ETG subgroup on New Entrants: Report to EU WG Bill Thompson EU WG Meeting Wednesday, 29 June 2015

New Entrants & NER in Phase 4 NER & new entrants in Phase 4 ignored so far in Commission’s proposal. Small number of New Entrants so far Phase 3 2013-16 New Entrants use 20% of total NER reserve. But NER key to industry investment in EU

Summary: Need for certainty on the date defining New Entrants Simplicity in Free Allocation NER must not run dry Accredit Member States to allocate from the NER – where deemed competent

1. Need for certainty on the date defining New Entrants Current date is 30 June 2011 No change proposed in Commission proposal But need for a date in Phase 3

2. Simplicity in Free Allocation Actual ex post allocation, not via estimated activity Free Allocation to equal ex post verified emissions, less any CSCF, less any sector carbon leakage factor Assumption is that a New Entrant is at sector benchmark level – no one builds inefficient new installations. No change to Power Generation Sector receiving zero allocation Where fallback approaches are used, allocation would be at heat / fuel / process emissions benchmark level Prevents coal/lignite fuelled installations receiving a full allocation Duration of ex post allocation? Depends on gap between installation activity and allocation Probably at least three years, could be for remaining phase.

3. NER must not run dry NER is 250m EUA + unused industry share Phase 3. It is the only source of allocation available to New Entrants and for significant extension. The fact it could run dry is a deterrent to new entrant investment Phase 4 ‘significant production increases’ will also be drawn from the NER. If needed, NER to be topped up from auctioning / MSR reserve / other source, to prevent rationing Irony of innovation funding sources available, but risk of no allocation for a new entrant!

4. Accredit Member States to allocation from the NER – where deemed competent Aim is to relieve Commission’s role as NER administrator where Member States are competent and accredited Allows Commission to concentrate on policy, audit and investigation matters Clear distinction between definitions of ‘new entrants’ , ‘significant extension’ and ‘significant production increases’ Definitions have different thresholds, thus risk of gaming