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EU Nations Pass Rules on Free CO2 Permits After 2012

European Union member states approved rules for giving away a dwindling supply of emission permits after 2012 to oil refiners, metal manufacturers and other participants in the world’s biggest cap-and-trade program.

The 27-nation EU, which has given away the majority of allowances since it started the carbon-trading system in 2005, will require most emitters to buy their allotment of permits in the third phase, which starts in 2013 and runs through 2020.

Representatives of national governments in the EU’s Climate Change Committee gave the green light today to more than 50 benchmarks for allocating nearly 100 billion euros ($133 billion) worth of permits, the European Commission said in a statement. The rules, drafted in October by the European Commission, were designed to reward the continent’s most-efficient emitters.

“This vote represents a major milestone in the reform of the European carbon market and gives industries more regulatory certainty up to 2020,” EU Climate Commissioner Connie Hedegaard said in the statement.

The EU is seeking to balance the goal of reducing allowances in its carbon-trading market with limiting cost increases for energy-intensive industries. Refiners and other companies that face higher costs tried to persuade the EU to put off plans until later this decade to scale back free allowances.

The regulation sets rules for determining allocation of about 6 billion free allowances in the eight years through 2020. The vote today sets up a three-month scrutiny period in the EU council of ministers and the European parliament, after which the measure will be adopted by the commission.

The benchmarks will be based on the average performance of installations in the top 10 percentile for efficiency in 2007-2008. The most efficient installations in a given industry won’t need to purchase more allowances, while those that emit more than the benchmarks will need to buy permits, according to the commission.

The EU will auction around 60 percent of the total number of permits in 2013, according to the commission estimates, and the proportion will increase in coming years.

The cap for CO2 discharges for 2013 has been set at 2.04 billion tons, valued at about 30 billion euros at today’s price. This limit includes aluminum and chemical makers that join the program in the third phase. An adjustment is also planned for airlines that will become part of the system from 2012.

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