(1)

Directive 2003/87/EC of the European Parliament and of the Council (4) established a system for greenhouse gas emission allowance trading within the Union, in order to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner.

(2)

The European Council of October 2014 made a commitment to reduce the overall greenhouse gas emissions of the Union by at least 40 % below 1990 levels by 2030. All sectors of the economy should contribute to achieving those emission reductions and the target is to be delivered in the most cost-effective manner through the European Union emission trading system (‘EU ETS’), amounting to a reduction of 43 % below 2005 levels by 2030. This was confirmed in the intended nationally determined reduction commitment of the Union and its Member States submitted to the Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) on 6 March 2015.

(3)

The Paris Agreement, adopted on 12 December 2015 under the UNFCCC (‘the Paris Agreement’) entered into force on 4 November 2016. Its Parties have agreed to hold the increase in the global average temperature well below 2 °C above pre-industrial levels, and to pursue efforts to limit the temperature increase to 1,5 °C above pre-industrial levels. The Parties have also agreed to periodically take stock of the implementation of the Paris Agreement to assess the collective progress towards achieving the purpose of the Paris Agreement and its long-term goals.

(4)

In line with the commitment of the co-legislators expressed in Directive 2009/29/EC of the European Parliament and of the Council (5) and Decision No 406/2009/EC of the European Parliament and of the Council (6), all sectors of the economy should contribute to the reduction of greenhouse gas emissions. Under the Paris Agreement, the Union and its Member States have undertaken an economy-wide reduction target. Efforts to limit international maritime emissions through the International Maritime Organisation (IMO) are under way and should be encouraged. The IMO has set up a process to adopt in 2018 an initial emission reduction strategy to reduce greenhouse gas emissions from international shipping. The adoption of an ambitious emission reduction objective as part of this initial strategy has become a matter of urgency and is important for ensuring that international shipping contributes its fair share to the efforts needed to achieve the objective of well below 2 °C agreed under the Paris Agreement. The Commission should keep this under regular review, and should report at least once a year to the European Parliament and to the Council on the progress achieved in the IMO towards an ambitious emission reduction objective, and on accompanying measures to ensure that the sector duly contributes to the efforts needed to achieve the objectives agreed under the Paris Agreement. Action from the IMO or the Union should start from 2023, including preparatory work on adoption and implementation and due consideration being given by all stakeholders.

(5)

The European Council of October 2014 confirmed in its conclusions that a well-functioning, reformed EU ETS with an instrument to stabilise the market will be the main European instrument to achieve the reduction target of at least 40 %, with an annual reduction factor of 2,2 % from 2021 onwards. The European Council also confirmed that free allocation will not expire and that existing measures will continue after 2020 to prevent the risk of carbon leakage due to climate policy, as long as no comparable efforts are undertaken in other major economies, without the share of allowances to be auctioned being reduced. The auction share should be expressed as a percentage figure in Directive 2003/87/EC to enhance planning certainty as regards investment decisions, to increase transparency and to render the overall system simpler and more easily understandable.

(6)

It is a key Union priority to establish a resilient Energy Union to provide secure, sustainable, competitive and affordable energy to its citizens and industries. Achieving this requires the continuation of ambitious climate action with the EU ETS as the cornerstone of the Union's climate policy, and also requires progress on the other aspects of the Energy Union. Implementing the ambition decided in the Union's 2030 climate and energy policy framework contributes to delivering a meaningful carbon price and continuing to stimulate cost-efficient greenhouse gas emission reductions.

(7)

Article 191(2) of the Treaty on the Functioning of the European Union (TFEU) requires that Union policy be based on the principle that the polluter should pay and, on this basis, Directive 2003/87/EC provides for a transition to full auctioning over time. Avoiding carbon leakage justifies temporarily postponing full auctioning, and targeted free allocation of allowances to industry is justified in order to address genuine risks of increases in greenhouse gas emissions in third countries where industry is not subject to comparable carbon constraints, as long as comparable climate policy measures are not undertaken by other major economies.

