Article 5 Adjustments to free allocation due to activity level changes

Every year the F1regulator shall compare the average activity level of each sub-installation, determined in accordance with Article 4, with the historical activity level initially used to determine the free allocation. When the absolute value of the difference between the average activity level and the historical activity level of that sub-installation is more than 15 %, the free allocation of allowances F2in respect of the sub-installation shall be adjusted. That adjustment shall apply as of the year following the two calendars years used for determining the average activity level, and provided that the adjustment of the annual preliminary amount of emission allowances allocated for free to the sub-installation is at least 100 emission allowances. F3The regulator must calculate that adjustment by increasing or decreasing the free allocation for the relevant sub-installation by the exact percentage change in the average activity level compared to the historical activity level initially used to determine the free allocation.

When an adjustment according to paragraph 1 F4has been approved by the UK ETS authority under Article 6a, during an allocation period, further adjustments can only take place if the absolute value of the difference between the average activity level and the historical activity level of that sub-installation, exceeds the nearest 5 % interval, beyond the 15 % change, which caused the previous adjustment of free allocation F5in respect of the sub-installation, by increasing or decreasing the free allocation for the relevant sub-installation by the exact percentage change in the average activity level compared to the historical activity level initially used to determine the free allocation and provided that the adjustment of the annual preliminary amount of emission allowances allocated for free to the sub-installation is at least 100 emission allowances.

In the case of a sub-installation of a type 1 2026 incumbent (as defined in Part 2 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025), for the purpose of determining whether a “further” adjustment can take place under paragraph 2 in consequence of the obligation in Article 3 to report on activity levels in 2025 on or before 31 March 2026, the reference in paragraph 2 to an “allocation period” must be read as a reference to the period consisting of the 2021-2025 allocation period and the 2026 allocation period (and consequently, if an adjustment under paragraph 1 has been approved by the UK ETS authority in that period, a further adjustment can take place only in the circumstances set out in paragraph 2).

Where the UK ETS authority has approved the recalculation under Article 16b(6)(a) or 18a(4b) of the Free Allocation Regulation of the final number of allowances to be allocated for a scheme year in the 2027-2030 allocation period, and paragraph 1 or 2 requires free allocation to be increased or decreased, it is the recalculated final number of allowances that are increased or decreased by the exact percentage change in the average activity level compared to the historical activity level initially used to determine the free allocation.

If the increase or decrease of the average activity level of a sub-installation no longer exceeds 15 % compared to the historical activity level initially used to determine the free allocation, the free allocation of allowances F8in respect of the sub-installation shall be equal to the initial allocation F9approved under Article 16b or 18a of the Free Allocation Regulation F10(but where the UK ETS authority has approved the recalculation under Article 16b(6)(a) or 18a(4b) of the Free Allocation Regulation of the final number of allowances to be allocated for a scheme year in the 2027-2030 allocation period, the free allocation of allowances shall be equal to the approved recalculated allocation ignoring any adjustment required by Article 16b(6)(a)(ii) or 18a(4b)(b)) or under Article 6a of this Regulation, as of the year following the two calendar years used for determining the average activity level. F11The regulator must calculate an adjustment to the free allocation of the sub-installation accordingly.

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For new sub-installations and for new entrants, for the first three calendar years of operation the free allocation of emission allowances shall not be adjusted. For the first and second calendar years of operation, the free allocation of emission allowances shall be based on the activity level of each year respectively, for the third calendar year of operation the free allocation of emission allowances shall be based on the historical activity level used to determine free allocation.

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In this Article, a reference to the historical activity level of a sub-installation includes a reference to the historical activity level approved under Article 6a.