National Emissions Trading System: Background Paper

National Emissions Trading System Background Paper Editorial information

Publisher German Emissions Trading Authority (DEHSt) at the German Environment Agency City Campus Building 3, Entrance 3A Buchholzweg 8 D-13627 Berlin Phone: +49 (0) 30 89 03-50 50 Fax: +49 (0) 30 89 03-50 10 [email protected] Internet: www.dehst.de/English

As of November 2020

English by Nigel Pye, [email protected]

Cover image: © tomas – stock.adobe.com Content

1. Introduction: Why do we need national emissions trading? �� 4 2. Fundamentals of the national emissions trading scheme �� 5 2.1. How does emissions trading as such work? ��5 2.2. How do national and european emissions trading differ? ��5 3. Scope and responsible Parties �� 7 3.1. Which fuels are covered by BEHG? ��7 3.2. Which companies are covered by nEHS? ��7 3.3. What impact on fuel prices can be expected? ��8 3.4. Are there overlaps between national and European emissions trading? ��8 4. nEHS Processes and Mode of Operation �� 9 4.1. How is the volume target determined for greenhouse gas emissions? ��9 4.2. What price are certificates purchased and sold at? ��10 4.3. What are the obligations of the participating companies? ��11 4.4. Where can allowances be stored, transferred and surrendered? ��11 4.5. How are infringements handled? ��12 4.6. How will the competitiveness of companies be ensured? ��12 5. Conclusion & Outlook �� 13 6.Glossar �� 14 Annex 1 Fuels �� 15 Fuels as defined by BEHG ��15 Annex 2 Fuels for emission reporting in 2021 and 2022 �� 18 1 Introduction: Why do we need national emissions trading? In view of the major challenge that climate change poses to present and future generations due to greenhouse gas emissions, Germany has committed itself to ambitious climate protection targets at the European level under the Paris Convention. These climate protection goals were legally anchored in Germany for the first time with the Federal Climate Change Act, which came into force on 18/12/2019, in order to limit the rise in the global average temperature to well below 2 degrees Celsius and, if possible, to 1.5 degrees Celsius compared to pre-industrial levels. The Federal Republic of Germany also aims to be greenhouse gas neutral by 2050. To actually achieve this climate protection goal, climate protection measures must be taken. The Federal

Government has done this with the Climate Protection Programme 2030. The CO2 pricing of emissions is a key climate protection instrument, particularly in the fields of heating and transport, which came into force with the national emissions trading scheme and the Fuel Emissions Trading Act (BEHG) on 20/12/2019. Based on the BEHG, a national emissions trading scheme (in German “nationales Emissionshandelssystem” –hereinafter referred to by the abbreviation nEHS will be introduced in Germany from 2021. The EU emissions trading scheme (EU ETS) already largely covers emissions from industry and power genera-

tion in Germany: operators have had to surrender an emission allowance for every tonne of CO2 emitted since 2005. This scheme includes emission-intensive installations of both the energy sector and industry. However, Germany has so far lacked a financial incentive to reduce emissions outside the field covered by the EU ETS.

The nEHS now basically includes all CO2-causing fuels put on the market, especially petrol, diesel, heating oil, liquified gas, natural gas and coal. However, companies or citizens who use these fuels for heating or driving, for example, do not have to participate in the nEHS themselves. Only the ‘distributors’ of fuels1 such as gas suppliers or companies in the mineral oil industry who are obliged to pay energy tax under the Energy Tax Act, have to do so. If the fuel distributors pass on the costs from the nEHS to their customers, they provide the desired financial incentive to reduce emissions. It is BEHG’s intention that the pricing of fuel emissions should result in a cost and make customers change their behaviour and reduce emissions. The German Emissions Trading Authority (DEHSt) at the German Environment Agency is responsible for the implementation of the nEHS. DEHSt has been implementing the EU ETS in Germany since 2005. Together with the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) DEHSt is currently preparing the implementation of the BEHG in terms of organisation and expertise.

