EU ETS Monitoring and Reporting Regulation (MRR)
- Category: EU ETS
Accurate monitoring, reporting and verification (MRV) is necessary for the efficient functioning of the European Union Emission Trading Scheme (EU ETS).
For this purpose MRV is, moreover, supplemented by a sound accreditation system for ensuring adequate quality of third-party verifiers (see the Accreditation and Verification Regulation (AVR)).
MRV requirements in phase 3 of the EU ETS (2013 - 2020) were governed by Commission Regulation (EU) No 601/2012 of 21 June 2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ L 181, 12.7.2012, p. 30 as amended - "M&R Regulation" or "MRR"), which entered into force on 1 August 2012 and applied as from 1 January 2013.
Before the start of the third trading period of the EU ETS, monitoring and reporting rules were specified in Commission Decision of 18 July 2007 No 2007/589/EC establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ L 229, 31.8.2007, p. 1, as amended - "MRG 2007").
M&R Regulation repealed the MRG 2007, the provisions of the said Decision, however, continued to apply to the monitoring, reporting and verification of emissions and, where applicable, activity data occurring prior to 1 January 2013.
In turn, the M&R Regulation was repealed with effect from 1 January 2021 by the Commission Implementing Regulation (EU) 2018/2066 of 19 December 2018 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council and amending Commission Regulation (EU) No 601/2012 (Article 77(1)).
Commission Implementing Regulation (EU) 2018/2066 was amended by Commission Implementing Regulation (EU) 2020/2085 in order to align the provisions regarding the emissions from biomass with the rules laid down in Directive (EU) 2018/2001, in particular as regards the relevant definitions and the sustainability and greenhouse gas emission saving criteria for the use of biomass. Following those amendments, the provisions regarding the sustainability and greenhouse gas emissions saving criteria for the use of biomass apply from 1 January 2022.
Note, however, that on 14 December 2021 the European Commission opened the public feedback period on Commission Implementing Regulation (EU) amending Implementing Regulation (EU) 2018/2066 with the purpose to amend its Article 38 regarding the timing for applying certain rules on the monitoring and reporting of emissions and in particular the zero-rating of emissions from the combustion of sustainable biomass.
Covered entities should pay particular attention to the need to carry out necessary risk assessments required under the new M&R Regulation. It is also noteworthy that M&R Regulation does not apply directly to installations excluded from EU ETS pursuant to Article 27 of Directive 2003/87/EC (EU ETS Directive) unless the Member State decides to the contrary.
Pursuant to the Guidance document No. 1 the M&R Regulation has been developed with view to enhancing EU-wide harmonisation of approaches beyond that already achieved by Member State implementation of MRG 2007. It also takes into account several best practices found in the Member States. The Guidance document No. 1 enumerates the following new elements compared to the earlier MRG 2007:
- The central role of the monitoring plan for the whole MRV system has been further emphasised. For development of a new monitoring plan or for revision of an existing one, see section 5.1 of the Guidance document No. 1.
- The requirements for choosing the appropriate and required tier (the tier hierarchy) have been amended (see section 5.2 of the Guidance document No. 1).
- Definitions for the source stream categories have been modified (major, minor and de-minimis source streams, see section 4.4 of the Guidance document No. 1).
- Important clarifications have been introduced regarding the role of written procedures, which supplement the monitoring plan with various details, but which are kept separate therefrom in order to facilitate their more frequent maintenance and implementation. This is described in section 5.4 of the Guidance document No. 1.
- The MRR has also introduced new rules for the process of updating the monitoring plan, as discussed in section 5.6 of the Guidance document No. 1. Furthermore the principle of continuous improvement of the monitoring plan has been strengthened by the MRR, including a requirement to react to recommendations of the verifier (see section 5.7 of the Guidance document No. 1).
