A technical workshop on allowance allocation of EU ETS, supported by the EU-China ETS Cooperation Platform II Project, was held online on July 9.

This workshop provides an opportunity for exchanges between Chinese and European experts, to help the Chinese experts better understand the EU ETS's experience in allowance allocation, which can be used as a reference for improving the China’s national carbon market.

Firstly, the experts from Directorate General for Climate Action (DG CLIMA), European Commission presented the design ideas of the allowance allocation mechanism and the implementation modalities of the EU ETS, focusing on the formulas and common parameters used in the EU carbon market to calculate free allowances. The free allowances that an installation can receive are related to the baseline value, the activity level of the installation, the carbon leakage risk factor (CLEF), the cross sectoral correction factor (CSCF) and the linear discount factor.

The experts also presented the conditionality introduced in the newly revised EU ETS Directive, which aims to incentivise installations and industries to actively implement decarbonisation measures. The conditionality consists of two aspects: firstly, the requirement to implement energy efficiency measures, i.e. energy efficiency conditionality; and secondly, the requirement for the top 20 per cent of installations with the highest emissions intensity under each product benchmark to develop and implement climate neutrality plans, i.e. climate neutrality plan conditionality. Facilities that fail to meet these conditions will face a 20% reduction in the allowances they receive.