1 Within the scope of BEHG Section 2 (2).

4 National Emissions Trading System – Background Paper 2 Fundamentals of the national emissions trading scheme

2.1 How does emissions trading as such work? All emissions trading systems have one thing in common: emissions trading is a market-based instrument designed to protect the climate. The principle is very simple: anyone who wants to pollute the air with greenhouse gases needs relevant rights (‘certificates’). Emissions trading works according to the ‘Cap and Trade’ principle. This means that the greenhouse gas emissions of all participants are limited to a total volume – the ‘cap’. The cap is a political decision on the maximum amount of greenhouse gases that all participants are permitted to emit in total. However, there are no fixed emission targets for the individual participants. A cap that is ambitious in terms of climate policy ensures that the right to emit greenhouse gases becomes a scarce commodity and that trade on the market creates a price for the ‘certificates’. This market price results from auctions and trade between the participants. The price rises if the certificates become scarce because fewer certificates are available overall (because this is the only way to achieve the climate protection goals). The emissions trading system thus provides a financial incentive for participants to invest in climate protection measures. If it is cheaper to avoid one tonne of CO2 than to buy a certificate, it is worthwhile reducing the use of fossil fuels and implementing technical or organisational measures to save emissions. Market-based emissions trading means that emissions are reduced where it is economically most advantageous.

2.2 How do national and european emissions trading differ? National (nEHS) and European Emissions Trading Scheme (EU ETS) have different starting points as to how greenhouse gas emissions should be reduced. The EU ETS requires reporting and the surrender of emission allowances where emissions are generated in an installation such as in a power plant or steelworks (called ‘downstream’ emissions trading). The nEHS, however, is not based on the actual emissions at the installation, but on a much earlier point, where the fuels are placed on the market and before they reach the installation (‘upstream’ emissions trading). These emissions, which result from the subsequent burning of the fuels, are attributed to a distributor. The two fundamentally different systems can be explained above all against the background of the respective sectors involved. Industrial and energy installations covered by the EU ETS are a small number of players with very high direct emissions from installations. However, in the sectors covered by the nEHS such as transport and heating, it would not be practical to include direct emissions. Including the large number of all car drivers or all heating system owners would be entirely disproportionate.

i Regulatory concepts of emissions trading Upstream national Emissions Trading

Obligated parties: Fuel distributors Downstream European Emissions Trading

Obligated parties: Operators with direct emissions

National Emissions Trading System – Background Paper 5 Emissions are limited in both systems to a certain budget or cap. nEHS does this by taking into account the EU targets for those sectors not covered by the EU ETS (see Chapter 4.1). As in the EU ETS, the nEHS also sets a budget for emission allowances. Just as in the EU ETS, nEHS participants are obliged to report emissions annually, purchase the relevant number of certificates and surrender them to DEHSt. However, the subsequent regulatory concept is different: while direct emissions from participating installations are determined in the EU ETS, emissions in the nEHS are determined indirectly via fuel quantities put on the market. In contrast to the EU ETS, there is no free allocation of allowances to participants in the nEHS. In EU ETS, the price of allowances is created freely on the market via supply and demand in inter-company trading and regular auctions. The nEHS price, too, is in principle to be created on the market – from 2026 at the latest. However, the allowances will be sold at legally fixed prices in the nEHS in a fixed price phase (2021 to 2025) to allow participants to adapt to the system step by step.2 The nEHS will gradually approach free pricing in this introductory phase (2021 to 2026) (see Chapter 4.2) and, from 2026 onwards, the allowances will no longer be sold but auctioned.

Learn more about the modes of operation under: i www.dehst.de/English

2 The previously valid fixed prices of the BEHG (2021: 10 Euro until 2025: 35 Euro) were increased by an amendment to the law on 10 November 2020.

6 National Emissions Trading System – Background Paper 3 Scope and responsible Parties

3.1 Which fuels are covered by BEHG?

All fuels whose combustion can cause CO2 emissions, especially petrol, diesel, fuel oil, natural gas, liquefied gas and coal, are included in the nEHS (cf. Annex 1 of BEHG). Biomass also falls within the scope of the Act. However, there should be no obligation to surrender certificates for emissions from biogenic fuels that meet the sustainability criteria. There will be some relief in 2021 and 2022: reporting obligations will be limited to the main fuels such as petrol, diesel, fuel oils, natural gas and liquefied gases for 2021 and 2022 (cf. Annex 2 of BEHG).

The Annex to this document gives a detailed breakdown of fuel names.

3.2 Which companies are covered by nEHS? The obligations of BEHG apply to those companies that place fuels on the market. These ‘distributors’ are normally fuel wholesalers, fuel producers with wholesale distribution and businesses that import fuels into Germany in the sense of energy tax. The businesses can be natural or legal persons or entities or partnerships. The placement of products on the market under BEHG is, in principle, linked to the same acts that are legally identified by the Energy Tax Act with regard to certain fuels for the accrual of energy tax. For example the removal of fuels from a tax warehouse (e.g. in the case of petrol) or the supply of end users (e.g. in the case of natural gas). In the case of fuels for which both the obligation to pay energy tax and the obligation to report emissions under BEHG apply, the same companies are responsible for fulfilling both these obligations. Energy tax and BEHG obligations will not be interlaced for coal, which will only be included in the nEHS reporting from 2023 onwards. Even then, in some cases coal will be included in BEHG although an energy tax obligation will not arise due to certain tax exemptions under the Energy Tax Act (Section 2 (2) sentence 2 of BEHG). This means that products may be placed on the market in the sense of BEHG even though tax exemptions apply to the use of coal as a fuel or heating material for power generation (Section 37(2) number 3 of the Energy Tax Act) or as heating material for certain processes and procedures (Section 37(2) number 4 of the Energy Tax Act).

