(1)

Directive 2003/87/EC was amended by Directive (EU) 2023/959 of the European Parliament and of the Council (2) to align it with Regulation (EU) 2021/1119 of the European Parliament and of the Council (3) setting a target of at least 55 % net emission reductions by 2030 compared to 1990. In line with the revision of Directive 2003/87/EC, Commission Delegated Regulation (EU) 2019/331 (4) determining transitional Union-wide rules for harmonised free allocation of emission allowances was amended by Commission Delegated Regulation (EU) 2024/873 (5). The amendments to Directive 2003/87/EC and of Delegated Regulation (EU) 2019/331 also concern adjustments to free allocation of emission allowances due to activity level changes and require changes to Commission Implementing Regulation (EU) 2019/1842 (6).

(2)

In order to enhance incentives to reduce emissions and ensure a harmonised implementation across Member States of the provisions concerning improved or reduced energy efficiency, it is necessary to clarify the rules and methodologies related to the adjustment of free allocation of allowances for heat benchmark sub-installations and fuel benchmark sub-installations while ensuring a level playing field for different heat supply structures using energy from both eligible and non-eligible origins. To incentivise the reduction of process emissions not covered by product benchmarks the same provisions should also apply to process emissions sub-installations. For those sub-installations the adjustment of free allocation of allowances should be based on the average of the expected activity level which should be determined in accordance with a common methodology and data for the calculation of the average of the expected activity level should be included in the annual activity level report when the difference between the average activity level and the historical activity level of a sub-installation is more than 15 %.

(3)

To ensure the continued availability of annually reported data required for the adjustments to free allocation, the information on the reporting years should be updated.

(4)

Directive (EU) 2023/959 introduced changes to the compliance cycle in order to better take into account the adjustments to free allocation. As the time limit for competent authorities to grant free allocation changed from 28 February to 30 June, the requirement to submit a preliminary activity level report is no longer necessary, and therefore should no longer apply.

(5)

In order to avoid unjustified allocation of allowances, Implementing Regulation (EU) 2019/1842 provides that the competent authority may suspend the issuance of allowances until it is unequivocally clear that the allocation to the installation does not have to be adjusted in accordance with that Regulation. The suspension of the issuance of allowances should be mandatory if there is no verified annual activity level report available or if that report is not verified as satisfactory pursuant to Commission Implementing Regulation (EU) 2018/2067 (7).

(6)

Installations operated by enterprises that are required to carry out an energy audit or to implement a certified energy management system in accordance with Article 8 of Directive 2012/27/EU of the European Parliament and of the Council (8), and therefore subject to a 20 % reduction in free allocation if they could not demonstrate during the verification of baseline data report that the implementation of energy efficiency recommendations from those audits or management systems was completed or that exceptions to the conditionality on energy efficiency measures applied pursuant to Article 22a(1) of Delegated Regulation (EU) 2019/331, should have the opportunity to demonstrate subsequent implementation of energy efficiency recommendations. To increase legal certainty and ensure robustness of the system, the operator should provide verified evidence as part of the activity level report, demonstrating that the outstanding implementation of the recommendations is completed or that equivalent measures apply. Following the competent authority’s decision that the conditions specified in Article 22a(1), second subparagraph of Delegated Regulation (EU) 2019/331 have been met, the operator should receive each year the full amount of allowances for the remaining years in the allocation period.

(7)

Procedural steps of conditionality rules regarding climate-neutrality plans are specified in Article 22b of Delegated Regulation (EU) 2019/331 in accordance with Article 10a(1), fifth subparagraph, and Article 10b(4), second, third and fourth subparagraphs, of Directive 2003/87/EC, for operators of installations whose greenhouse gas emission levels are higher than the 80th percentile of emission levels for the relevant product benchmarks, and for operators of district heating in certain Member States applying for optional additional free allocation. To provide a structured way of reporting on intermediate targets and milestones achieved and to facilitate the verification of achievement of those targets and milestones in accordance with Directive 2003/87/EC, it is necessary to require these operators to draft a climate-neutrality report. In order to complete the climate-neutrality report, operators should use the template developed by the Commission unless a national specific template is prescribed by the Member State concerned.

(8)

To receive the full amount or the additional free allocation, operators of installations whose greenhouse gas emission levels are higher than the 80th percentile of emission levels for the relevant product benchmarks and operators of district heating installations in certain Member States need to fulfil the conditions laid down in Article 22b(1), second subparagraph of Delegated Regulation (EU) 2019/331 and to demonstrate the achievement of intermediate targets and milestones in the verified climate-neutrality report.

(9)

In accordance with Article 10b(4) of Directive 2003/87/EC and Article 22b(3) of Delegated Regulation (EU) 2019/331, the provision of additional free allocation is to be contingent upon the recipient district heating installations making equivalent investments towards reaching climate neutrality as well as these installations meeting the targets and milestones referred to in Article 10b(4), third subparagraph, point (b), of Directive 2003/87/EC. To enable district heating installations to make the necessary investments, free additional allocation should be granted as soon as documentary evidence of the legal commitment for the investments is provided. As documentary evidence of the legal commitment for the investment, an operator should demonstrate commitment to invest or the investment made; this should include legally binding commitments, such as a contract, or other demonstrable evidence of financial commitments related to future investments. The granting of additional free allowances upon the acceptance of the evidence of the commitment, will incentivise technological advancements and ensure that the benefits of additional free allocation directly contribute to the reduction of greenhouse gas emissions linked to district heating. To establish a counterbalance to the allocation of additional allowances in advance and to ensure that the investment effort is not merely a commitment but materialises into concrete actions, the additional 30 % allowances should be returned if the conditions are not fulfilled for their granting and any further free allocation of allowances should cease until the return of the allowances.

(10)

To avoid undue administrative burden while aligning production changes to free allocation, the minimum number of allowances required for adjustments to the free allocation of a sub-installation should be increased from 100 to 300.

(11)

To avoid unjustified free allocation to sub-installations that no longer operate, no free allocation should be granted for the proportion of the calendar year after the day of cessation of operations.

(12)

From 1 January 2026, Directive (EU) 2023/959 removed the concept of electricity generators and their specific treatment in terms of free allocation from the EU ETS. Changes to this parameter should therefore no longer apply for the determination of adjustments to the free allocation of allowances.

(13)

To support a uniform and accurate application of rules and methodologies and a comprehensive and effective monitoring of activity levels, it is necessary that competent authorities submit to the Commission the data related to the revised final annual amount of emission allowances allocated free of charge to installations with expected changes to their activity levels and the data from all installations subject to the annual activity level reporting obligation.

(14)

To avoid undue administrative burden and to simplify the transition to the next allocation period, this Regulation should apply to the allocations relating to the period starting from 1 January 2026, thereby ensuring alignment with the application of Delegated Regulation (EU) 2024/873 as regards the rules for the baseline data reporting for the next allocation period.

(15)

Article 3(2), second subparagraph, of Implementing Regulation (EU) 2019/1842 contains errors concerning additional parameters which the competent authority may require operators to report in the activity level report. For clarity those errors should be corrected.

(16)

The measures provided for in this Regulation are in accordance with the opinion of the Climate Change Committee,

(1)

Article 2 is amended as follows:

(2)

Article 3 is amended as follows:

(3)

the following Articles are inserted:

(4)

Article 5 is amended as follows:

(5)

Article 6 is amended as follows:

(6)

the following Articles are inserted:

(7)

the text set out in Annex I to this Regulation is added as Annex I;

(8)

the text set out in Annex II to this Regulation is added as Annex II.