Common use of The European ETS Clause in Contracts

The European ETS. Energy-intensive industry largely falls under the EU-ETS system. Businesses are required to have emissions allowances for the emission of greenhouse gases. The amount of emission allowances with the ETS (cap) decreases by a reduction factor over time: until 2030, this will be by 2.2 % per year. Industry receives free emission allowances up to the level of the 10% European benchmark. This means that, if a plant is less efficient than the 10% of best performing competitors (based on which the European Commission sets the European benchmark), the owner must purchase additional emissions allowances for the emissions that exceed the European benchmark. The Dutch Emissions Authority (NEa) registers emissions for each plant at the stack itself and monitors whether the owner holds sufficient allowances for those emissions. The system ensures that the carbon price is equal in all participating countries. This is economically efficient, given that European businesses with the cheapest reduction options will be the first to take measures. For that reason, it also makes sense that 37 In order to be able to determine the impact of cross-border scope 3 measures on Dutch emissions targets, a change of European legislation is required in addition to insight into the carbon footprint of products and raw materials. The government will be encouraging such an amendment. the focus should first and foremost be on strengthening the EU-ETS in order to realise the national reduction target. The carbon price has been very low for a long time ever since the 2009 recession, given that too many allowances were in circulation, resulting in a weaker incentive from the ETS to reduce emissions. However, partly as a result of European agreements in 2018 to accelerate the reduction of emissions allowances, the ETS price has risen more recently, and the PBL expects a further increase to approximately 46 euros per tonne by 2030. This is a positive development, given that this will go toward stimulating carbon emissions reduction in Europe on a level playing field. The analysis of the PBL shows that a higher ETS price would lead to an increase in the expected carbon emissions reduction by Dutch industry. As a leader in sustainability, the Netherlands is able to set an attractive and replicable example to other countries – within the European Union in particular. Helping to shift the European benchmarks for energy efficiency within the European Emissions Trading System (EU-ETS) will contribute to an ambitious European climate and energy policy in concrete terms, as well as create a level playing field for businesses in which that ambition is embedded. Ultimately, it is also about using the EU’s leverage to reduce the emission of greenhouse gases in global terms. The European product benchmarks of the ETS reflect the carbon emissions per unit of product of the 10% most efficient plants in Europe. This European benchmark is updated every five years, with the next updates taking place in 2020 for the 2021-2025 period and in 2025 for the 2026-2030 period. The more efficiently the industry sector in the Netherlands xxxxx with carbon dioxide, which should consequently lead to tightening of the European benchmarks within the EU, the more strongly sustainability in the industry sector can be encouraged elsewhere. This interaction with the ETS will be embedded effectively. However, the ETS system does not in itself guarantee that the Dutch industry reduction target of 14.3 Mt by 2030 will be realised. After all, the Netherlands aims to start the transition sooner than other countries. In terms of technological potential, this can be achieved, in part due to the fact that, contrary to many other countries, the Netherlands has strong regional clusters with significant potential where CCS can be applied relatively easily. Nevertheless, a degree of caution must be maintained, to ensure that CCS does not get in the way of other demonstrably cost-effective alternative transitional technologies. As such, a balance must be sought between preventing clean technologies from being crowded out and making use of the reduction potential that CCS offers to achieve the reduction target. Any leakage of economic activities abroad due to a desire to avoid an ambitious climate policy will mean that the envisaged reduction of carbon dioxide emissions will not be realised in global terms and employment will dissipate at a national level.38 This should not be the intended outcome. Instead, Dutch ambitions should provide an adequate incentive for emulation in other parts of the European Union (at least). It is for that reason that the national approach builds on the EU-ETS, in addition to the Dutch commitment aimed at building international coalitions for pricing and strengthening the ETS to retain the level playing field (see also C3.4.3). 38 Cf. PwC (2019), De effecten van een nationale heffing op broeikasgas in de industrie [The effects of a national levy on greenhouse gases in the industry] (report commissioned by the Ministry of the Interior and Kingdom Relations).

