Operators in the EU ETS must surrender EU allowances (EUAs) against their greenhouse gas emissions (CO2 in Ireland, other Member States may have included additional gases). The majority of allowances since 2013 are provided via auctioning. Some allowances are still allocated for free for industry and heating sectors, but not for electricity generation.
For the fourth trading period (2021 – 2025), free allocation is implemented by applying new EU-wide, fully harmonised, allocation rules. Member States are required to prepare an “allocation plan”, known as the National Implementation Measures (NIMs) document which contains all of the detailed information about the allocations planned for each eligible installation in the country. Member States remain responsible for data collection and final allocation. The Commission is responsible for approving or rejecting the NIMs or parts thereof, requiring amendments where necessary.
Ireland submitted its National Implementation Measures (NIMs) for the allocation period 2021-2025 to the European Commission on 30 September 2019. This list has been modified as a result of clarifications from operators and from the Commission.
In addition to the Benchmarking Regulation (Regulation (EU) 2021/447) establishing the benchmarks for the 2021-2025 allocation period, the Commission published a paper on the revision of the benchmarks for free allocation and it can be accessed here. In order to ensure that the total allocation comes within the cap the Commission have to check if the maximum allowed free allocation is equal to or greater than the sum of all the preliminary allocations across Europe. If not, a cross sectoral correction factor is applied. The Commission Implementing Decision (EU) 2021/927 published on 9 June 2021 determined that the cross sectoral correction factor for the allocation period 2021-2025 was 100% (or 1).
The Commission have notified us by e-mail of the final NIMs list for Ireland using the cross sectoral correction factor and we have checked the data and agreed it with them on 10 June 2021. You can view this list here with the provisional allocations for information.
The Commission has adopted a decision approving all the National Allocation Tables on 29 June and this decision was published in the Official Journal on 28 July 2021 (You can access it here).
Please note: The ETS Directive is under review as part of the ‘fit-for-55’ package. Should Articles 9 and 10a of the Directive 2003/87/EC be modified, the cross-sectoral correction factor and the final levels of free allocation may be subject to change for the allocation period from 2021 to 2025.
Since production levels, and therefore CO2 emission levels, can vary from year to year the rules for Phase IV are designed to reduce over-allocation in the event of changes to the activity levels as calculated in the baseline and to increase allocation where there are significant increases in the activity level. Operators are required under the Activity Level Changes Regulation (EU) 2019/1842, commencing in March 2021, to submit annually a verified activity level changes report to their competent authority (EPA). For each year, starting with 2021, the EPA needs to assess all verified activity level changes reports for the 66 incumbent operators listed in the National Allocation Table and consider if an adjustment should be made to the that year’s allocation. The Phase IV rules require adjustments for any +/- 15% change in activity level subject to an absolute threshold of 100 emission allowances compared to the calculated preliminary amount of emission allowances to be allocated for free to the sub-installation. All adjustments will be notified to the Commission for approval.
For installations where we can establish that there is no change to the activity level the free allowances will be transferred to the operator’s holding account on the Union Registry as soon as possible in accordance with the provisions of Article 3(3) of Commission Implementing Regulation (EU) 2019/1842.
Further details will be posted on these pages as they become available.
The revision of the EU ETS Directive concluded in 2023 with the publication of amending Directive (EU) 2023/959.
The 2023 revision includes several provisions with the aim of reducing the amount of free allocation, through a further revision to the Linear Reduction Factor (LRF) and by making part of the free allocation conditional on progress towards reducing emissions at installations. Also, the introduction of the Carbon Border Adjustment Mechanism (CBAM) will gradually replace free allocation for selected goods (CBAM goods).
A shrinking cap:
The LRF annually reduces the total cap on emission allowances by 2.2% between 2021 and 2023 but from 2024 this reduction will become progressively faster at 4.3% and then 4.4% in 2028. Fewer free allowances will be available than in Phase 3 because of the annual higher reduction factor and because of a fixed share of total allowances to be auctioned (57% of total). The lower available number of free allowances will be distributed in a more focused approach to avoid carbon leakage, including a phase out of free allocation after 2026 from 30% to 0 at the end of Phase 4 (2030) for less exposed sectors. For selected goods, however, free allocation will be phased out more quickly over time.
As of October 2023, the Carbon Border Adjustment Mechanism (CBAM) was established with reporting requirements in the initial years and financial costs kicking in from 2026. In parallel, as of 2026, free allocation in the EU ETS to installations producing those goods listed in Annex I of the CBAM Regulation will progressively be reduced, reaching zero allocation in 2034.
The 2023 ETS Directive also makes part of the free allocation conditional, i.e. situations have been defined in which certain conditions need to be met before the final number of free allowances is issued. The Free Allocation Rules (FAR) have been updated to take these changes into account. Three separate cases of such conditionality are defined in the Directive:
For more information of the conditionality of free allocation, please see the Commission’s Guidance Document 11 on climate-neutrality plans.
Operators of permitted installations entitled to free allocation who wished to apply for free allocation for the second allocation period of Phase IV (2026-2030) submitted verified baseline data to the EPA by the deadline of 14 June 2024. The ETS team in the EPA assessed the applications and forwarded this information to the Commission on 30th September 2024 for further scrutiny in accordance with Article 11 of the Directive. The list of installations forwarded to the Commission is available here as an indicative list but as this is the first step in the process this does not guarantee any entitlement to free allocation in the second allocation period of Phase IV.
The main differences between the ‘trading periods’ or Phases in the EU ETS are outlined below:
| Phase I and II (2005 – 2012) | Phase III (2013 – 2020) | Phase 4 (2021-2030) |
|---|---|---|
| National quotas | EU-wide cap declining by 1.74 % per annum | EU-wide cap declining by 2.2% per annum |
| A 3 year and a 5 year period | One 8 year period | 10-year period with 2 allocation periods (2021-2025 and 2026-2030) |
| Free allocation based on emissions at installation level | Free allocation based on pre-determined EU-wide benchmarks using the average emission level of the 10% most efficient installations within each sector | EU-wide benchmarks updated for technological advances and most recent production years- (2014-2018) and (2019-2023) |
| Free allocation of allowances for electricity production | No free allocation to electricity production (with the exception of the so-called derogation for modernisation of electricity sector in some MS) | No free allocation to electricity production (other than the MS where modernisation of the power sector is needed.) |
| No free allocation adjustments after a drop in production | Correction of free allowances after falling production by more than 50% | More dynamic annual allocation adjustments based on changes of +/- 15% |
Details on allowance allocation to installations can be found on the European Commission Website European Union Transaction Log.
The last National Allocation Table for 2020 can be viewed here.
The most recent allocation table for new entrants in Phase III is available here.
Note: It is still possible to apply for Phase III new entrant allowances. Any remaining Phase III new entrant applications should be submitted as soon as possible. We expect that the Commission will close the applications list shortly, considering that Phase III ended on 31 December 2020. Where you intend to apply for Phase III free allocation, any physical changes to a sub-installation up to the end of 2020 should be assessed to determine whether or not current capacity of the sub-installation has increased. Further guidance on what is meant by "physical changes" in this context is contained in Chapter 3 and 4 of Guidance Document 7 on the harmonized free allocation methodology for the EU-ETS post 2012.
New Entrant applications for Phase III must be made using the data collection template entitled Application Form for Amending Amounts Allocated Free of Charge for use by Operators and the associated verifier’s template. Download the VOS template from this link.
New entrants may apply for free allocation in the year after the first full calendar year of operations. Further guidance is contained on the EU Commission website, scroll down to the Phase 4 section and see in particular Section 5 in Guidance Document 7. The activity level changes report template should also be used by new entrants for their applications, it can be downloaded here.
A monitoring methodology plan must be submitted and agreed by the EPA in advance of the submission of the verified activity level changes report. It can be downloaded here.
The monitoring methodology plan and verified activity level change report are submitted on EDEN. Further guidance is available here.
Adjustments to free allocation of emission allowances due to activity level changes:
The rules for annual adjustments of allocation due to activity level changes are contained in the Commission Implementing Regulation EU 2019/1842 of 31 October 2019.
Starting in 2021, installation operators who are eligible to receive free allocation for the trading period from 2021 until 2030 need to submit an activity level report each year on the activity level of each sub-installation in the preceding calendar year. The report must be verified by an accredited verifier, accredited to scope 98 in an EU Member State. In 2021, this report shall include data for 2019 and 2020.
The activity level changes report template for new entrants, cessations and annual activity level changes can be downloaded here.
The verification report template for the activity level changes report can be downloaded here.