The free allocation
The allotment application
The extent to which plant operators subject to emissions trading are entitled to a free allocation and the final amount of the allocation depends on many factors.
Today, free allocation is primarily based on efficiency standards. The plants that are the most efficient EU-wide in terms of the CO2 intensity of their production set the so-called benchmarks. A less efficient installation, despite requiring more allowances, only receives an allocation equal to the benchmark set for it.
Sectors with installations subject to emissions trading that are in intense competition with competitors based in third countries cannot pass on the costs they incur through the purchase of emission allowances to their customers. Production relocations and thus shifts of greenhouse gas emissions from the monitored area of the EU ETS to countries with no or lower climate protection could be the result. This risk is called carbon leakage.
All sectors or products at risk of carbon leakage that are grouped together on a so-called carbon leakage list drawn up by the EU receive a 100% free allocation, taking into account the "benchmarking" applied.
Electricity producers, on the other hand, who can easily pass on the costs caused by emissions trading to their customers, do not receive free allocations.
The application for a free allocation must always be submitted in good time before the start of a trading period.
For the second allocation period of the current 4th trading period (2026-2030), the deadline for submitting an allocation application will probably be 30.06.2024.
The submission of an allocation application requires a great deal of time for a plant operator, which, depending on the complexity of the plant, takes about 10-20 working days of a specialised employee.
What exactly is the problem?
Based on the allocation request, the EU decides on the allocation for several years. The upcoming allocation application for the second allocation period of the fourth trading period covers the years 2026-2030.
For this reason, a carefully prepared allocation application that exhausts all possibilities to secure the maximum amount of free allowances is essential. If you do not do this, you will lose money unnecessarily and have to buy missing allowances on the market at high prices.
The complexity of an allocation application as well as its opportunities and risks lie in a number of adjusting screws that significantly influence the amount of the allocation. These are in particular
- the structuring of your investment/balance sheet limits
- the correct consideration of all allotment-entitled elements
- the correct consideration of historical activity rates
- the correct application of efficiency standards for the individual allocation elements
- the carbon leakage check (choice of the correct NACE code)
- The correct consideration of various reduction factors
Unless you, as the responsible operator, have a specialised and experienced staff member who can dedicate 15-30 days to the work around the allocation application when the time comes, you should look for external help in time.
We can help you!
If you need concrete help in preparing your allocation application because you cannot find enough experienced staff in your company for this complex work, but you do not want to miss out on your maximum possible allocation amount, please contact Emissionshändler.com to request an appropriate offer.
Our offer for you!
Emissionshändler.com will be happy to prepare your allocation application for you.
We review and check your last allocation application, your measuring equipment, your installation diagram, check your organisation matrix, prepare a complete methodology report for your installation, look at the balance limits of your installation, determine the allocation elements and their applicable efficiency standards, carry out a detailed carbon leakage check (determination of the NACE code) and analyse the allocation for applicable reduction factors.
After entering all the necessary data into the DEHSt's form management system (FMS), we discuss the status of the application with your verifier and incorporate any change requests in several rounds of interaction.
After handing over the right to process the application to the verifier, we take over the monitoring of further verifications within the verification organisation selected by you.
The verified allocation application must finally be submitted to DEHSt electronically signed via the virtual post office.
Emissionshändler.com® will be happy to provide you with an offer on a flat-rate basis to take over the aforementioned activities from 30.09.2023 onwards. Please contact us!