The European ETS. Energy-Energy- intensive industry largely falls under the EU-ETS system. Businesses are required to have emissions allowances for the emission of greenhouse gases. The amount of emission allowances with the ETS (cap) decreases by a reduction factor over time: until 2030, this will be by 2.2 % per year. Industry receives free emission allowances up to the t he level of the 10% European benchmark. This means that, if a plant is less efficient than the 10% of best performing competitors (based on which the European Commission sets the European benchmark), the owner must purchase additional emissions allowances for the emissions that exceed the European benchmark. The Dutch Emissions Authority (NEa) registers emissions for each plant at the stack itself and monitors whether the owner holds sufficient allowances for those emissions. The system ensures that the carbon price is equal in all participating countries. This is economically economic ally efficient, given that European businesses with the cheapest reduction options will be the first to take measures. For that reason, it also makes sense that 37 In order to be able to determine the impact of cross-border scope 3 measures on Dutch emissions targets, a change of European legislation is required in addition to insight into the carbon footprint of products product s and raw materials. The government will be encouraging such an amendment. the focus should first and foremost be on strengthening the EU-ETS in order to realise the national reduction target. The carbon price has been very low for a long time ever since the 2009 recession, given that too many allowances were in circulation, resulting in a weaker incentive from the ETS to reduce emissions. However, partly as a result of European agreements in 2018 to accelerate the reduction of emissions allowances, the ETS price has risen more recently, and the PBL expects a further increase to approximately 46 euros per tonne t onne by 2030. This is a positive development, given that this will go toward stimulating carbon emissions reduction in Europe on a level playing field. The analysis of the PBL shows that a higher ETS price would lead to an increase in the expected carbon emissions reduction by Dutch industry. As a leader in sustainability, the Netherlands is able to set an attractive and replicable example to other countries – within the European Union in particular. Helping to shift the European benchmarks for energy efficiency within the European Emissions Trading System (EU-EU- ETS) will contribute to an ambitious European climate and energy policy in concrete terms, as well as create a level playing field for businesses in which that ambition is embedded. Ultimately, it is also about using the EU’s leverage to reduce the emission of greenhouse gases in global terms. The European product benchmarks of the ETS reflect the carbon emissions per unit of product of the 10% most efficient plants in Europe. This European benchmark is updated every five years, with the next updates taking place in 2020 for the 2021-2025 period and in 2025 for the 2026-2030 period. The more efficiently the industry sector in the Netherlands xxxxx with carbon dioxide, which should consequently lead to tightening of the European benchmarks within the EU, the more strongly sustainability in the industry sector can be encouraged elsewhere. This interaction with the ETS will be embedded effectively. However, the ETS system does not in itself guarantee that the Dutch industry reduction target of 14.3 Mt by 2030 will be realised. After all, the Netherlands aims to start the transition sooner than other countries. In terms of technological potential, this can be achieved, in part due to the fact that, contrary to many other countries, the Netherlands has strong regional clusters with significant potential where CCS can be applied relatively easily. Nevertheless, a degree of caution must be maintained, to ensure that CCS does not get in the way of other demonstrably cost-effective alternative transitional technologies. As such, a balance must be sought between preventing clean technologies from being crowded out and making use of the reduction potential that CCS offers to achieve the reduction target. Any leakage of economic activities abroad due to a desire to avoid an ambitious climate policy will mean that the envisaged reduction of carbon dioxide emissions will not be realised in global terms and employment will dissipate at a national level.38 level. 38 This should not be the intended outcome. Instead, Dutch ambitions should provide an adequate incentive for emulation in other parts of the European Union (at least). It is for that reason that the national approach builds on the EU-ETS, in addition to the Dutch commitment aimed at building international coalitions for pricing and strengthening the ETS to retain the level playing field (see also C3.4.3). 38 Cf. PwC (2019), De effecten van een nationale heffing op broeikasgas in de industrie [The effects of a national levy on greenhouse gases in the industry] (report commissioned by the Ministry of the Interior and Kingdom Relations).

