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Glossary · Energy industry & energy transition

Benchmarking in emissions trading

Benchmarking EU Emissions Trading free allocation certificate trading Industry Carbon intensity

Benchmarking in emissions trading means setting reference values that are used to calculate the free allocation of emission allowances. In the EU Emissions Trading System, these values are also called emission values in German. A product benchmark states how many allowances are issued free of charge per unit of a product. The unit is allowances per tonne of product. An installation therefore does not receive its allocation based on its own past emissions. Instead, the yardstick is a value derived from the most efficient installations in the EU.

Benchmarking here is not a general efficiency comparison in the business-management sense. It fulfils a regulatory task: it turns a policy rule into a calculated allocation quantity. The rule is intended to prevent allowances from being distributed according to historical emissions. Otherwise, installations with high emissions in the past would receive particularly many allowances today.

How a benchmark value is derived

The starting point is a comparison within a product. For each product, the average emissions per tonne of the 10 percent most efficient installations in the EU are determined. The first values applied to 2013 to 2020 and were based on data from 2007/2008. Since 2021, the values have been updated for each five-year period. For 2026 to 2030, the reported data from 2021 and 2022 count. Comparison with the starting value yields an annual reduction rate. This is extrapolated to 2027/2028. Over 20 years, the reduction must be at least 6 and at most 50 percent. Per year, this amounts to 0.3 to 2.5 percent. For 2021 to 2025, this range was still 0.2 to 1.6 percent.

Because of these upper and lower limits, the benchmark is not simply the current average of the best installations. One example is newsprint: in 2021/2022 the best 10 percent averaged 0.018 tonnes of CO₂ equivalent per tonne. The benchmark is nevertheless 0.149 allowances per tonne, because the reduction is capped at 50 percent. Conversely, the minimum reduction can push the value below the measured top value. For hot metal (pig iron), the best 10 percent were at 1.360 t CO₂e per tonne, while the benchmark is 1.248.

Values for 2026–2030

The values for the second allocation period are set out in Implementing Regulation (EU) 2026/1412 of 26 June 2026. It applies retroactively to allocation from 1 January 2026. It comprises a total of 54 benchmarks. The product definitions and system boundaries are set out in Annex I of the Allocation Regulation (EU) 2019/331. Some examples of the values:

  • Grey cement clinker: 0.656 allowances per tonne. White cement clinker: 0.890.

  • Hot metal: 1.248. Carbon steel from the electric arc furnace: 0.142. Primary aluminium: 1.423 allowances per tonne.

  • Ammonia: 1.522. Hydrogen: 7.98 allowances per tonne.

  • Heat benchmark: 31.2 allowances per terajoule of measurable heat. Fuel benchmark: 28.1 allowances per terajoule.

According to the European Commission, free allocation with these values continues to cover on average about 75 percent of industrial emissions. However, only the adopted implementing regulation is legally binding. Flat percentage figures from press releases are not.

From benchmark to allocation

For existing installations, the basic principle is: the historical activity level, that is, the earlier production quantity, is multiplied by the benchmark. Depending on the case, further factors are then applied. These include carbon leakage status, the CBAM factor and, where applicable, a cross-sectoral correction factor. A simplified example: a cement plant used to produce on average one million tonnes of grey clinker per year. This yields a starting quantity of about 656,000 allowances. If the plant actually emits 0.80 tonnes of CO₂ per tonne of clinker, it is short by about 144,000 allowances even before further reductions. It must buy these on the allowance market.

Not every product has a product benchmark. In that case, fallback rules, the fallback approaches, apply: the heat benchmark for measurable heat, the fuel benchmark for non-measurable heat and a separate allocation for process emissions. In Germany, the German Emissions Trading Authority (DEHSt) is responsible for their application. Operators generally had to submit the application for free allocation for 2026–2030 by 30 May 2024.

Distinction from limit values and historical allocation

A benchmark is neither an emission limit value nor an operating ban. An installation may emit more than the benchmark provides for. It must then, however, surrender allowances for every tonne of CO₂ equivalent and buy the missing ones. The benchmark also does not prescribe any particular technology. It assesses the emission intensity of the output within the defined system boundaries. Those who stay below it can sell surplus allowances. This is why the CO₂ price acts as an incentive even with free allocation: every tonne saved has a market value.