(8)

The auctioning of allowances remains the general rule, with free allocation as the exception. The Commission's Impact Assessment specifies that the share of allowances to be auctioned is 57 % over the period from 2013 to 2020. In principle, that share should remain 57 %. It is made up of allowances auctioned on behalf of Member States, including allowances set aside for new entrants but not allocated, allowances for modernising electricity generation in some Member States and allowances which are to be auctioned at a later point in time because of their placement in the market stability reserve established by Decision (EU) 2015/1814 of the European Parliament and of the Council (7). That share should include 75 million allowances used to support innovation. In the event that demand for free allowances triggers the need to apply a uniform cross-sectoral correction factor before 2030, the share of allowances to be auctioned over the ten year period beginning on 1 January 2021 should be reduced by up to 3 % of the total quantity of allowances. For the purposes of solidarity, growth and interconnections, 10 % of the allowances to be auctioned by the Member States should be distributed among those Member States whose gross domestic product (GDP) per capita at market prices did not exceed 90 % of the Union average in 2013, and the rest of the allowances should be distributed among all Member States on the basis of verified emissions. The derogation for certain Member States with an average level of income per capita more than 20 % higher than the Union average in relation to that distribution in the period from 2013 to 2020 should expire.

(9)

Recognising the interaction between climate policies at Union and national level, Member States should have the possibility of cancelling allowances from their auction volume in the event of closures of electricity-generation capacity in their territory. To ensure predictability for operators and market participants with regard to the amount of auction allowances available, the possibility of cancelling allowances in such cases should be limited to an amount corresponding to the average verified emissions of the installation concerned over a period of five years preceding the closure.

(10)

To preserve the environmental benefit of emission reductions in the Union while actions by third countries do not provide comparable incentives to industry to reduce emissions, transitional free allocation should continue to installations in sectors and subsectors at genuine risk of carbon leakage. Experience gathered during the operation of the EU ETS has confirmed that sectors and subsectors are at risk of carbon leakage to varying degrees, and that free allocation has prevented carbon leakage. While some sectors and subsectors can be deemed to be at a higher risk of carbon leakage, others are able to pass on a considerable share of the costs of allowances to cover their emissions in product prices without losing market share, and only bear the remaining part of the costs so that they are at a low risk of carbon leakage. The Commission should determine and differentiate the relevant sectors based on their trade intensity and their emissions intensity to better identify sectors at genuine risk of carbon leakage.

While the assessment of sectors and subsectors should take place at a 4-digit level (NACE-4 code), specific circumstances should also be anticipated in which it may be appropriate to have the possibility of requesting an assessment at a 6-digit or an 8-digit level (Prodcom). Such possibility should exist where sectors and subsectors have previously been considered to be exposed to carbon leakage at a 6-digit or an 8-digit level (Prodcom), given that certain NACE codes, in particular those ending with .99, encompass heterogeneous activities ‘not elsewhere classified’ (‘n.e.c.’). Where a sector or subsector is subject to the refineries benchmark and another product benchmark, this circumstance should be taken into account so that, where relevant, a qualitative analysis of the risk of carbon leakage can be done to ensure a level playing field for products produced both in refineries and in chemical plants. Where, based on the criteria of trade intensity and emissions intensity, a threshold determined by taking into account the respective possibility for sectors and subsectors concerned to pass on costs in product prices is exceeded, the sector or subsector should be deemed at risk of carbon leakage. Other sectors and subsectors should be considered to be at low risk or no risk of carbon leakage. Taking into account the possibilities for sectors and subsectors outside of electricity generation to pass on costs through product prices should also reduce windfall profits. Unless otherwise decided in a review pursuant to Article 30 of Directive 2003/87/EC, free allocations to sectors and subsectors considered to be at low risk or no risk of carbon leakage, except district heating, should decrease by equal amounts after 2026 so as to reach a level of no free allocation in 2030.