National Emissions Trading System – Background Paper 7 3.3 What impact on fuel prices can be expected?

The introduction of nEHS has established a price for CO2 emissions in Germany outside the sectors covered by

the EU ETS for the first time. The price will not be paid by those using the fuel and causing CO2 emissions, but by the fuel suppliers. However, it is assumed that the distributors will pass on the price of emission allowances

to their customers so that the users of the fuels will pay the price for their CO2 emissions at the end of the supply chain.

The gradual increase in CO2 price (cf. Table 1) increases the incentive to reduce or eliminate the burning of fossil fuels so that less fuel will be placed on the market over time – simply because it will become more expensive. This effect is likely to become more pronounced as soon as the allowances are auctioned and the price is freely generated on the market.

Table 1: Gradual increase in prices for selected fuels by BEHG in euro cents3 Unit 2021 2022 2023 2024 2025 Natural gas kWh 0.5 cents 0.5 cents 0.6 cents 0.8 cents 1.0 cents

Premium petrol l 6 cents 7 cents 8 cents 11 cents 13 cents

Diesel l 7 cents 8 cents 10 cents 12 cents 15 cents

Light fuel oil l 7 cents 8 cents 10 cents 12 cents 15 cents

3.4 Are there overlaps between national and European emissions trading? Yes – overlaps between national and European emissions trading cannot be excluded because of different regulatory approaches (cf. ‘Upstream’ and ‘Downstream’ approach in Chapter 2.2). If a fuel within the scope of BEHG is delivered to and used in an installation subject to EU ETS, emissions from this fuel are covered by both systems. Operators of EU ETS installations could therefore theoretically be charged

both with the CO2 costs allocated to the fuel price under nEHS and with the costs for emission allowances within the EU ETS. In order to prevent this, two avoidance mechanisms have been introduced in BEHG: distributors can lessen their surrender obligation by the fuel volumes delivered to and used in EU ETS installations. This elimi-

nates the CO2 costs for fuel volumes they supply to EU ETS installations. Alternatively, the operator of an EU ETS installation can apply for compensation for the additional pricing within nEHS at DEHSt. The specific form of these mechanisms will be regulated by ordinances according to Section 7(5) and Section 11(2) of BEHG.

3 DEHSt calculation based on fixed prices according to the first amendment of BEHG on 10 November 2020, excluding VAT and other incidentals.

8 National Emissions Trading System – Background Paper 4 nEHS Processes and Mode of Operation

4.1 How is the volume target determined for greenhouse gas emissions? The volume target (or ‘cap’) for fuel emissions covered by nEHS is made up of a base volume and an increase volume (annual emissions volume, cf. Section 4 BEHG) determined annually: ▸ Base volume The basis for determining the base volume is Germany's reduction obligations under the EU Climate Protec-

tion Regulation. The reduction obligations relate to CO2 emissions outside the EU ETS and are determined by the EU Commission for each calendar year. For the base volume, the share of fuel emissions covered by nEHS in total German emissions outside the EU ETS is calculated as a first step. The years 2016 to 2018 are used as reference years to determine this share for the first Trading Period (2021 to 2030). The resulting volume of emissions covered by nEHS is set in relation to the emission allocations to which Germany is entitled under the EU Climate Protection Regulation for the year in question. The calculation provides the base volume of annual allowances allocated to the nEHS. ▸ Increase volume Overlaps of the two systems cannot be excluded because of the different structures of nEHS and EU ETS (upstream, downstream). This means that EU ETS imposes a surrender obligation and a price system on the

fuels used in EU ETS installations and the CO2 emissions they cause, although the fuels used in the EU ETS installations have already been priced in nEHS. Since these emissions, which are double accounted in nEHS and EU ETS, have not been taken into account in the calculation of the base volume, the correct amount of additional certificates will be provided within nEHS. The total annual volume of fuel emissions thus specified shall, in principle, determine the number of allowances to be issued by the competent authority. The volume sold (cf. Chapter 4.2) first follows the actual demand by the participants in nEHS and is therefore not limited as such. This volume sold may therefore initially exceed the set volume target. If the available national budget under the EU Climate Protection Regulation is exceeded, Germany however, must fully offset the deficit either by achieving additional emission reductions in national sectors not covered by nEHS or by purchasing emission allocations from other EU Member States. This limita- tion of compensation options ensures that any surplus volumes are only ever compensated within the limited total emission volumes of the EU Climate Protection Regulation. For this reason, the overall nEHS system is designed from the outset to have an overall limited emissions budget.

