The European Commission adopted a Decision on how free emission allowances should be allocated from 2013 but a proportion of free allowances will still be given to industry until 2020. This is aimed to reduce costs for installations in sectors deemed to be exposed to significant competition from outside the EU.

The benchmarks -expressed in tonnes of carbon dioxide (CO2) per tonne of product produced-  are in most cases based on the average emissions performance of the most efficient 10% of installations in a given sector or sub-sector in the EU, as stipulated in the revised EU ETS Directive.

The shortfall in free allowances will differ from sector to sector. Installations can make up the shortfall in free allowances by improving their emissions performance or by buying additional allowances, using allowances banked from the current trading period ending in 2012, or using international offset credits. A particular treatment will be given to installations in sectors or sub-sectors that are deemed to be exposed to a risk of "carbon leakage" – relocation to outside the EU – because they face competition from industries in third countries which are not subject to comparable carbon restrictions.

The decision is the result of extensive consultations with industry as well as other stakeholders such as representatives of the Member States and non-governmental organisations. The draft Decision was approved by a qualified majority of members of the Climate Change Committee, in which all EU Member States are represented, last December. It then underwent scrutiny by the European Parliament and the Council before the decision could be formally adopted by the Commission.

Now Member States will collect the necessary activity data for each relevant installation in their territory. Based on this data, preliminary free allocation per installation will be calculated for each year until 2020. The deadline for Member State submissions is 30 September 2011. The Commission will then check the submissions before Member States calculate the final allocation per installation. This information should be ready during 2012.

In order to carry out the collection of data properly, the Commission's Directorate-General for Climate Action has developed, in close collaboration with the Member States, guidance papers and a data collection template which aim at ensuring harmonised implementation of the allocation rules by Member States.