- Further requirements in the context of the monitoring plan concern the evidence for meeting the specific tiers, including an uncertainty assessment as appropriate (see section 5.3 of the Guidance document No. 1), and the risk assessment necessary to establish an appropriate control system concerning the data flows of the installation (see section 5.5 of the Guidance document No. 1). These “supporting documents” must be submitted to the competent authority together with the monitoring plan.
- Some terminology has changed (“calculation factors” as an overarching term for emission factor, net calorific value, oxidation factor, conversion factor, biomass fraction, carbon content; and introduction of the “preliminary emission factor). For further details see section 4.3 of the Guidance document No. 1.
- Improved possibilities to combine the various allowed monitoring approaches, i.e. calculation-based approaches (standard and mass-balance methods), measurement-based approaches and the “fall-back” approach (i.e. no-tier methodology). In particular, measurement-based approaches have been put on equal footing with calculation-based approaches including in relation to minimum tier requirements (see section 4.3.5 of the Guidance document No. 1).
- When selecting a particular monitoring approach, and when deciding upon possible improvements thereof, the concept of avoiding unreasonable costs is crucial. The MRR has added clarification concerning interpretation of unreasonable costs (see section 4.6.1 of the Guidance document No. 1).
- When assessing the appropriateness of a measuring instrument for the determination of quantities of fuels and materials, the uncertainty of the measurement is the main parameter to check, and the MRR has introduced flexibility to allow several new approaches, including reliance on national legal metrological control where appropriate and possible (see section 5.3 of the Guidance document No. 1). The MRR has furthermore strengthened measures for securing regular maintenance, calibration and adjustment of metering equipment.
- The MRR uses the same definition for biomass, biofuels and bioliquids as the Directive on Renewable Energy Sources (RES-D). Consequently, the sustainability criteria established by the RES-D must be applied where relevant in order to apply an emission factor of zero to such biomass. Note that this topic is covered in detail in a separate guidance document (see section 2.3 of the Guidance document No. 1 for where to find other guidance documents).
- For cases where calculation factors are to be determined using laboratory analyses, the MRR contains two major new elements: the requirement to have a dedicated sampling plan (in the form of a written procedure) approved by the competent authority, and clarifications for criteria by which a laboratory can be regarded as equivalent to an EN ISO/IEC 17025 accredited laboratory (see section 6.2.2 of the Guidance document No. 1).
- Rules for transferred and inherent CO2 have been updated (see section 8.3 of the Guidance document No. 1).
- The interplay with the verification, as regulated by the new A&V Regulation, has been significantly improved. In particular, the rules for the data flow and control activities of operators have been elaborated, as shown in section 5.5 of the Guidance document No. 1, and the improvement principle establishes a feedback loop from the verifier’s findings to the operator’s monitoring plan (see section 5.7 of the Guidance document No. 1).
- Finally, the Guidance document No. 1 emphasises that the MRR sends a strong signal for harmonisation, as it has laid a basis for the European Commission to provide electronic templates for monitoring plans, emission reports and other communication between operators, verifiers and competent authorities. Those templates are published together with the series of guidance documents (see below). Member States may, however, provide their own templates or use more advanced electronic reporting systems (e.g. web-based systems), if they require at least the same data.
The M&R Regulation, like the MRG 2007, allows the operator to choose monitoring methodologies from a building block system based on different monitoring approaches. However, the MRR goes significantly beyond the flexibility of the MRG 2007, as now all types of combinations of these approaches are allowed, under the condition that the operator demonstrates that neither double counting nor data gaps in the emissions will occur. The choice of methodology needs the approval of the competent authority, which is given usually implicitly as part of the monitoring plan approval.
The following methodologies are available:
1. Calculation based approaches:
a. Standard methodology (distinguishing combustion and process emissions);
b. Mass balance;
2. Measurement based approaches;
3. Methodology not based on tiers (“fall-back approach”);
4. Combinations of approaches.
Guidance Document No. 1 underlines the basic philosophy in the MRV system of the EU ETS, that the biggest emissions should be monitored most accurately, while less ambitious methods may be applied for smaller emissions. The categorisation of installations under MRV system reflects this approach.
