Options for Emission Allowance Allocation Under the Eu Emissions Trading Directive

ISSN： 1381-2386

Source： Mitigation and Adaptation Strategies for Global Change, Vol.10, Iss.4, 2005-10, pp. : 597-645

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Abstract

The article investigates four alternative allocation schemes for emission allowances. The investigated schemes are emission-based allocation, production-based allocation with actor-specific emission factors, production-based allocation with benchmarking and production-based allocation based on data on best available technology (BAT). All the examined schemes apply free allocation based on historical activities. The allocation schemes are evaluated against the criteria for a National Allocation Plan, listed in the Annex III of the EU ETS Directive, and regarding their conformity with the criteria put forward by the Swedish Parliamentary Delegation on Flexible Mechanisms, The FlexMex 2 Commission.No allocation scheme unambiguously meets all criteria. Each has its advantages and disadvantages. Emission-based allocation schemes are most straightforward, transparent and are the easiest to implement.Production-based allocation schemes meet more of the criteria, but are more costly to implement and require more data. Data on BAT will not be available to the extent necessary in order to base an allocation scheme implemented for the trading starting 2005 on BAT. It is unlikely that any given allocation scheme will be perceived as fair by all concerned parties, no matter how sophisticated it is. The overall characteristics of the studied allocation schemes are summarised in the paper. Due to the lack of abatement cost curves, it is not possible to accurately model capital flows between the trading sectors. Data availability will most probably limit the options available to the authorities designing the allocation schemes.