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Only the quantity of emission allowances required for CO2-efficient operations are issued for free to companies participating in the emissions trading scheme (ETS). This quantity is calculated on the basis of benchmarks.
In principle, the quantity of emission allowances issued for free is calculated based on product benchmarks. These benchmarks determine the maximum quantity of emission allowances that are issued per unit produced (e.g. 1,514 emission allowances per tonne of aluminium). Each benchmark corresponds to the average emissions of 10 per cent of the most efficient installations. In order to ensure the same competitive conditions that exist in the EU, the Swiss ETS applies the same benchmarks as those used in the EU ETS.
Different benchmarks are applied to production processes that are not covered by a product benchmark. In this case, the emission allowances issued are calculated, where possible, based on the heat benchmark, which corresponds to the quantity of heat produced and consumed. If the heat cannot be measured, the fuel benchmark will be used, which sets the quantity of allowances issued according to the input energy of the fuel used (which corresponds approximately to the emissions factor of natural gas). Since there is no benchmark for process emissions that are not related to energy use, the emission allowances are then issued on the basis of 97 per cent of past emissions.
The benchmark values are multiplied by the activity level of a given period that refers to each benchmark (quantity of products produced / heat produced or consumed / input energy used). For that purpose, companies can determine for each installation site whether they want apply the period from 2005 to 2008 or from 2009 to 2010 by using the median value (annual value).
The quantities of allowances issued are multiplied by an adjustment factor because processes in energy and trade-intensive sectors are exposed to the risk of relocating abroad due to the costs of CO2 (carbon leakage). The adjustment factor for most of the emissions covered by the ETS is 1. As a result, emission allowances will be issued for free for these emissions up to the particular benchmark.
For all other processes, the adjustment factor will be 0.8 (in 2013) and decrease in a linear manner to 0.3 in 2020. In this case, more emission allowances must be purchased in an auction or on the market during the commitment period. Emission allowances are not issued for free for electricity production.
Formula for issuing free emission allowances:
Allowances issued = benchmark * activity level * carbon leakage factor
A total of 5% of the cap is reserved for new companies participating in emissions trading. The free allowances issued to new market participants are generally calculated according to the same system (benchmark and, if necessary, correction factor) used for existing companies. Due to the fact that no past activity data exist for new installations, the allowances issued to them are calculated based on their capacity and estimated utilisation capacity.
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