(11)

The benchmark values for free allocation applicable from 2013 onwards should be reviewed in order to avoid windfall profits and to reflect technological progress in the sectors concerned in the period between 2007-2008 and each later period for which free allocations are determined in accordance with Article 11(1) of Directive 2003/87/EC. In order to reflect technological progress in the sectors concerned and adjust the benchmark values to the relevant period of allocation, provision should be made for the benchmark values for free allocations to installations, determined on the basis of data from the years 2007 and 2008, to be updated in line with observed improvement. For reasons of predictability, this should be done through applying a factor that represents the best assessment of progress across sectors, which should then take into account robust, objective and verified data from installations, considering the average performance of the 10 % most efficient installations, so that benchmark values reflect the actual rate of improvement. Where the data shows an annual reduction of less than 0,2 % or more than 1,6 % of the 2007-2008 value over the relevant period, the related benchmark value should be adjusted with rates other than the actual rates of improvement to preserve emission reduction incentives and properly reward innovation. For the period from 2021 to 2025, those benchmark values should be adjusted in respect of each year between 2008 and the middle of the period from 2021 to 2025 with either 0,2 % or 1,6 %, leading to an improvement of 3 % or 24 % respectively compared to the value applicable in the period from 2013 to 2020. For the period from 2026 to 2030, those benchmark values should be adjusted in the same way, leading to an improvement of 4 % or 32 % respectively compared to the value applicable in the period from 2013 to 2020. To ensure a level playing field for the production of aromatics, hydrogen and syngas in refineries and chemical plants, the benchmark values for aromatics, hydrogen and syngas should continue to be aligned to the refineries benchmarks.

(12)

The level of free allocation for installations should be better aligned with their actual production levels. To that end, allocations should be periodically adjusted in a symmetrical manner to take account of relevant increases and decreases in production. Data used in this context should be complete, consistent, independently verified and should present the same high level of accuracy and quality as the data used to determine the free allocation. In order to prevent manipulation or abuse of the system for adjustments to allocations and to avoid any undue administrative burden, considering the deadline that applies to the notification of changes in production, and bearing in mind the need to ensure that the changes to the allocations are carried out in an effective, non-discriminatory and uniform manner, the relevant threshold should be set at 15 % and be assessed on the basis of a rolling average of two years. The Commission should be able to consider further measures to be put in place, such as the use of absolute thresholds regarding the changes to allocations, or with respect to the deadline that applies to the notification of changes in production.

(13)

It would be desirable that Member States partially compensate, in accordance with State aid rules, certain installations in sectors or subsectors which have been determined to be exposed to a significant risk of carbon leakage because of costs related to greenhouse gas emissions passed on in electricity prices, including inter alia for the consumption of electricity by the installations themselves produced through the combustion of waste gases. By seeking to use no more than 25 % of the revenues generated from the auctioning of allowances for indirect cost compensation, Member States are likely both to facilitate the achievement of the objectives of the EU ETS and to preserve the integrity of the internal market and of conditions of competition. To enhance the transparency in relation to the extent to which such compensation is provided, Member States should regularly report to the public on the measures they have in place and on the beneficiaries of the compensation, while ensuring that the confidential nature of certain information and related data protection concerns are duly taken into account. Where a Member State uses a significant amount of its auction revenues for compensating indirect costs, there is an increased interest in making public the reasons for this choice. When reviewing its State aid guidelines on compensation for indirect emission costs, the Commission should consider inter alia the usefulness of upper limits on the compensation granted by Member States. The review of Directive 2003/87/EC should consider the extent to which those financial measures have been effective in avoiding significant risks of carbon leakage due to indirect costs, and consider the possibility of further harmonisation of the measures, including a harmonised mechanism. Public sector climate finance will continue to play an important role in mobilising resources after 2020.