National Emissions Trading System – Background Paper 9 4.2 What price are certificates purchased and sold at? An introductory phase is planned to allow nEHS to get up and running and enable participants to adapt to the new system in which certificates are initially sold at fixed prices (from 2021 to 2025). The subsequent auction phase will start with a one-year transition period (2026) and a price corridor to be followed by uncontrolled pricing on the market. ▸ In the fixed-price phase (2021–2025) DEHSt or a body commissioned by DEHSt will sell the certificates under BEHG at a fixed price in the 2021 – 2025 period. The fixed price per emission certificate will be: ▸ 2021: €25.00 ▸ 2022: €30.00 ▸ 2023: €35.00 ▸ 2024: €45.00 ▸ 2025: €55.00.4 The respective certificates will be allocated to the actual calendar year that is displayed on the certificate. In the fixed-price phase, they are only valid for covering fuel emissions in this specific calendar year and the previous year. Certificates therefore cannot be purchased at a lower price in one year and used for emissions in future years (certificate ‘banking’). The price in principle only applies to sales in the respective calendar year. In addition, up to ten percent of emission certificates purchased from a distributor in one year between 2021 to 2025 can still be purchased until 30 September of the following year at the previous year’s fixed price. Participants thus have nine months in which they can determine their demand more precisely and purchase them at the previous year's price. If certificates purchased by the end of September in this way do not fulfill the surrender obligation (cf. Chapter 4.3), then certificates must be purchased at a higher price or bought on the secondary market. ▸ In the auction phase Auctioning emission certificates will start in 2026. Auctions will run within a price corridor with a minimum price of €55 and a maximum price of €65 per emission certificate for 2026. Starting in 2027, the price will be freely created on the market, unless a decision is made in 2025 to carry on with the price corridor for 2027. The certificates are generally valid for each year of the trading period within the auction phase. Details of the purchase procedures will be laid down in an ordinance (Section 10 BEHG).

2026 20212026 2025 5565 price trend 2024 55 2023 45 2022 35 2021 30 25

4 The previously valid fixed prices of the BEHG (2021: 10 Euro until 2025: 35 Euro) were increased by an amendment to the law on 10 November 2020.

10 National Emissions Trading System – Background Paper 4.3 What are the obligations of the participating companies? Distributors in principle have three main obligations laid down in the law: 1. A monitoring plan must be drawn up and submitted to DEHSt for each trading period (Section 6 BEHG). 2. Distributors must prepare an emissions report based on their monitoring plan, which reports on the fuels placed on the market and the resulting emission volumes of the previous year (Section 7 BEHG) by the 31st of July each year. To determine the emissions from a particular fuel placed on the market, the fuel volume is multiplied by the corresponding calculation factors (including emission factor, calorific value, biogenic fraction, etc.). The data in the emissions report must be verified by an approved verifier. 3. Finally, distributors are obliged to surrender allowances corresponding to the volume of fuel emissions they th have reported (Section 8 BEHG) by the 30 of September each year. This means that for every tonne of CO2

emitted, an emission allowance that entitles the holder to emit this tonne of CO2 must be surrendered. The distributor must acquire the certificates required for surrender in good time. An electronic national emissions trading registry will be set up for the surrender of allowances in which each distributor must hold an account. The account serves to record the purchase of allowances, to surrender emission allowances and, if necessary, trade in them (cf. Chapter 4.4). The aforementioned basic obligations, which have been introduced in the EU ETS at European level since 2005 and have proved themselves over a long time, give rise to special tasks for fossil fuel distributors, verifiers and the DEHSt. These recurring tasks create a regular cycle called the Compliance Cycle. The detailed regulations for monitoring and reporting emissions from fuels will be laid down in an ordinance.

Relief in 2021 and 2022: In the first two years of the nEHS, the reporting obligation applies only to the following fuels: petrol, diesel, fuel oil, natural gas and liquified gases. BEHG provides a simplified method for monitoring and reporting in these first two years in order to ensure a rapid introduction and efficient implementation for the distributors and DEHSt. For example, a monitoring plan can be dispensed with and the determination of emissions can be based solely on standard values in 2021 and 2022. Verification of emission reports can also be simplified e.g. by limiting verification to a few issues. The details will be specified in ordinances. Control will be exerted with regard to emissions reporting where emissions from fuels that have already been reported under the EU ETS have to be subtracted because they were delivered directly to EU ETS installation companies and used in an EU ETS installation (Section 7(5) BEHG).

