Benchmarking in the EU: Lessons from the EU Emissions Trading System for the Global Climate Change Agenda

The revised EU Emissions Trading System (EU ETS) grants partial, temporary free allocation of emission allowances to industry, based on benchmarks to address competitiveness concerns. The EU, led by the European Commission, has developed some 50 to 60 benchmarks covering around 85% of total EU ETS industrial emissions. There are many other opportunities for utilising benchmarking in the context of climate change policies. Possibilities include using it to set (industry) performance targets, i.e. as a regulatory scheme; to define (sectoral or national) GHG emission caps in a bottom-up fashion; to judge the national, EU-wide or international ‘comparability’ of sector efforts (both intra- and inter-sectoral); to establish the level of carbon credits that are granted under the flexible mechanisms of the Kyoto Protocol or of the new post-2012 period; and to calculate the carbon content of products (e.g. for carbon footprinting), for example for setting a border tax for carbon. This CEPS Task Force Report identifies the key issues arising from the current benchmarking exercise under the EU ETS and analyses the principal controversial topics on benchmark-based allocation, leading to a number of concrete recommendations. In addition, the report examines the origins and experiences of earlier exercises and draws some general conclusions about the pros and cons of applying benchmarks beyond allocation. This examination includes a review of the application of benchmarks outside the EU to illustrate the role of benchmarks for mitigation actions worldwide.