Therefore, auction revenues should also be used for financing climate actions in vulnerable third countries, in particular Least Developed Countries, including adaptation to the impacts of climate change, inter alia through the UNFCCC Green Climate Fund. The amount of climate finance to be mobilised will also depend on the ambition and quality of the Nationally Determined Contributions, subsequent investment plans and national adaptation planning processes. Regarding the potential social impacts of policies and investments required, Member States should also use auction revenues to contribute to a just transition to a low-carbon economy by promoting skill formation and reallocation of labour in social dialogue with the communities and regions affected by the transition of jobs.

(14)

The main long-term incentive arising from Directive 2003/87/EC for the capture and storage of CO2 (‘CCS’), for new renewable energy technologies and for breakthrough innovation in low-carbon technologies and processes, including environmentally safe carbon capture and utilisation (‘CCU’), is the carbon price signal it creates and the fact that allowances will not need to be surrendered for CO2 emissions which are avoided or permanently stored. In addition, in order to supplement the resources already being used to accelerate demonstration of commercial CCS facilities and innovative renewable energy technologies, allowances should be used to provide guaranteed rewards for deployment of CCS or CCU facilities, new renewable energy technologies and industrial innovation in low-carbon technologies and processes in the Union for CO2 stored or avoided on a sufficient scale, provided an agreement on knowledge sharing is in place.

In addition to 400 million allowances initially made available for the period from 2021 onwards, revenues from the 300 million allowances available for the period from 2013 to 2020 not yet committed to innovation activities should be supplemented with 50 million unallocated allowances from the market stability reserve, and be used in a timely manner to support innovation. Depending on the extent to which the share of allowances to be auctioned is reduced to avoid the need to apply a uniform cross-sectoral correction factor, the amount of allowances available under this fund should be increased by up to 50 million allowances. The majority of this support should be dependent on verified avoidance of greenhouse gas emissions, while it should be possible for some support to be given when pre-determined milestones are reached taking into account the technology deployed and the specific circumstances of the sector in which it is being deployed. Milestones should be defined so as to make adequate financial resources available to the project. The maximum percentage of project costs to be supported can vary by category of project. Due consideration should be given to projects that will have a significant innovation impact across the Union.

(15)

Greece had a GDP per capita at market prices below 60 % of the Union average in 2014 but is not a beneficiary of the Modernisation Fund, and should therefore be able to claim allowances to co-finance decarbonisation of the electricity supply of islands within its territory. Those allowances should come from the maximum amount of allowances referred to in Article 10a(5) of Directive 2003/87/EC which are not allocated for free by 31 December 2020, and should be auctioned in accordance with the modalities applicable to the Modernisation Fund.

(16)

A Modernisation Fund should be established from 2 % of the total quantity of allowances, and auctioned in accordance with the rules and modalities for auctions taking place on the Common Auction Platform set out in Commission Regulation (EU) No 1031/2010 (8). Depending on the extent to which the share of allowances to be auctioned is reduced to avoid the need to apply a uniform cross-sectoral correction factor, the amount of allowances available under the Modernisation Fund should be increased by up to 0,5 % of the total quantity of allowances. Member States which in 2013 had a GDP per capita at market prices below 60 % of the Union average should be eligible for funding from the Modernisation Fund and be able to derogate, until 2030, from the principle of full auctioning for electricity generation by using the option of free allocation in order to transparently promote real investments modernising their energy sector while avoiding distortions of the internal energy market. Investments under the Modernisation Fund aimed at improving energy efficiency could include investments in the electrification of transport, in particular of road transport. The rules for governing the Modernisation Fund should provide a coherent, comprehensive and transparent framework to ensure the most efficient implementation possible, taking into account the need for easy access by all participants and the possibilities of leveraging investments in Member States. The governance structure should be commensurate with the purpose of ensuring the appropriate use of the funds.

