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Climate Action

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On 14 July 2021, the European Commission adopted a series of legislative proposals setting out how it intends to achieve climate neutrality in the EU by 2050, including the intermediate target of an at least 55% net reduction in greenhouse gas emissions by 2030. The package proposes to revise several pieces of EU climate legislation, including the EU ETS, Effort Sharing Regulation, transport and land use legislation, setting out in real terms the ways in which the Commission intends to reach EU climate targets under the European Green Deal.

Electricity producers have been obliged since 2013 to buy all the allowances they need to generate electricity. However, certain EU Member States can provide free allocation to installations for electricity production for the modernisation of their respective energy sectors.

Article 10c of the EU ETS Directive provides a derogation from the general rules on no free allocation for electricity production.

Lower-income Member States may give free allocation, from the amount already allocated to that Member State for auctioning, to installations for electricity generation, in order to support investments which contribute to:

  • diversification of the energy mix and sources of supply
  • restructuring, environmental upgrading and retrofitting of the infrastructure
  • clean technologies
  • modernisation of the energy production sector and of the transmission and distribution sector

This provision was introduced for phase 3 of the EU ETS (2013-2020), when auctioning became the default method of allocating allowances for electricity generation.

In the context of the 2030 climate and energy framework, EU leaders decided that this free allocation should also be available during phase 4 of the EU ETS (2021-2030). They emphasised the need to improve transparency in order to ensure that the free allocation is used in the most effective way.

The ETS Directive therefore extends the availability of the optional free allocation for the lower-income Member States into phase 4. Additionally, it adds an option related to the Modernisation Fund and improves the transparency of the allocation process under Article 10c.

Member States’ use of the derogation

Out of the ten eligible Member States, only Bulgaria, Hungary and Romania have decided to provide free allocation under Article 10c of the ETS Directive in phase 4.

Czechia, Croatia, Lithuania, Romania and Slovakia decided to use the possibility to transfer all or parts of their Article 10c volumes to the Modernisation Fund, thereby increasing their respective volumes and share of the spending under the Fund. Estonia, Latvia and Poland were also eligible but chose not to use the Article 10c derogation, opting instead to have their allowances auctioned the normal way.

Eligible Member States Maximum Article 10c derogation
(40% of regular allowances)
Amount to be used under Article 10c Amount transferred from Article 10c to the Modernisation Fund Amount to be auctioned
Bulgaria 51 599 838 51 599 838 0 0
Czechia 111 462 281 0 111 462 281 0
Estonia 17 583 702 0 0 17 583 702
Croatia 11 957 703 0 5 978 852 5 978 851
Latvia 3 794 677 0 0 3 794 677
Lithuania 8 696 818 0 8 696 818 0
Hungary 34 610 750 20 748 000 0 13 862 750
Poland 273 211 665 0 0 273 211 665
Romania 91 673 704 5 600 000 86 073 704 0
Slovakia 33 228 414 0 33 228 414 0
Total 637 819 552 77 947 838 245 440 068 314 431 646

The three Member States that decided to provide free allocation must establish national frameworks for the implementation of Article 10c of the ETS Directive. These have to be cleared by the Commission under State Aid rules.

Between 2021 and 2030, the concerned Member States will organise competitive bidding processes to select the investments to be supported. Investments with a value of less than EUR 12.5 million can also be selected without competitive bidding based on objective and transparent criteria. Only Romania decided to make use of this latter option.

Up to 70% of the relevant costs of an investment may be supported using the free allocation.

Member States will report to the Commission on implementation of the selected investments. The Commission will publish these reports on this website.

Documentation

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FAQ

Free allocation for the modernisation of the energy sector in phase 4 of the EU ETS (2021-2030)

Free allocation for the modernisation of the energy sector in phase 3 of the EU ETS (2013-2020)

Eight of the Member States which have joined the EU since 2004 – Bulgaria, Cyprus, Czechia, Estonia, Hungary, Lithuania, Poland and Romania – have made use of a derogation under Article 10c of the ETS Directive in phase 3. Latvia and Malta were also eligible but chose not to use this derogation.

The overall amount invested needed to match or exceed the value of the allowances allocated for free.

The rules for the free allocation, set out in the ETS Directive, were complemented by the ‘derogation package’ adopted in 2011. The European Commission approved all the applications received and cleared them under State Aid rules.