The European ETS. Energy-Energy- intensive industry largely falls under the EU-ETS system. Businesses are required to have emissions allowances for the emission of greenhouse gases. The amount of emission allowances with the ETS (cap) decreases by a reduction factor over time: until 2030, this will be by 2.2 % per year. Industry receives free emission allowances up to the t he level of the 10% European benchmark. This means that, if a plant is less efficient than the 10% of best performing competitors (based on which the European Commission sets the European benchmark), the owner must purchase additional emissions allowances for the emissions that exceed the European benchmark. The Dutch Emissions Authority (NEa) registers emissions for each plant at the stack itself and monitors whether the owner holds sufficient allowances for those emissions. The system ensures that the carbon price is equal in all participating countries. This is economically economic ally efficient, given that European businesses with the cheapest reduction options will be the first to take measures. For that reason, it also makes sense that 37 In order to be able to determine the impact of cross-border scope 3 measures on Dutch emissions targets, a change of European legislation is required in addition to insight into the carbon footprint of products and raw materials. The government will be encouraging such an amendment. the focus should first and foremost be on strengthening the EU-ETS in order to realise the national reduction target. The carbon price has been very low for a long time ever since the 2009 recession, given that too many allowances were in circulation, resulting in a weaker incentive from the ETS to reduce emissions. However, partly as a result of European agreements in 2018 to accelerate the reduction of emissions allowances, the ETS price has risen more recently, and the PBL expects a further increase to approximately 46 euros per tonne t onne by 2030. This is a positive development, given that this will go toward stimulating carbon emissions reduction in Europe on a level playing field. The analysis of the PBL shows that a higher ETS price would lead to an increase in the expected carbon emissions reduction by Dutch industry. As a leader in sustainability, the Netherlands is able to set an attractive and replicable example to other countries – within the European Union in particular. Helping to shift the European benchmarks for energy efficiency within the European Emissions Trading System (EU-EU- ETS) will contribute to an ambitious European climate and energy policy in concrete terms, as well as create a level playing field for businesses in which that ambition is embedded. Ultimately, it is also about using the EU’s leverage to reduce the emission of greenhouse gases in global terms. The European product benchmarks of the ETS reflect the carbon emissions per unit of product of the 10% most efficient plants in Europe. This European benchmark is updated every five years, with the next updates taking place in 2020 for the 2021-2025 period and in 2025 for the 2026-2030 period. The more efficiently the industry sector in the Netherlands xxxxx with carbon dioxide, which should consequently lead to tightening of the European benchmarks within the EU, the more strongly sustainability in the industry sector can be encouraged elsewhere. This interaction with the ETS will be embedded effectively. However, the ETS system does not in itself guarantee that the Dutch industry reduction target of 14.3 Mt by 2030 will be realised. After all, the Netherlands aims to start the transition sooner than other countries. In terms of technological potential, this can be achieved, in part due to the fact that, contrary to many other countries, the Netherlands has strong regional clusters with significant potential where CCS can be applied relatively easily. Nevertheless, a degree of caution must be maintained, to ensure that CCS does not get in the way of other demonstrably cost-effective alternative transitional technologies. As such, a balance must be sought between preventing clean technologies from being crowded out and making use of the reduction potential that CCS offers to achieve the reduction target. Any leakage of economic activities abroad due to a desire to avoid an ambitious climate policy will mean that the envisaged reduction of carbon dioxide emissions will not be realised in global terms and employment will dissipate at a national level.38 level. 38 This should not be the intended outcome. Instead, Dutch ambitions should provide an adequate incentive for emulation in other parts of the European Union (at least). It is for that reason that the national approach builds on the EU-ETS, in addition to the Dutch commitment aimed at building international coalitions for pricing and strengthening the ETS to retain the level playing field (see also C3.4.3). 38 Cf. PwC (2019), De effecten van een nationale heffing op broeikasgas in de industrie [The effects of a national levy on greenhouse gases in the industry] (report commissioned by the Ministry of the Interior and Kingdom Relations).