That governance structure should include an investment committee, and due account should be taken of the expertise of the European Investment Bank (EIB) in the decision-making process unless support is provided to small-scale projects through loans from a national promotional bank or through grants via a national programme sharing the objectives of the Modernisation Fund. In order to identify and disclose any potential conflict of interest, the composition of the investment committee, the curricula vitae of its members as well as their declaration of interests should be published and regularly updated. In order to ensure that investment needs in low income Member States are adequately addressed, the funds for the Modernisation Fund should be distributed amongst the Member States based on the combined criteria of a 50 % share of verified emissions and a 50 % share of GDP. The financial assistance from the Modernisation Fund could be provided in different forms. To leverage resources and ensure that relevant investments have an increased impact, free allowances for modernising electricity generation in some Member States and the resources available from the Modernisation Fund for investments outside the list of priority areas should be complemented by resources from private legal entities, which could include separate resources from private legal entities that are entirely or partially owned by public authorities.

(17)

In order to streamline the funding mechanisms and minimise the administrative burden related to their implementation, the Member States concerned should have the possibility of using their share of the 10 % redistributed allowances and of the transitional free allocation for the modernisation of the energy sector under the provisions of the Modernisation Fund. To ensure predictability and transparency with regard to the volumes of allowances either available for auctioning or for the transitional free allocation, and with regard to the assets managed by the Modernisation Fund, Member States should inform the Commission of their intention to increase their resources under the Modernisation Fund before 2021.

(18)

The European Council of October 2014 confirmed that the option to give free allocation to the energy sector should continue until 2030 and that the modalities, including transparency, of the optional free allocation to modernise the energy sector in certain Member States should be improved. Investments with a value of EUR 12,5 million or more should be selected by the Member State concerned through a competitive bidding process on the basis of clear and transparent rules to ensure that free allocation is used to promote real investments that modernise or diversify the energy sector in line with the objectives of the Energy Union. Investments with a value of less than EUR 12,5 million should also be eligible for funding from the free allocation. The Member State concerned should select such investments based on clear and transparent criteria. The results of this selection process should be subject to public consultation. The public should be kept duly informed at the stage of the selection of investment projects as well as of their implementation. Investments should be complemented by resources from private legal entities, which could include separate resources from private legal entities that are entirely or partially owned by public authorities.

(19)

EU ETS funding should be coherent with the objectives of the Union's 2030 climate and energy policy framework and the long-term objectives expressed in the Paris Agreement, as well as other Union funding programmes, so as to ensure the effectiveness of public spending.

(20)

The existing provisions which are in place for small installations to be excluded from the EU ETS allow the installations which are excluded to remain so, and it should be made possible for Member States to update their list of excluded installations and for Member States currently not making use of this option to do so at the beginning of each allocation period. At the same time, to avoid an undue administrative burden, it should also be possible for Member States to exclude from the EU ETS installations that emit less than 2 500 tonnes of carbon dioxide equivalent in each of the three years preceding the beginning of each allocation period, and reserve or backup units operating less than 300 hours in each year of that three-year period. The possibility of including additional activities and gases in the system should continue, without them being considered new entrants. That possibility for the inclusion of additional activities and gases after 2020 should be without prejudice to the Union-wide quantity of allowances under the EU ETS and amounts derived from it.

(21)

Directive 2003/87/EC requires Member States to provide a report on its implementation on the basis of a questionnaire or outline drafted by the Commission in accordance with the procedure referred to in Council Directive 91/692/EEC (9). The Commission has proposed to repeal the reporting requirements under Directive 91/692/EEC. It is therefore appropriate to replace the reference to Directive 91/692/EEC with a reference to the procedure referred to in Directive 2003/87/EC.

(22)

Decision (EU) 2015/1814 establishes a market stability reserve for the EU ETS in order to make auction supply more flexible and make the system more resilient. That Decision also provides for allowances that are not allocated to new entrants by 2020 and not allocated because of cessations and partial cessations to be placed in the market stability reserve.