4.4 Where can allowances be stored, transferred and surrendered? Since allowances exist only in electronic form, they are stored exclusively in an electronic database, the national emissions trading tegistry (Registry). This Registry is managed by DEHSt for nEHS in accordance with Section 12 BEHG. The Registry contains accounts in which allowances can be stored similar to an online banking system. However, these accounts not only serve to keep a record of ownership of the allowances, but also to transfer allowances between accounts. In addition to allowances and accounts, the Registry also records fuel emissions attributable to distributors.

National Emissions Trading System – Background Paper 11 Alongside storing and transferring emission allowances, the accounts can also fulfil the obligation of surrendering allowances (cf. Chapter 4.3). By the 30th of September each year, companies must surrender allowances from their accounts for the amount of fuel emissions reported in the previous year. For this reason, every distributor needs an account which can be opened upon application to DEHSt. In order to store and trade allowances, not only can distributors apply for a registry account with DEHSt, but also people who do not place fuels on the market can apply. The detailed rules for managing the registry and opening and maintaining registry accounts will be laid down in an ordinance.

4.5 How are infringements handled? The annual surrender of emission certificates by the 30th of September is a key responsibility for distributors in

nEHS. Surrender covers the volume of CO2 emitted from fuels placed on the market in the previous calendar year. The law provides for various sanctions (Sections 20 – 22 BEHG) if distributors do not or are late in fulfilling this surrender obligation or their reporting obligation. If a distributor fails to meet their obligation to surrender certificates or fails to do so to the proper extent, DEHSt

imposes a fine for each tonne of CO2 for which no certificate has been surrendered (Section 21 BEHG). This amounts to twice the certificate price for the year in question for the fixed-price phase 2021 to 2025.

If, for example, a distributor failed to surrender certificates for 500 tonnes of CO2 in the reporting year 2021, the fine will amount to €25,000 (500 x 2 x €25). The distributor, however, still remains obliged to retroactively surrender the shortfall of allowances in the national emissions trading registry and thus cover the emissions caused in full.

After the fixed-price phase, i.e. in the auctioning phase, the fine is €100 for each tonne of CO2 for which no certificate has been surrendered. This fine increases annually by the increase in the European Consumer Price Index. If a distributor has not submitted an emissions report for the previous reporting year by the 31st of July in a year, its account in the national emissions trading registry shall be frozen. In this case, the obligation to surrender allowances can still be fulfilled, but the person responsible can no longer dispose of or trade in the emission allowances in the account. The freeze on the account will only be lifted once a proper emissions report has been submitted to DEHSt or the emissions have been estimated by DEHSt. Furthermore, the BEHG provides for a number of provisions for fines: violations of the obligations (for example, incorrect reporting) can be punished with fines of up to €500,000.

4.6 How will the competitiveness of companies be ensured? BEHG envisages measures to ensure competitiveness at European and international level of companies affected by the additional fuel costs due to BEHG (Section 11(3) BEHG). These measures are aimed at preventing ‘carbon leakage’ i.e. relocation of companies and their emissions abroad. For this purpose, it is envisaged that financial support to climate-friendly investments of companies will be provided. Affected companies can apply for compensation at DEHSt when financial support to climate-friendly investments cannot prevent carbon leakage and maintain an EU-wide and international competitiveness. An ordinance will specify those measures where the regulations will apply to the period from 2021 onwards. In addition, a minimum level of protection is ensured against disproportionate indirect burdens that could arise in atypical and individual cases due to the introduction of nEHS. Companies affected are those that have a high additional cost due to the introduction of BEHG and have no possibility of passing this cost on to their customers. Distributors are excluded from this regulation. Relevant specifications will also be made in an ordinance.

12 National Emissions Trading System – Background Paper 5 Conclusion & Outlook The new national emissions trading scheme and the Fuel Emissions Trading Act is the overture to national emissions trading and thus a CO2 pricing for the fields outside the EU ETS.

Although the fuel distributors participate in national emissions trading, the CO2 cost is passed on to the end users. The nEHS will therefore also be felt by citizens and businesses thus the goal of CO2 pricing will be achieved by providing concrete incentives to save CO2. The fixed-price phase provides citizens and companies with a reliable price path and thus the greatest possible planning security. The introduction of nEHS poses an organisational challenge to all players. First of all, the rules of the BEHG for the further structural development of national emissions trading must be implemented; corresponding ordinances are currently being drafted. The German Emissions Trading Authority at the German Environment Agency will provide further information on their website as soon as the organisational and technical preparations have progressed further.

