Article 27 of the Directive 2003/87/EC (as amended by the Directive 2009/29/EC) allows for the exclusion of small installations (subject to equivalent measures) from EUETS.
These small installations will have a chance to avoid administrative burdens and costs (resulting from the participation in the scheme) only, if governments act quickly. 30 September 2011 is a key deadline in that matter.
According to the Article 11 of the Directive 2003/87/EC each Member State should publish and submit to the European Commission, by 30 September 2011, the list of installations covered by the Directive in its territory and any free allocation to each installation in its territory calculated in accordance with the rules referred to in Article 10a(1) and Article 10c.
The legal instrument provided for in the said Article 11 of the Directive - National Implementation Measure (NIM) – will present a list of all installations in the territory of the Member State included in the Scheme as from 2013 (also installations included only as from that date in effect of extended scope of the Directive).
The future NIMs should also reflect decisions of Member States under the said Article 27, i.e. in relation to the possible exclusion of small emitters and hospitals from EUETS.
“1. Following consultation with the operator, Member States may exclude from the Community scheme installations which have reported to the competent authority emissions of less than 25000 tonnes of carbon dioxide equivalent and, where they carry out combustion activities, have a rated thermal input below 35 MW, excluding emissions from biomass, in each of the three years preceding the notification under point (a), and which are subject to measures that will achieve an equivalent contribution to emission reductions, if the Member State concerned complies with the following conditions:
(a) it notifies the Commission of each such installation, specifying the equivalent measures applying to that installation that will achieve an equivalent contribution to emission reductions that are in place, before the list of installations pursuant to Article 11(1) has to be submitted and at the latest when this list is submitted to the Commission;
(b) it confirms that monitoring arrangements are in place to assess whether any installation emits 25000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year. Member States may allow simplified monitoring, reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 which are below 5000 tonnes a year, in accordance with Article 14;
(c) it confirms that if any installation emits 25000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year or the measures applying to that installation that will achieve an equivalent contribution to emission reductions are no longer in place, the installation will be reintroduced into the Community scheme;
(d) it publishes the information referred to in points (a), (b) and (c) for public comment.
Hospitals may also be excluded if they undertake equivalent measures.
2. If, following a period of three months from the date of notification for public comment, the Commission does not object within a further period of six months, the exclusion shall be deemed approved.
Following the surrender of allowances in respect of the period during which the installation is in the Community scheme, the installation shall be excluded and the Member State shall no longer issue free allowances to the installation pursuant to Article 10a.”
As recital 11 of the Directive points out, “It is for Member States to propose measures applying to small installations which will achieve a contribution to emission reductions equivalent to those achieved by the Community scheme. Such measures could include taxation, agreements with industry and regulation. Taking into account the need to reduce unnecessary administrative burdens for smaller emitters, Member States may set up simplified procedures and measures to comply with this Directive.”
Also pursuant to the Article 5(2) of the Commission’s Decision determining transitional Union-wide rules for the harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of 27 April 2011 each Member State is obliged to identify all heat producing electricity generators and small installations, which may be excluded from the Union scheme pursuant to Article 27 of Directive 2003/87/EC.
The Guidance Document n°1 on the harmonized free allocation methodology for the EU-ETS post 2012 reminds that NIMs list shall include also installations that are classified as electricity generators as well as the so called 'small emitters' referred to in Article 27 of Directive 2003/87/EC. As the Commission may assess and where appropriate reject such exclusions, these small emitters have to be considered as installations within the EU ETS in this first step.
Beneath a few remarks on the specific issues relating to the process for assessment and effects of the Article 27 exclusion.
Requirement for holding GHG emission permit as regards excluded entities
The Guidance on Interpretation of Annex I of the EU ETS Directive (excl. aviation activities) of 18 March 2010 underlines that Member States should ensure that no installation carries out any activity listed in Annex I unless its operator holds a GHG emissions permit (Article 4), or the installation has been excluded from the EU ETS pursuant to Article 27.
The said Guidance makes also interesting point clarifying that “For small emitters excluded from the EU ETS pursuant to Article 27, and in order to ensure that monitoring and reporting arrangements in accordance with Article 14 still apply for those installations, a Member State may also require that small emitters hold a GHG emissions permit, even when excluded from the EU ETS”.
The above finding (not mentioned in the Directive) marks thus another (after a decision whether to exclude small installations and hospitals from EU ETS or not) legal optionfor the Member States – on the potential possibility to maintain the requirement for the excluded entities to hold GHG emission permit.