Product, process and system boundary

Comparability is technically the most difficult aspect. For this reason, each product definition specifies precisely which processes and emissions belong to the benchmark. This includes, for example, how heat imports and exports, carbon-containing waste gases and transferred CO₂ are accounted for. For 2026–2030, the Commission used, for example, 40.5 t CO₂e per terajoule for heat imports whose emission factor is unknown. It set electricity generation within an installation subunit at 0.300 t CO₂e per megawatt hour. For installations with data problems, for example with intermediate products from other system boundaries, the Commission left the values out of the recalculation. This affected, among others, refineries, hot metal, ammonia and hydrogen.

Direct and indirect emissions must also be separated. Indirect emissions arise from electricity generated outside the installation. For 14 product benchmarks, the process can be operated partly with fuels and partly with electricity. These include refinery products, electric steel, ammonia and hydrogen. For these benchmarks, data on electricity consumption are also collected. To keep the values comparable, the indirect emissions from electricity consumption were included in the recalculation. This prevents a plant from appearing more efficient merely because it shifts emissions into electricity purchases.

Adjustments to the transformation

Since the amendment of the Allocation Regulation by Delegated Regulation (EU) 2024/873, the benchmarks are more open to new processes. This includes the following points:

  • Heat generated with electricity now falls under the heat benchmark and the fuel benchmark. This concerns the electrification of process heat.

  • Hydrogen from water electrolysis is included in the hydrogen and ammonia benchmarks.

  • Steel from direct reduction falls under the hot metal benchmark. However, it is not taken into account in the recalculation of the value.

  • The benchmarks for cement clinker also apply to alternative hydraulic binders. The sinter benchmark also applies to other forms of agglomerated iron ore.

Conditions and phasing-out through the CBAM

Since the 2023 reform, free allocation has been tied to conditions. If operators do not implement certain recommendations from energy audits or energy management systems, their allocation can be reduced by 20 percent. Installations whose emission intensity for at least one product benchmark is above the 80th percentile must submit a climate neutrality plan. The 80th percentile means: the installation is among the 20 percent with the highest intensity. For products without a significant carbon leakage risk, the allocation falls linearly from 30 percent of the benchmark value in 2026 to zero in 2030.

For sectors covered by the Carbon Border Adjustment Mechanism (CBAM), free allocation is gradually reduced to zero from 2026 to 2034 under current law. These include, for example, cement clinker, iron and steel, aluminium, fertilisers and hydrogen. Under Article 10a(1a) of the Emissions Trading Directive, 97.5 percent of the allocation remains in 2026 and 51.5 percent in 2030. After that, the share continues to fall until no free allocation remains in 2034. The benchmarks nevertheless remain important: the adjustment of CBAM obligations for imports is also derived from them. They thus become more of a yardstick for the CO₂ cost intensity of basic materials and less a pure protective instrument.

Typical misunderstandings and limits

A benchmark is not a reward. It is a distribution rule within a limited total quantity of allowances. Nor is it the same as the average emissions of a sector, since it is oriented towards the front-runners. A low value also says nothing about how easily a sector can be decarbonised. One example is the calcination of limestone in cement clinker. These process emissions cannot be avoided through efficiency or fuel switching. Other binders or CO₂ capture are needed for that. If a benchmark is too strict, it no longer protects against relocation. If it is too generous, it weakens the incentive to reduce emissions.

Benchmarks also have effects beyond the individual installation. They influence whether a switch to electricity, hydrogen or CO₂ capture pays off. In this way, they indirectly affect electricity demand, grid connection and the power system. On their own, however, they do not accelerate the transformation. That additionally depends on infrastructure, energy prices, capital and demand for climate-friendly products. Benchmarking is therefore a precise but limited steering mechanism. How well it works depends on whether the values are technically viable and whether system boundaries and data are properly defined.

Sources

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Edited by eCMS on 11.11.2026 15:30

© 2026 Erik Schmidt. All rights reserved. Quotations with a link to the source are welcome.