(23)

A well-functioning, reformed EU ETS with an instrument to stabilise the market is a key means for the Union to reach its agreed target for 2030 and the commitments under the Paris Agreement. To address the current imbalance between supply and demand of allowances in the market, a market stability reserve will be established under Decision (EU) 2015/1814 in 2018 and become operational as of 2019. Considering the need to deliver a credible investment signal to reduce CO2 emissions in a cost-efficient manner and with a view to strengthening the EU ETS, Decision (EU) 2015/1814 should be amended so as to increase, until 31 December 2023, the percentage rates for determining the number of allowances to be placed each year in the reserve. Furthermore, as a long-term measure to improve the functioning of the EU ETS, unless otherwise decided in the first review in accordance with Article 3 of Decision (EU) 2015/1814, from 2023 allowances held in the reserve above the total number of allowances auctioned during the previous year should no longer be valid. Regular reviews of the functioning of the reserve should also consider whether to maintain those increased rates.

(24)

Directive 2003/87/EC should be kept under review in the light of international developments and efforts undertaken to achieve the long-term objectives of the Paris Agreement. The measures to support certain energy intensive industries that could be subject to carbon leakage as referred to in Articles 10a and 10b of Directive 2003/87/EC should also be kept under review in the light of climate policy measures in other major economies. In that context, the review of Directive 2003/87/EC could consider whether it is appropriate to replace, adapt or complement any existing measures to prevent carbon leakage with carbon border adjustments or alternative measures, provided that such measures are fully compatible with the rules of the World Trade Organisation, so as to include in the EU ETS importers of products which are produced by the sectors or subsectors determined in accordance with Article 10a of Directive 2003/87/EC. The Commission should report to the European Parliament and to the Council in the context of each global stocktake agreed under the Paris Agreement, in particular with regard to the need for increased stringency of Union policies and measures, including the EU ETS, in view of necessary greenhouse gas reductions by the Union and its Member States. The Commission should be able to make proposals to the European Parliament and to the Council to amend Directive 2003/87/EC where appropriate. As part of its regular reporting under Regulation (EU) No 525/2013 of the European Parliament and of the Council (10), the Commission should also assess the outcome of the 2018 Facilitative dialogue under the UNFCCC (Talanoa dialogue).

(25)

In order to adopt non-legislative acts of general application to supplement or amend certain non-essential elements of a legislative act, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of Articles 3d(3), 10(4), 10a(1) and (8), 10b(5), 19(3), Article 22, Articles 24(3), 24a(1), 25a(1) and Article 28c of Directive 2003/87/EC. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (11). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts. As regards the delegation in respect of Article 10(4) of Directive 2003/87/EC, those Member States which do not use the common platform for auctioning should be able to continue not to do so. In addition, that delegation should not affect the Member States' right to determine the use of their auctioning revenues.

(26)

In order to ensure uniform conditions for the implementation of the third to sixth subparagraphs of Article 10a(2), Article 10a(21), Article 10d, Article 14(1) and (2), Articles 15 and 16 and Article 21(1) of Directive 2003/87/EC, and Annexes IV and V to that Directive, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (12).

(27)

In order to reduce the empowerments to the Commission to the minimum, the existing powers in respect of the adoption of acts concerning the following should be revoked: operation of the special reserve in Article 3f(9) of Directive 2003/87/EC, further specifying quantities of international credits for exchange and attributing quantities of international credits which may be exchanged in Article 11a(8) of that Directive, the laying down of further standards for what may be exchanged in Article 11a(9) of that Directive, and the laying down of further rules on double counting in Article 11b(7) of that Directive. Acts adopted pursuant to those provisions continue to apply.

(28)

Acts adopted pursuant to Directive 2003/87/EC concerning subject matter in respect of which this Directive grants the Commission the power to adopt delegated or implementing acts continue to apply until repealed or amended. In the case of Commission Decision 2011/278/EU (13), the last column of Annex I thereto will be repealed if and when the Commission adopts an implementing act for the purpose of determining the revised benchmark values for free allocation. In order to increase predictability and to simplify administrative processes, Commission Decision 2014/746/EU (14) should continue to apply until the end of 2020.