As regards this point it is useful to note that the Directive requires in Article 27 that only monitoring arrangements are in place to assess whether any installation emits 25000 tonnes or more of carbon dioxide equivalent, excluding emissions from biomass, in any one calendar year (it is also allowed a simplified monitoring, reporting and verification measures for installations with average annual verified emissions between 2008 and 2010 below 5000 tonnes a year). So, the issues relating to the GHG emission permit on the one part and monitoring arrangements on the second are separate and effective enforcement of monitoring arrangements does not necessarily require holding GHG emission permit for excluded entities. Also the approval of the monitoring plan need not necessarily be the integral part of the GHG emission permit – taking into account the text of the Directive itself, it may take the form of the distinct administrative decision.
Units below 3 MW thermal input and units using exclusively biomass
The issue relating to the units below 3 MW thermal input is triggered off by the content of the clause 3 of Annex I to the Directive.
“When the total rated thermal input of an installation is calculated in order to decide upon its inclusion in the Community scheme, the rated thermal inputs of all technical units which are part of it, in which fuels are combusted within the installation, are added together. These units could include all types of boilers, burners, turbines, heaters, furnaces, incinerators, calciners, kilns, ovens, dryers, engines, fuel cells, chemical looping combustion units, flares, and thermal or catalytic post-combustion units. Units with a rated thermal input under 3 MW and units which use exclusively biomass shall not be taken into account for the purposes of this calculation.
‘Units using exclusively biomass’ includes units which use fossil fuels only during start-up or shut-down of the unit.”
An exemption (de-minimis rule) to this aggregation clause is included: units with a rated thermal input below 3 MW are excluded, as well as units using exclusively biomass.
The Guidance on Interpretation of Annex I of the EU ETS Directive (excl. aviation activities) of 18 March 2010 remarks that the aggregation clause contained in the said point 3 of Annex I – and consequently the threshold of 3 MW - applies to the process for assessing whether an installation falls under the scope of the EU ETS – and not to the qualification under Article 27 of the Directive.
In other words, Article 27 does not provide a basis for leaving out biomass units and the 3 MW de-minimis units as these exclusions are only relevant when assessing whether an installation falls under the scope of the EU ETS.
The said Guidance consequently conclude that “when assessing the 35 MW and 25 000 t CO2(eq) threshold for possible exclusion from the Community scheme, also the fuel use (and CO2 emissions) from units with a rated thermal input of less than 3 MWth are included. It is therefore clear that the calculation of the 35 MW treshold does not provide the "earlier" exclusion of units below 3 MW thermal input and units using exclusively biomass, as these exclusions are only relevant when assessing whether an installation falls under the scope of the EU ETS”.
An example is also given when an installation operates a boiler of 28 MWth fired with natural gas, and a wood based boiler of 12 MWth. While the wood boiler is excluded for the aggregation, it is included for the purpose of checking the capacity threshold for possible exclusion. Since Article 27 does not refer to the same de-minimis rules as clause 3 of Annex I, all combustion units at the installation are to be considered. Thus the relevant capacity is 28 + 12 = 40 MWth, i.e. too high for a possible exclusion.
In order to give the possibility to exclude small installations that only started up their Annex I activity in one of the years 2008 to 2010 (and were regarded as new entrants by the competent authority in the 2nd trading period), the words used in Article 27 "in each of the years 2008 to 2010" must be interpreted as "in each of the years 2008 to 2010 in which the installation was performing an Annex I-activity".
Hospitals can be excluded from the EU ETS under Article 27, irrespective of their emissions or thermal capacities. As the Guidance underline, a definition of hospitals should be applied consistently by all Member States in order to prevent abuse of this exception. For this purpose, the operator of a hospital shall provide evidence to the competent authority, that providing hospital activities is the main purpose of the installation in question. This can be a proof from the statistical office that the installation is classified as NACE 85.11 (NACE rev 1.1) or 86.10 (NACE rev. 2).
It follows that decisions in the matter of the said exclusion are very urgent. Installations that are notified later then 30 September 2011 can not be excluded as from EU ETS.
The additional issue is that the European Commission should be notified by 30 September 2011 of equivalent measures applying to the “small” installations – it seems, such “equivalent measures” have to be implemented into national law by the said date. Furthermore, relevant periods for consultations with the operators should be foreseen.