The Commission has put forward a non-paper recommending a review of the ETS, specifically with regard to proposed carbon allowances for the most energy intensive industries and the suggested auctioning method. Since certain sectors and sub-sectors will be more prone to carbon leakage, it is investigating which may be eligible for free or greater emission rights.

The proposal aims to identify and categorise industries into four different groups, which will ultimately each have different carbon allocation regulations.

As a first step it proposes to review how the problematic sectors in the industry will be affected under the current structure, including measurements of potential product price increases and exposure to international trade.

Various other factors would then also be taken into consideration for the assessment to refine the process and allow the different sectors to be appropriately categorised. These further aspects would include reviewing the geographical scope and concentration of the sector, and the associated transportation costs and tightness of the market. The review also proposes to include an assessment of the outcome of international negotiations in order to ‘allow for a further refinement in modifying the outcome of categories’.

Depending on the results the sectors and sub-sectors would be put into four different groups with emission rights varying from full phase-in of auctioning to full entitlement to free allocation.

This review will be supported by energy-intensive industries, who have warned of de-industrialisation in Europe if already high power prices are pushed up further by the emissions trading system. Germany, which has the largest industrial sector in the EU, will also be pleased at the outcome, although environmentalists are urging against such measures, as they believe the industry capable of survival under an auctioning system.