(29)

The delegated and implementing acts referred to in this Directive, particularly in respect of provisions on monitoring, reporting and verification and on the Union Registry, should aim to simplify rules and reduce any administrative burden to the extent possible, without undermining the environmental integrity, security or reliability of the EU ETS. When preparing those acts, the Commission should in particular assess the effectiveness of simplified monitoring rules, including for emergency and backup electricity generation units, taking into account the operating hours per year, and for other small emitters, and should also assess the possibilities of further developing such rules.

(30)

In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents (15), Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified.

(31)

This Directive seeks to contribute to the objective of a high level of environmental protection, in accordance with the principle of sustainable development, in the most economically efficient manner, while providing installations adequate time to adapt, and providing for more favourable treatment of particularly affected persons in a proportionate manner to the maximum extent compatible with the other objectives of this Directive.

(32)

This Directive respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union.

(33)

Since the objectives of this Directive cannot be sufficiently achieved by the Member States but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives,

(1)

Throughout the Directive, the term ‘Community scheme’ is replaced by ‘EU ETS’ and any necessary grammatical changes are made.

(2)

Throughout the Directive, except in the cases referred to in point (1) of this Article, in Article 26 of the Directive and in point (5) of Part A of Annex V to the Directive, the word ‘scheme’ is replaced by ‘system’ and any necessary grammatical changes are made.

(3)

Throughout the Directive, except in the cases referred to in point (1) of this Article and in Article 26 of the Directive, the word ‘Community’ is replaced by ‘Union’ and any necessary grammatical changes are made.

(4)

Throughout the Directive, the words ‘regulatory procedure referred to in Article 23(2)’ are replaced by ‘examination procedure referred to in Article 22a(2)’.

(5)

In the first subparagraph of Article 3c(2) and in Article 10(1a), the reference to ‘Article 13(1)’ is replaced by a reference to ‘Article 13’.

(6)

In Article 3g, in point (d) of the first paragraph of Article 5, in point (c) of Article 6(2), in the second subparagraph of Article 10a(2), in Article 14(2), (3) and (4), in Article 19(1) and (4), in the first subparagraph of Article 24(3) and in Article 29a(4), the word ‘regulation’ is replaced by ‘acts’ and any necessary grammatical changes are made.

(7)

In Article 3, point (h) is replaced by the following:

(8)

In Article 3d, paragraph 3 is replaced by the following:

(9)

In Article 3f, paragraph 9 is deleted.

(10)

In Article 6(1), the third subparagraph is deleted.

(11)

Article 8 is replaced by the following:

(*1)  Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions (integrated pollution prevention and control) (OJ L 334, 17.12.2010, p. 17).’."

(12)

In Article 9, the second and third paragraphs are replaced by the following:

‘Starting in 2021, the linear factor shall be 2,2 %.’.

(13)

Article 10 is amended as follows:

(14)

Article 10a is amended as follows:

(15)

Articles 10b and 10c are replaced by the following:

(*6)  Commission Decision 2014/746/EU of 27 October 2014 determining, pursuant to Directive 2003/87/EC of the European Parliament and of the Council, a list of sectors and subsectors which are deemed to be exposed to a significant risk of carbon leakage, for the period 2015 to 2019 (OJ L 308, 29.10.2014, p. 114).’."

(16)

The following Article is inserted:

(17)

In Article 11(1), the following subparagraph is added:

‘A list of installations covered by this Directive for the five years beginning on 1 January 2021 shall be submitted by 30 September 2019, and lists for each subsequent period of five years shall be submitted every five years thereafter. Each list shall include information on production activity, transfers of heat and gases, electricity production and emissions at sub-installation level over the five calendar years preceding its submission. Free allocations shall only be given to installations where such information is provided.’.

