Support for an impact assessment on measures to address the risk of carbon leakage in the light of any increase in climate ambition

This report presents analysis undertaken to support the European Commission’s impact assessment for the revision of the Emissions Trading System (EU ETS), in relation to measures to address the risk of carbon leakage in the light of any increase in climate ambition. The study involved the development of a pair of spreadsheet-based tools that can be used to assess the impacts of different options for reforming the free allocation rules. These tools enabled the Commission to carry out analysis of potential options and to calculate the expected impacts in a consistent way. The report summarises the method and assumptions used to develop the tools. The report also explores potential policy options for: indirect cost compensation for electricity-intensive industries; alternative and potentially complementary approaches to mitigating carbon leakage risk; and the allocation of free allowances in relation to the definition of electricity generators, future-proofing the ETS scope and benchmarks, treatment of exchangeability of fuel and electricity and a possible green bonus for best performance.