Climate | Article
Free allocation rules in the EU emissions trading system : what does the empirical literature show?
05 February 2019

Authors: VERDE, Stefano F.; TEIXIDO-FIGUERAS, Jordi; MARCANTONINI, Claudio; LABANDEIRA, Xavier

This paper analyses the rules for free allocation in the EU Emissions Trading System (EU ETS). The analysis draws on the empirical evidence emerging from two literature strands. One group of studies sheds light on the following questions: how efficient are free allocation rules in minimizing the risk of carbon leakage? Have they become more efficient over the trading periods? What are the technical limits to making them more efficient? Further: is firm behaviour affected by allowance allocation? Did specific provisions induce strategic behaviour with unintended effects? Studies from the second group estimate sectoral pass-through rates for the costs imposed by the EU ETS. Taking cost pass-through into account is necessary for properly targeting free allocation. The difficulty of accurately quantifying sectoral differences in cost pass-through ability, especially in manufacturing sectors (due to limited data availability and market heterogeneity), is the main hindrance to achieving further efficiency in allowance allocation. The new rules defined in the reform for Phase IV (2021–2030) nevertheless make some progress in this direction.
logo cadmus Read it on Cadmus

LATEST FSR PUBLICATIONS

Policy Paper
Adequate, reliable and well interconnected energy networks are a prerequisite for a well functioning internal energy market and for meeting EU’s energy and climate policy objectives on greenhouse gases, cost-competitiveness [...]
Contribution to book
Electricity network companies can innovate their own network business or stimulate system innovation, including by facilitating market activities and the integration of renewable energy sources. Regulation is essential to turn [...]
Contribution to book
To enable deep electrification of the economy, a significant expansion of grid distribution capacity will be required. However, how much grid investments eventually will be needed depends on how the [...]

Join our community

To meet, discuss and learn in the channel that suits you best.

scroll

top