DEHSt provides details about the implementation on their website, as soon as the key preparations have been completed: www.dehst.de/National-emissions-trading i

National Emissions Trading System – Background Paper 13 6 Glossar

The fixed emission cap or emission target for a certain period in an emissions trading Cap system.

Shifting production and the associated CO2 emissions to countries that have less or Carbon Leakage (CL) no stringent climate protection requirements. German Emissions German Emissions Trading Authority (DEHSt) at the German Environment Agency is the Trading Authority (DEHSt) competent national authority for European and national emissions trading. Certificates are trading units within an emissions trading system. One certificate Emission allowance/ corresponds to one tonne of CO2. certificate For better differentiation, the EU ETS speaks of emission allowances and the nEHS of certificates. The European Union Emissions Trading System is one of the ‘Kyoto mechanisms’. European Union Emissions Emissions trading was introduced in the European Union in January 2005. The Kyoto Trading System (EU ETS) Protocol also allows international trading in greenhouse gases. Climate protection refers to measures that counteract global warming caused by Climate protection anthropogenic emissions of greenhouse gases into the atmosphere. The (Combined) Product Nomenclature is the EU-wide uniform customs law descrip- Combined Nomenclature tion of products. It is used to uniquely assign products to specific merchandise categories. National act regulating the introduction of the European Union Emissions Trading Greenhouse Gas Emission System in Germany from 01/01/2005. Allowance Trading Act (TEHG) It serves the national implementation of the EU Directive on the European Emissions Trading System.

14 National Emissions Trading System – Background Paper Annex 1 Fuels

Fuels as defined by BEHG Products of headings 1507 to 1518 of the Combined Nomenclature, 1. which are intended to be used as fuels or heating materials 1507 Soya-bean oil and its fractions, whether or not refined, but not chemically modified

1508 Groundnut oil and its fractions, whether or not refined, but not chemically modified Olive oil and its fractions, obtained from the fruit of the olive tree solely by mechanical or physical 1509 means without impairing the oil, whether or not refined, but not chemically modified 1510 Other olive oils

1511 Palm oil and its fractions, whether or not refined, but not chemically modified Sunflower-seed, safflower or cotton-seed oil and fractions thereof, whether or not refined, but not 1512 chemically modified Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not 1513 chemically modified 1514 Rape, colza or mustard oil and fractions thereof, whether or not refined, but not chemically modified Vegetable fats and fatty vegetable oils (including jojoba oil) and their fractions, whether or not refined, but not chemically modified (excl. soya-bean oil, groundnut oil, olive oil, palm oil, sunflow- 1515 er-seed oil, safflower, cotton-seed oil, coconut (copra) oil, palm kernel oil, babassu oil, rape and colza oil and mustard oil) Animal or vegetable fats and oils and their fractions, partly or wholly hydrogenated, inter-esterified, 1516 re-esterified or elaidinised, whether or not refined but not further prepared Margarine and other edible mixtures and preparations of animal or vegetable fats or oils and of edible fractions of different fats or oils (excl. fats and oils and their fractions, partly or wholly hydrogen- 1517 ated, inter-esterified, re-esterified or elaidinised, whether or not refined but not further prepared, and mixtures of olive oils and their fractions)

1518 Other vegetable oils

National Emissions Trading System – Background Paper 15 2. Products of headings 2701, 2702 and 2704 to 2715 of the Combined Nomenclature 2701 Hard coal; hard coal briquettes and similar solid fuels manufactured from hard coal

2702 Lignite, whether or not agglomerated (excl. gagate [jet])

2704 Coke and semi-coke from coal Coal gas, water gas, producer gas and similar gases 2705 00 00 (excl. natural gas and other gaseous hydrocarbons) Tar distilled from hard coal, from lignite or from peat, and other mineral tars, whether or not dehy- 2706 00 00 drated or partially distilled, incl. reconstituted tars Oils and other products from the distillation of high temperature coal tar; similar products in which 2707 the weight of the aromatic constituents exceeds that of the non-aromatic constituents 2708 Pitch and pitch coke, obtained from coal tar or from other mineral tars