(18)

In Article 11a, paragraphs 8 and 9 are deleted.

(19)

In Article 11b, paragraph 7 is deleted.

(20)

In Article 12(4), the following sentences are added:

‘In the event of closure of electricity generation capacity in their territory due to additional national measures, Member States may cancel allowances from the total quantity of allowances to be auctioned by them referred to in Article 10(2) up to an amount corresponding to the average verified emissions of the installation concerned over a period of five years preceding the closure. The Member State concerned shall inform the Commission of such intended cancellation in accordance with the delegated acts adopted pursuant to Article 10(4).’.

(21)

Article 13 is replaced by the following:

(22)

In Article 14, paragraph 1 is replaced by the following:

(23)

In Article 15, the third, fourth and fifth paragraphs are replaced by the following:

‘The Commission shall adopt implementing acts concerning the verification of emission reports based on the principles set out in Annex V and for the accreditation and supervision of verifiers. The Commission may also adopt implementing acts for the verification of reports submitted by aircraft operators pursuant to Article 14(3) and applications under Articles 3e and 3f, including the verification procedures to be used by verifiers. It shall specify conditions for the accreditation and withdrawal of accreditation, for mutual recognition and peer evaluation of accreditation bodies, as appropriate.

Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 22a(2).’.

(24)

In Article 16, paragraph 12 is replaced by the following:

(25)

In Article 19, paragraph 3 is replaced by the following:

(26)

Article 21 is amended as follows:

(27)

Article 22 is replaced by the following:

(28)

The following Article is inserted:

(*7)  Regulation (EU) No 525/2013 of the European Parliament and of the Council of 21 May 2013 on a mechanism for monitoring and reporting greenhouse gas emissions and for reporting other information at national and Union level relevant to climate change and repealing Decision No 280/2004/EC (OJ L 165, 18.6.2013, p. 13)."

(*8)  Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by the Member States of the Commission's exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).’."

(29)

Article 23 is replaced by the following:

(*9)   OJ L 123, 12.5.2016, p. 1.’."

(30)

Article 24 is amended as follows:

(31)

Article 24a is amended as follows:

(32)

In Article 25, paragraph 2 is deleted.

(33)

In Article 25a(1), the first and second subparagraphs are replaced by the following:

‘Where a third country adopts measures for reducing the climate change impact of flights departing from that third country which land in the Union, the Commission, after consulting with that third country, and with Member States within the Committee referred to in Article 22a(1), shall consider options available in order to provide for optimal interaction between the EU ETS and that country's measures.

The Commission is empowered to adopt delegated acts in accordance with Article 23 to amend Annex I to this Directive to provide for flights arriving from the third country concerned to be excluded from the aviation activities listed in Annex I or to provide for any other amendments to the aviation activities listed in Annex I, except in relation to scope, which are required by an agreement concluded pursuant to Article 218 of the Treaty on the Functioning of the European Union.’.

(34)

In Article 27(3), the second subparagraph is replaced by the following:

‘Any such installation shall stay in the EU ETS for the rest of the period referred to in Article 11(1) during which it was reintroduced.’.

(35)

The following Article is inserted:

(36)

Article 28c is replaced by the following:

(37)

Article 30 is replaced by the following:

(38)

In Annex IIa to Directive 2003/87/EC, the entries for Belgium, Italy, Luxembourg and Sweden are deleted.

(39)

Annex IIb to Directive 2003/87/EC is replaced by the text appearing in Annex I to this Directive.

(40)

Annex IV to Directive 2003/87/EC is amended in accordance with Annex II to this Directive.

(1)

In the first subparagraph of paragraph 5, the following sentence is added:

‘By way of derogation from the first and second sentences, until 31 December 2023, the percentages and the 100 million allowances referred to in those sentences shall be doubled.’.

(2)

The following paragraph is inserted: