If the operator is planning the capacity reduction in an installation covered by the EU ETS scheme and there are, for technical reasons, the two options as regards the implementation date for this decision: for instance 15 December of the year "n" and 15 January of the year "n+1", which of the two dates indicated is more advantageous for installation's operator for the free allocations' purposes? 


The answer to the above question can be found in the Harmonised Allocation Rules Decision (Commission Decision of 27 April 2011 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council (2011/278/EU).


Article 21(3) of the Harmonised Allocation Rules Decision


"The allocation to the installation shall be adjusted accordingly as of the year following the one during which the capacity reduction took place or as of 2013, if the significant capacity reduction took place before 1 January 2013."



The said Decision, among provisions on a free  allocation process for new entrants and closures for the EU ETS third trading period (i.e. up to 2020) contains  Article 21(3), which determines, the allocation to the installation is adjusted accordingly as of the year following the one during which the capacity reduction took place. 


In this way, considering the choice from the above two dates (15 December of the year, for instance, 2014 and 15 January 2015) the more beneficial decision for the operator would be to start the reduction process on 15 January 2015 since this decision will allow the operator to retain an allocation to the installation in the original volume of emission allowances for the entire year 2015 - which would not apply, if the operator reduced the installation's capacity on 15 December 2014.


In such way, even though the distance between the above two dates is one month only and the potential delay may not be burdensome for the installation's operator, he is able to improve significantly the financial flows of this venture.


It have to be borne in mind, the capacity reduction may influence the installation's activity level (an instance called under the Harmonised Allocation Rules Decision "a partial cessation of operations").

However, in such a case the allocation of emission allowances to an installation that partially ceases operations is to be adjusted as of the year following the year during which it partially ceased operations (i.e. during which the activity level of the sub-installation reaches the relevant percentage of the initial activity level - see rules on production stoppages and partial closures).


It means that the benefits for the operator, mentioned at the beginning, are not at risk.


More information on the EU ETS rules regarding installation's capacity reductions see here 




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