Emissions Trading System (phase IV: 2021 – 2030)

Emissions Trading System (phase IV: 2021 – 2030)

The EU ETS operates in 31 countries and covers 11.000 installations, which account for about 45% of the European emissions. The ETS is designed to reduce covered emissions in a cost-effective way by providing a price signal for carbon to the market.  The revised EU ETS Directive, which will apply for the period 2021-2030, will enable the reduction of GHG emissions through a mix of measures among which:

  1. Direct Emissions: Better Targeted Carbon Leakage Rules

The system of free allocation will be prolonged for another decade and has been revised to focus on sectors at the highest risk of relocating their production outside of the EU. These sectors will receive 100% of their allocation for free. For less exposed sectors, free allocation is foreseen to be phased out after 2026 from a maximum of 30% to 0 at the end of phase 4 (2030). More than 6 billion allowances are expected to be allocated to industry for free over the period 2021-2030.

A considerable number of free allowances will be set aside for new installations. This number consists of allowances that were not allocated from the total amount available for free allocation by the end of phase 3 (2020) and 200 million allowances from the MSR.

Additional rules have also been set to better align the level of free allocation with actual production levels:

  • Allocations to individual installations may be adjusted annually to reflect relevant increases and decreases in production. The threshold for adjustments was set at 15% and will be assessed based on a rolling average of two years.
  • The list of installations covered by the Directive and eligible for free allocation will be updated every 5 years.
  • The 54 benchmark values determining the level of free allocation to each installation will be updated twice in phase 4 to avoid windfall profits and reflect technological progress since 2008.

Euromines welcomes the European Union commitment to reduce greenhouse gas emissions and is prepared to take all necessary measures to reach this objective. The list of ETS elements essential for the extractive industry in achieving this objective includes:

  • The whole design of the EU ETS should not undermine the competitiveness of industry, in particular the energy-intensive sectors that are most vulnerable to unilateral carbon and energy cost increases;
  • Free allocation at European level should continue to be the key tool for sectors exposed to carbon leakage alongside with financial compensation for CO2 costs and electricity prices (electricity represents a substantial share of the mining industry operating expenses), as long as a global commitment to price carbon is not reached;
  • The post 2020 rules on free allocation and financial compensation for indirect costs should be clear, predictable and effective to ensure the competitiveness of the European industry;
  • Alternative measures such as separate policy regimes for industrial and power generation sectors and the inclusion of imports in EU ETS should be analyzed and further explored;
  • Post 2020 legislation implementing the 2030 package should avoid overlapping with other legislation in particular in the field of renewables and energy efficiency.
  • Euromines ETS phase IV Position Paper
  • ETS - Euromines Position Process Emissions
  • ETS - Industry Position Process Emissions
  • Euromines position on Free Allocation Changes

​2. Indirect Emissions: Reduced carbon leakage risk related to indirect ETS costs

In line with the European Green Deal communication, the draft EU ETS State aid Guidelines aims at reducing carbon leakage risk related to indirect ETS costs, and incentivizing the modernisation of production processes. Member States can partly compensate indirect emission costs faced by industrial sectors due to EU Emission Trading System (ETS) if this is in accordance with the Guidelines on State aid measures in the context of the EU ETS.

Current Guidelines will expire on 31 December 2020. They therefore must be revised for the next trading period starting on 1 January 2021.

The mining industry is one of the most electrified industries in the global industrial production, exposed to a significant risk of indirect carbon leakage and should therefore be eligible for indirect emission costs compensation. The mineral raw materials industry is a ‘price-taker’ operating in a competitive global marketplace, unable to pass-through indirect emissions costs to downstream consumers. Prices are set at global market level and fall outside the company control. Additionally, to the internationally set prices, Europe has a significant import dependency for all metal ores and concentrates, including 100% import reliance for several specialty metals and rare earths.

With mining sectors unable to pass through costs and the prospects of investment in the EU ETS area worsening simultaneously with a stagnation or even decrease in domestic demand the EU raw materials sector, competing at international levels mainly on costs is legitimately concerned that the decision not to reimburse indirect emissions costs will undermine the international competitiveness of the industry through the loss of market share and profit margins to competitors who do not face similar indirect carbon emissions costs.

Lastly, the indirect costs compensation represents an essential element non only in coping with carbon leakage but also in achieving the climate goals. Compared to competing production in emerging markets such as China, the European mineral raw materials industry is highly energy efficient and has a low carbon footprint. The European mining sector also enhances the availability of the critical materials needed for current and future technologies to create a climate neutral, circular and resource efficient economy, while sourcing raw materials in a sustainable and responsible way. It can be considered both a ‘greening by’ and a ‘greening of’ activity: minimising its impacts makes a significant contribution to climate change mitigation in the EU.

Given all of the above, it is our strong conviction that the main aims of the updated ETS State Aid Guideline should be to safeguard an integrated approach to consistency, stability and predictability while ensuring a cost-effective decarbonisation of the economy with no competition distortions in the internal market along the whole value chain.

Download: Euromines Position on Indirect Costs