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Grandfathering, auctioning and Carbon Leakage: Assessing the inconsistencies of the new ETS Directive

  • Clò, Stefano

The new ETS Directive defines three different allocation rules, granting exemption from auctioning to those sectors exposed to the risk of Carbon Leakage. This article analyses the inconsistencies that characterize this new allocation rule and it concludes that the methodology designed to assess the risk of Carbon Leakage is more politically driven than economically grounded. The results of the Carbon Leakage risk assessment reveal that grandfathering is going to be the dominant allocation rule during the third phase also. However, not only the exemption from auctioning is unlikely to mitigate Carbon Leakage, instead of improving the allocation transparency and granting harmonization of higher rules but also the new ETS allocation rule is likely to increase the distortions of competition, worsening rather than improving the harmonization within the ETS.

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File URL: http://www.sciencedirect.com/science/article/B6V2W-4Y6K08W-2/2/7cad775cbbf4ef4e97716fe92d3e3773
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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 38 (2010)
Issue (Month): 5 (May)
Pages: 2420-2430

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Handle: RePEc:eee:enepol:v:38:y:2010:i:5:p:2420-2430
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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  1. Hepburn, C. & Grubb, M. & Neuhoff, K. & Matthes , F. & Tse, M., 2006. "Auctioning of EU ETS Phase II allowances: how and why?," Cambridge Working Papers in Economics 0644, Faculty of Economics, University of Cambridge.
  2. Neuhoff, K. & Keats, K. & Sato, M., 2006. "Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector," Cambridge Working Papers in Economics 0642, Faculty of Economics, University of Cambridge.
  3. Jos Sijm & Karsten Neuhoff & Yihsu Chen, 2006. "CO 2 cost pass-through and windfall profits in the power sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 49-72, January.
  4. Stefan P. Schleicher & Claudia Kettner & Angela Köppl & Gregor Thenius, 2007. "Stringency and Distribution in the EU Emissions Trading Scheme –The 2005 Evidence," Working Papers 2007.22, Fondazione Eni Enrico Mattei.
  5. Woerdman Edwin & Arcuri Alessandra & Clò Stefano, 2008. "Emissions Trading and the Polluter-Pays Principle: Do Polluters Pay under Grandfathering?," Review of Law & Economics, De Gruyter, vol. 4(2), pages 565-590, December.
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