The European Commission has published its first report on how it proposes to identify those energy-intensive industries at risk of carbon leakage as a result of its plans to revise the EU emissions trading scheme (ETS) (see below). The report suggests that parts of Europe’s aluminium, steel and cement industries are likely to qualify for free carbon allowances to compensate them for lost international competitiveness.

The Commission methodology sets out a three-part risk assessment to assess the threat of carbon leakage based on both a qualitative and quantitative assessment. The Commission plans to finalise the identification of at-risk sectors by mid-2011, though many governments are calling for earlier action. Exposed sectors could receive more free allowances in 2013 and face a gentler path to full auctioning by 2020.

The Commission has also announced that the link between the Community Independent Transaction Log (CITL) and the United Nations International Transaction Log (ITL), which will see the EU integrating its internal emission trading accounting system with the equivalent international system under the Kyoto protocol, should be established during the course of October. The link between the EU and international systems is essential to allow EU firms to use foreign carbon credits to meet their EU ETS-imposed carbon caps.