1. Energy Forum Allocation rules for Industry in EU ETS 2013 presented by Mukund Bhagwat Brussels 9 June 2011 1

2. Benchmarks for industry: The right decision –but benchmarks severe, especially since they apply from 2013 no time for adaptation Allocation rules… –… adequate for installations without production changes between 2005 – 2011 –… result partly in shortage of allowances or wrong incentives for installations with production changes 2 General assessment EU experience has shown: To set up a benchmark system is challenging but feasible EU system can be a model for the world  if benchmarks are phased in (time for adaptation) and  allocation is based on actual production levels safeguards right incentives, reduces complexity of allocation rules significantly etc. while maintaining carbon price signal

3. Historical Activity Level: some flexibility Significant Capacity Extension Threshold: > 10 % or 50.000 EUAs … Allocation to heat consumer Carbon leakage status of heat consumer considered Efficiency improvement / Abatement measures will not lead to less allocation No innovation and technology accelerator 3 In detail: What’s good or was improved

4. Constraints on production growth –No additional allocation in case of production growth without a physical change –No additional allocation in case of capacity increase below 10% –Complex and problematic determination of added capacity –There may be no allocation for new entrants/ capacity extensions in case New Entrants’ Reserve is used up –Extension of non-ETS heat consumers not sufficiently considered (sets inefficient incentives) –Capacity extensions of up- and downstream plants not considered 4 In detail: What’s not implemented well

5. Competitive advantage of industrial CHP reduced Wrong calculation of “industry cap” may reduce free allocation –Total amount of free allocation independent of benchmarks and allocation rules No hardship clause No rationalisation rule Lack of EU-harmonisation (esp. with regard to “installation” definition) 5 In detail: What’s not implemented well Financial Compensation: still the missing link in the system