2709 Petroleum oils and oils obtained from bituminous minerals, crude Petroleum oils and oils obtained from bituminous minerals (other than crudes); preparations not elsewhere specified or included, containing 70% or more by weight of petroleum oils or of oils ob- 2710 tained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils containing mainly petroleum oils and oils obtained from bituminous minerals 2711 Natural gas and other gaseous hydrocarbons Petroleum jelly; paraffin wax, microcrystalline petroleum wax, paraffin waste ‘slack wax’, ozokerite, 2712 lignite wax, peat wax, other mineral waxes and similar products obtained by synthesis or by other processes, whether or not coloured Petroleum coke, petroleum bitumen and other residues of petroleum oil or of oil obtained from bitu- 2713 minous minerals not elsewhere specified or included

2714 Bitumen and asphalt, natural; bituminous or oil-shale and tar sands; asphaltites and asphaltic rocks

Bituminous mastics, cut-backs and other bituminous mixtures based on natural asphalt, on natural 2715 00 00 bitumen, on petroleum bitumen, on mineral tar or on mineral tar pitch

3. Products of headings 2901 and 2902 of the Combined Nomenclature 2901 Acyclic hydrocarbons

2902 Cyclic hydrocarbons

Products of subheading 2905 11 00 of the Combined Nomenclature, which are not 4. of synthetic origin and which are intended to be used as fuels or heating materials 2905 11 00 Methanol (methyl alcohol)

5. Products of headings 3403, 3811 and 3817 of the Combined Nomenclature Lubricating preparations (incl. cutting-oil preparations, bolt or nut release preparations, anti-rust or anti-corrosion preparations and mould-release preparations, based on lubricants) and preparations 3403 of a kind used for the oil or grease treatment of textile materials, leather, furskins or other materials, but excl. preparations containing, as basic constituents, 70% or more by weight of petroleum oil or of oils obtained from bituminous minerals Anti-knock preparations, oxidation inhibitors, gum inhibitors, viscosity improvers, anti-corrosive 3811 preparations and other prepared additives for mineral oils (incl. fuels) or for other liquids used for the same purposes as mineral oils 3817 Alkyl benzenes

16 National Emissions Trading System – Background Paper 6. Products of subheadings a. 3824 99 86, 3824 99 93 Mixtures predominantly composed of dimethyl methylphosphonate, oxirane and diphosphorus 3824 99 86 pentoxide Chemical products or preparations, predominantly composed of organic compounds, not elsewhere 3824 99 93 specified or included (excl. in liquid form at 20°C) b. 3824 99 92 and 3824 99 96 (excluding prepared anti-rust preparations composed of amines as active ingredients and composite inorganic solvents and thinners for varnishes and similar products) Chemical products or preparations, predominantly composed of organic compounds, not elsewhere 3824 99 92 specified or included (in liquid form at 20°C) Chemical products and preparations of the chemical or allied industries, incl. mixtures of natural 3824 99 96 products, not predominantly composed of organic compounds, not elsewhere specified or included c. 3826 00 10 and 3826 00 90 of the Combined Nomenclature, which are intended to be used as fuels or heating materials

3826 00 10 Fatty-acid mono-alkyl esters, containing 96.5% or more esters by weight (FAMAE) Biodiesel and mixtures thereof, not containing or containing less than 70% by weight of petroleum 3826 00 90 oils or oils obtained from bituminous minerals (excl. fatty-acid mono-alkyl esters, containing 96.5% or more esters by weight (FAMAE)) The following are also considered to be fuels within the scope of this Act (with the exception of peat and products falling within headings 4401 and 4402 of the Combined Nomenclature): Fuelwood, in logs, in billets, in twigs, in faggots or in similar forms; wood in chips or particles; saw 4401 dust and wood waste and scrap, whether or not agglomerated in pellets, briquettes, logs or similar forms Wood charcoal (incl. shell or nut charcoal), whether or not agglomerated (excl. charcoal for medici- 4402 nal purposes, charcoal mixed with incense, activated charcoal and charcoal in the form of crayons) Products other than those referred to in Section 1 which are intended for use, offered for sale or used sa fuels or 1. as additives or as extenders of fuels,

Products other than those referred to in Section 1, obtained wholly or partly from hydrocarbons intended for use, 2. offered for sale or used sa heating materials (e.g. municipal waste)

National Emissions Trading System – Background Paper 17 Annex 2 Fuels for emission reporting in 2021 and 2022

