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Implications of announced Phase 2 National Allocation Plans for the EU ETS

Author

Listed:
  • Karsten Neuhoff

    (University of Cambridge)

  • Markus Åhman

    (IVL Swedish Environmental Research Institute)

  • Regina Betz

    (University of New South Wales)

  • Johanna Cludius

    (University of New South Wales)

  • Federico Ferrario

    (University of Cambridge)

Abstract

We quantified the volume of free allowances that different national allocation plans proposed to allocate to existing and new installations, with specific reference to the power sector. Most countries continue to allocate based on historic emissions, contrary to hopes for improved allocation methods, with allocations to installations frequently based on 2005 emission data; this may strengthen the belief in the private sector that emissions in the coming years will influence their subsequent allowance allocation. Allocations to new installations provide high and frequently fuel-differentiated subsidies, risking significant distortions to investment choices. Thus, in addition to supplying a long market in aggregate, proposed allocation plans reveal continuing diverse problems, including perverse incentives. To ensure the effectiveness of the EU ETS in the future, the private sector will need to be shown credible evidence that free allowance allocation will be drastically reduced post-2012, or that these problems will be addressed in some other way.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Karsten Neuhoff & Markus Åhman & Regina Betz & Johanna Cludius & Federico Ferrario, 2006. "Implications of announced Phase 2 National Allocation Plans for the EU ETS," Working Papers EPRG 0632, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg0632
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    Cited by:

    1. Federico Boffa & Stefano Clò & Alessio D'Amato, 2013. "Environmental policy and incentives to adopt abatement technologies under endogenous uncertainty," Working Papers 5, Department of the Treasury, Ministry of the Economy and of Finance.
    2. Huang, Wenyang & Zhao, Jianyu & Wang, Xiaokang, 2024. "Model-driven multimodal LSTM-CNN for unbiased structural forecasting of European Union allowances open-high-low-close price," Energy Economics, Elsevier, vol. 132(C).
    3. Yu-Jie Hu & Lishan Yang & Fali Duan & Honglei Wang & Chengjiang Li, 2022. "A Scientometric Analysis and Review of the Emissions Trading System," Energies, MDPI, vol. 15(12), pages 1-20, June.
    4. Bonenti, Francesca & Oggioni, Giorgia & Allevi, Elisabetta & Marangoni, Giacomo, 2013. "Evaluating the EU ETS impacts on profits, investments and prices of the Italian electricity market," Energy Policy, Elsevier, vol. 59(C), pages 242-256.
    5. Pahle, Michael & Fan, Lin & Schill, Wolf-Peter, 2011. "How emission certificate allocations distort fossil investments: The German example," Energy Policy, Elsevier, vol. 39(4), pages 1975-1987, April.
    6. Knut Rosendahl & Halvor Storrøsten, 2011. "Emissions Trading with Updated Allocation: Effects on Entry/Exit and Distribution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(2), pages 243-261, June.
    7. Francesca Bonenti & Giorgia Oggioni & Elisabetta Allevi & Giacomo Marangoni, 2011. "Evaluating the Impacts of the EU-ETS on Prices, Investments and Profits of the Italian Electricity Market," Working Papers 2011.99, Fondazione Eni Enrico Mattei.
    8. Cathrine Hagem, 2008. "Incentives for merger in a noncompetitive permit market," Discussion Papers 568, Statistics Norway, Research Department.
    9. Jinye Zhao & Benjamin F. Hobbs & Jong-Shi Pang, 2010. "Long-Run Equilibrium Modeling of Emissions Allowance Allocation Systems in Electric Power Markets," Operations Research, INFORMS, vol. 58(3), pages 529-548, June.
    10. Rosendahl, Knut Einar, 2008. "Incentives and prices in an emissions trading scheme with updating," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 69-82, July.
    11. Karoline S. Rogge & Christian Linden, 2010. "Cross-Country Comparison of the Incentives of the EU Emission Trading Scheme for Replacing Existing Power Plants in 2008–12," Energy & Environment, , vol. 21(7), pages 757-783, November.
    12. Jos Sijm, 2012. "Tradable Carbon Allowances: The Experience of the European Union and Lessons Learned," Chapters, in: Chin Hee Hahn & Sang-Hyop Lee & Kyoung-Soo Yoon (ed.), Responding to Climate Change, chapter 3, Edward Elgar Publishing.
    13. Rogge, Karoline S. & Linden, Christian, 2010. "Cross-country comparison of the replacement incentives of the EU ETS in 2008-12: the case of the power sector," Working Papers "Sustainability and Innovation" S1/2010, Fraunhofer Institute for Systems and Innovation Research (ISI).
    14. Pahle, Michael, 2010. "Germany's dash for coal: Exploring drivers and factors," Energy Policy, Elsevier, vol. 38(7), pages 3431-3442, July.
    15. Christoph Weber & Philip Vogel, 2014. "Contingent certificate allocation rules and incentives for power plant investment and disinvestment," Journal of Regulatory Economics, Springer, vol. 46(3), pages 292-317, December.
    16. Heindl, Peter, 2012. "Mitigating market power under tradeable permits," ZEW Discussion Papers 12-065, ZEW - Leibniz Centre for European Economic Research.
    17. Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2008. "Emissions trading with updated grandfathering. Entry/exit considerations and distributional effects," Discussion Papers 546, Statistics Norway, Research Department.
    18. Joltreau, Eugénie & Sommerfeld, Katrin, 2016. "Why does emissions trading under the EU ETS not affect firms' competitiveness? Empirical findings from the literature," ZEW Discussion Papers 16-062, ZEW - Leibniz Centre for European Economic Research.

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    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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