The flexibility in the choice of the monitoring methodologies allows for cost-effectiveness in the MRV framework.
Although called 'calculation based', the method requires several measurements. In particular the quantity of fuels and materials leading to emissions needs to be measured. The emissions are then calculated as 'quantity times emission factor (times other factors if applicable)'.
Chemical analyses are required for determining the emission factors in case of high emissions and/or more heterogeneous fuels and materials. In other cases default factors may be used.
'Measurement based methodologies' refer to the use of Continuous Emissions Measurement Systems (CEMS). Methods may be combined for parts of the installation. The requirement for installations and aircraft operators to have a monitoring plan approved by the Competent Authority on the basis of the MRR prevents arbitrary selection of monitoring methods. Pursuant to reports submitted by the EU Member States to the European Commission that cover the application of the EU ETS Directive in 2014 (referred to in the Report on the functioning of the European carbon market of 18 November 2015 (COM(2015) 576 final, p. 26), most of the installations use the calculation-based methodology. Only about 140 installations (in 22 Member States) were reported to use continuous emissions measurement systems. Only 13 Member States reported the use of the fall-back approach by 32 installations in total and covering 6.1 million tonnes CO2e.
Report of 23 November 2017 from the Commission to the European Parliament and to the Council, Report on the functioning of the European carbon market (COM(2017) 693 final) provides in that regard the following updates:
- according to the Article 21 reports submitted in 2017, most installations use the calculation-based methodology (the main reason for this is that the measurement-based methodology involves the deployment of significant resources and know-how for the continuous measurement of the concentration of relevant GHGs, which a lot of smaller operators do not have),
- only 150 installations (less than 1.5%) in 23 countries were reported to use continuous emissions measurement systems, most frequently in Germany and the Czech Republic,
- only 11 countries reported the use of the fall-back approach by 36 installations, covering approximately 5.1 million tonnes CO2e, compared to 6.6 million tonnes CO2e the year before (the Netherlands reports a reduction in the number of installations applying fall-back methodology and a halving of the affected emissions, two installations, one in the UK and one in NL, are responsible for over half of the overall emissions reported in relation to fall-back methodology.
Monitoring of emissions from aviation
For aircraft operators, there are fewer options applicable for the monitoring of emissions. Only calculation based approaches are feasible, with the fuel consumption being the central parameter to be determined for the flights covered by the EU ETS. Other parameters are the emission factor, for which usually a default value is applicable, and the fuel density, which again can often be based on a default value.
FIT for 55 amendments
It is noteworthy that on 26 July 2023 the European Commission opened the public feedback period on Commission Implementing Regulation (EU) amending Implementing Regulation (EU) 2018/2066 as regards updating the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council (Ref. Ares(2023)5183559). Following the amendment of Directive 2003/87/EC by Directives (EU) 2023/9582 and (EU) 2023/9593 of the European Parliament and of the Council, Commission Implementing Regulation (EU) 2018/20664 needs to be revised to incorporate rules applying to installations for the incineration of municipal waste as well as to specify rules on biomass and biogas, and on the monitoring of process emissions from carbonates and non-carbonates materials. Provisions on aviation also need to be revised. The amendment also introduces a separate but parallel emissions trading system applied to fuels used for combustion in the buildings and road transport sectors as well as in additional sectors which correspond to industrial activities not covered by Annex I to Directive 2003/87/EC. New provisions and annexes on the monitoring and reporting of emissions in those sectors are added. Rules and provisions on the monitoring and reporting of emissions are adapted accordingly.
Furthermore, new rules on biomass and the determination of biomass fraction need to be laid down to provide for necessary adjustments for the application in the EU ETS of sustainability criteria for biomass, including biofuels, bioliquids and biomass fuels. Further adaptation is provided to improve and align existing rules with the provisions of the Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (RED II), as already updated in the relevant guidance documents.