1. Petrol of subheadings 2710 12 41, 2710 12 45 and 2710 12 49 and of subheadings 2710 12 31 Motor spirit with a lead content not exceeding 0.013 g per litre, with a research octane number 2710 12 41 (RON) of less than 95 (excl. containing biodiesel) Motor spirit with a lead content not exceeding 0.013 g per litre, with a research octane number 2710 12 45 (RON) of 95 or more but less than 98 (excl, containing biodiesel) Motor spirit with a lead content not exceeding 0.013 g per litre, with a research octane number 2710 12 49 (RON) of 98 or more (excl. containing with biodiesel) 2710 12 31 Aviation spirit Motor spirit with a lead content exceeding 0.013 g per litre (excl. containing biodiesel and aviation 2710 12 50 spirit)

2. Medium heavy oils of subheading 2710 19 25 of the Combined Nomenclaturer 2710 19 25 ‘Kerosene’ (excluding jet fuel)

Gas oils of subheadings 2710 19 43 to 2710 19 48 and of subheadings 2710 20 11 to 2710 20 19 of 3. the Combined Nomenclature Gas oil obtained from petroleum oil or bituminous minerals, with a sulphur content not exceeding 2710 19 43 0.001% by weight (excl. containing biodiesel and for chemical transformation) Gas oil obtained from petroleum oil or bituminous minerals, with a sulphur content exceeding 2710 19 46 0.001% but not exceeding 0.002% by weight (excl. containing biodiesel and for chemical transformation) Gas oil obtained from petroleum oil or bituminous minerals, with a sulphur content exceeding 2710 19 47 0.002% but not exceeding 0.1% by weight (excl. containing biodiesel and for chemical transformation) Gas oil obtained from petroleum oil or bituminous minerals, with a sulphur content exceeding 0.1% 2710 19 48 by weight (excl. containing biodiesel and for chemical transformation) Gas oil containing petroleum oil or bituminous minerals of 70% or more by weight, with a sulphur 2710 20 11 content not exceeding 0.001% by weight, containing biodiesel Gas oil containing petroleum oil or bituminous minerals of 70% or more by weight, with a sulphur 2710 20 15 content exceeding 0.001% but not exceeding 0.002% by weight, containing biodiesel Gas oil containing petroleum oil or bituminous minerals of 70% or more by weight, with a sulphur 2710 20 17 content exceeding 0.002% but not exceeding 0.1% by weight, containing biodiesel

2710 20 19 Gas oil containing petroleum oil or bituminous minerals of 70% or more by weight, with a sulphur content exceeding 0.1% by weight, containing biodiesel

18 National Emissions Trading System – Background Paper Fuel oils of subheadings 2710 19 62 to 2710 19 68 and of subheadings 2710 20 31 to 4. 2710 20 39 of the Combined Nomenclature Fuel oils obtained from petroleum oil or bituminous minerals, with a sulphur content not exceeding 2710 19 62 0.1% by weight (excl. containing biodiesel and for chemical transformation) Fuel oils obtained from petroleum oil or bituminous minerals, with a sulphur content exceeding 0.1 2710 19 64 but not exceeding 1% by weight (excl. containing biodiesel and for chemical transformation) Fuel oils obtained from petroleum oil or bituminous minerals, with a sulphur content exceeding 1% 2710 19 68 by weight (excl. containing biodiesel and for chemical transformation) Fuel oils containing petroleum oil or bituminous minerals of 70% or more by weight, with a sulphur 2710 20 31 content not exceeding 0.1% by weight, containing biodiesel Fuel oils containing petroleum oil or bituminous minerals of 70% or more by weight, with a sulphur 2710 20 35 content exceeding 0.1 but not exceeding 1% by weight, containingbiodiesel Fuel oils containing petroleum oil or bituminous minerals of 70% or more by weight, with a sulphur 2710 20 39 content exceeding 1% by weight, containingbiodiesel

Natural gas: products of subheadings 2711 11 (liquified natural gas) and 2711 21 of the Combined 5. Nomenclature and gaseous energy products collected during coal mining, without gaseous biofuels and bio heating materials 2711 11 Natural gas, liquified

2711 21 Natural gas in gaseous state

6. Liquified gases: products of subheadings 2711 12 to 2711 19 of the Combined Nomenclature 2711 12 Propane, liquified

2711 13 Butane, liquified (excl. containing a purity of 95% or more of n-butane or isobutane) Ethylene, propylene, butylene and butadiene, liquified (excl. ethylene with a purity of 95% or more 2711 14 00 and propylene, butylene and butadiene with a purity of 90% or more Hydrocarbons, gaseous, liquified, not elsewhere specified or included (excl. natural gas, propane, 2711 19 butane, ethylene, propylene, butylene and butadiene)

National Emissions Trading System – Background Paper 19 German Emissions Trading Authority (DEHSt) at the German Environment Agency City Campus Building 3, Entrance 3A Buchholzweg 8 D-13627 Berlin