The presenter agreed that the negative allocation issue may be solved easily this way and added that the issue might be of limited relevance due to the increase in auctioning over time. 7. Any other business Concerning waste gases one participant announced they are working on a final position for allocation in the steel industry and they do not agree with the Commission proposal for waste gas allocation. They also asked for an interpretation from the legal service of the Commission of the last sentence of the Art 10a (1) subparagraph 3. It was suggested for the Commission to provide a non-paper on waste gases. The Commission raised the issue of task force and asked the Member States if they plan to do the test allocations and whether they would have anything to report in the next meeting. One Member State is planning to have the test allocation on cement and lime sectors. One participant is in the beginning of performing test allocations for the sectors of district heating and pulp and paper and hope to finalise these in June. Another Member State finished verification phase and are moving to simulating the actual allocation and they will check if they have anything to present in the next meeting. It was inquired when the next version of draft allocation rules will be available for comments. The Commission announced it will be distributed before the next meeting. The Commission informed the participants that it is in the process of carrying out an impact assessment on benchmarking. The Commission thanked the participants for their participation and concluded the meeting.