Annex 2: Methodology

AuthorFabien Roques - Helene Laroche
Com bined ret rosp ectiv e ev aluat ion and prosp ecti ve im pact asse ssmen t su ppor t st udy on Emission
Trad ing Syst em ( ETS) Stat e Aid Guidelin es
Annex 2: Methodology
Appr oach for th e im pa ct asse ssme nt : se ctor fi ches
In this section, w e pr esent our appr oach for t he sect or fiches inf or m in g t he impact
assessm ent.
Se ctor fich es
In this su bsection , w e int rod uce t he obj ectives and cont ent of the sector fiches.
We perform the impact assessm ent of t he underlying par am eters eligibility, aid
intensi ty, and degr essivit y on a sect or- by- sector basis.
For each sector, we establi sh a secto r fiche w hich i) assesses the risk of indi rect car bon
leakage using a Red Amber Green (RAG) assessm ent , an d ii) determ ines t he adequat e
maxim um aid am ount for t his sector. The eligibility crit er ia and aid am ount have to
balance the EU obj ectiv es of m inim ising t he r isk of carb on leak age and of com petition
disto rti ons w ith in th e EU, as well as m aint ain ing the incen tiv es fo r b usine sses t o re duce
th eir indi rect em ission s.
For th is t ask , we ana lyse t he dat a p rov ide d b y s ecto rs th rou gh th e t ar get ed cons ult at ion .
We also conduct in depen dent resear ch an d, w here u seful, interviews f or t hose sectors.
Bef ore each int erv iew, w e seek t he a ppr oval of the Com mis sion on the exa ct i ndiv idu als
we w ould li ke t o m eet and on t he list of qu estions t o be raised with them . Commission
repr esent ativ es have th e opp ortunit y to par ticipat e t o th ese in terviews w ith sectors. In
case no Commission represen t at ives is p resen t dur ing t he int erv iew, we send a
tr anscr ipt of th e exchanges to the Commission.
Whe n using th e dat a pr ovid ed by sectors, we first assess the robu stness of the dat a by
checking t he sources of the data ( e.g. official sour ces like Eurostat are be deem ed of
hig h qualit y), th en w e check t he r epresentativeness of the data in terms of sect or
coverage and geog raphical scope. Finally, we check the p eriod s covered by t he d ata to
ens ure the dat a ca n be used for the im pact assess men t o f t he f utu re ETS Gu ideli nes for
Phase I V.
For each of t he se ctor s presen ted in An nex 1: List of sect ors, we prep are a sect or fiche
th at f ir st assesses the risk of car bon leakage faced by t he sector and t herefore m akes
it el igib le to rece ive a com pen sati on for in dir ect cos ts and seco nd, ass esses t he ade qua te
lev el of aid that th e sect or should receiv e.
The first issue t o addr ess in th e sect or fiche is t he sect or ’s risk of car bon leakage
stem min g fr om indir ect ETS cost s.
To det erm ine a sect or’s eligi bilit y for compen sati on b ased on i ts p oten tial r isk of car bon
leakage, th e sect or fiche addresses t he f ollow ing issues:2 6
- Market ch aract eristi cs:
o Are t here particular mark et characterist ics of the sect or p utt ing it at risk
of carb on leak age d ue t o in direct ETS cost s?
o To what ext ent are b usinesses in t he sect or alr eady p assing or able t o
pass h igher ene rgy costs o n to th eir custom ers?
26 Reg ar ding th ese indicators, reference is m ade t o the Car bon Leakage Qualitative
Assessment Fram ewo rk ann exed t o t he Tech nical Sp ecificat ions.
Final rep ort
o To what ext ent are t he products of th e sect or subst it u table with ot her
product s (inter-sector com petition) , t he produ cer s of w hich m ay be
eligib le for indirect cost com pensa tion ?
- Prof it m arg ins as pr oxy for lo ng-term in centives to inv est in EU ETS area:
o What are t he profit m argins of EU und er takings in t he sect or, as a
pot ent ial dr iver for lon g-run inv estm ent or r elocat ion decisi ons?
- Abate ment pot ential :
o To what ext ent is t here a scope f or energ y efficiency invest m ents in t he
sect or? Woul d t hese ince nti ves be d isto rt ed b y g ran tin g com pe nsat ion for
indir ect ETS costs and, if so, how?
- Fuel and elect ricit y su bsti tut abilit y:
o To wh at ext ent do unde rta kin gs in th e sec tor dif fer as r egar ds t heir sha re
of direct v er sus ind ir ect em ission s in t heir product ion pr ocesses? I n
par t icular: are und er takings in t h e sect or using dif ferent pr od uction
technologies which lead t o a sit uat ion wher e some b usine sses face a
hi gher sh are of indi rect ETS costs (e lect rif icat ion of pro duct ion pr ocesses)
com pared wit h dir ect ETS costs?
Aft er dete rmini ng if the sect or is at r isk of c arbon leaka ge du e to ind irect ETS co sts an d
th er efor e eligible for compensation, t he level and form of aid are considered (aid
int ensity lev el and degr essivity) . I n particular , w e assess w hether the baseline aid
intensi ty of 7 5% is adeq uate o r not .
In the following subsect ions, w e pr esent the app roach f or det ermining t he eligibilit y of
sect ors and for assessin g th e lev el of com pensa tion for th ose sect ors a t r isk.
Eligi bili ty of sect ors
In this su bsection, w e pr esent how the eligibility of sectors is assessed with a RAG
rati ng.
This list of sectors was est ablish ed using the criteria prov ided by the DG CLI MA for the
new ly adop ted Carb on Leakag e List b ut appl ied only for ind irec t em issi ons t he i ndir ect
car bon le akag e i ndi cat or (I CLI ) cor resp ond s t o t he pr odu ct of t rad e in te nsit y and in dir ect
em ission int ensit y. This gives a f irst list of 23 sect ors for which th e ICLI is above 0.2 0.
Elev en secto rs f or whi ch t he I CLI i s be tw een 0.1 5 a nd 0.2 0 c omp lem ent t his list . Final ly,
th e Mining of lign it e” sect or with an in direct emission in tensit y above 1.5 is inclu ded,
as wel l as th e “ Min ing ir on o res” se ctor t hat w as in clud ed in t he pr evio us ETS Guide line s,
but which would no longer be elig ible under th is pot ential I CLI cr iteria. Based on t h e
responses t o the targeted consultation, t he EC also added a n ad dition al five sect ors t o
be analy sed i n t his st udy .
Our pr oposed app roach to d eter mi ne if a s ector is at ri sk of indir ect carb on l eakag e an d
th er ef or e eligible to r eceiv e compensation f or its ind ir ect cost s is t o con du ct a ‘RAG
assessm ent’ on a nu mb er of par am ete rs g ro uped un der t hr ee m ai n ca teg ori es: i ) m ar ke t
characterist ics, ii) profit m argins, an d iii) abatem ent pot ential. A fourth cat eg or y of
par am eters related to th e fu el an d electricit y substitut abilit y is also considered but is
tr eated differently as we consider t his cat egory as not influencing th e sect or’s r isk of
indir ect carbon leak age.

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