Benchmark-based allocations in EU ETS Phase 3: an early assessment |
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| Authors: | Oliver Sartor Clement Pallière Stephen Lecourt |
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| Institution: | 1. European Energy and Climate Policy, IDDRI, 40 rue de Four, Paris 75006, Franceoliver.sartor@iddri.org;3. Sciences Po, 27 rue Saint-Guillaume, Paris, 75008, France;4. Climate Economics Department, Université Paris-Dauphine, 28, 4th floor, place de la Bourse Palais Brongniart, Paris 75002, France |
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| Abstract: | Phase 3 of the European Union Emissions Trading Scheme (EU ETS; 2013–2020) sees the introduction of new rules governing the free allocations of emissions allowances given to energy-intensive industries. In contrast to Phases 1 and 2, allocations will be based on historical production multiplied by best available emissions technology benchmarks. This article exploits an original database to provide a first analysis of the distributional and economic efficiency implications of the new rules. It is shown empirically that the new allocation rules reduce the scope for windfall gains by EU ETS firms while also effectively mitigating carbon leakage risks, even assuming optimistic forecasts of Phase 3 carbon prices. The example of the cement sector is used to show that benchmarking significantly improves the harmonization of the levels of free allocations to competing firms throughout the EU compared to Phase 2. However, it is also found that the use of ex ante output levels to determine allocations still leaves considerable scope for windfall gains and possible distortions of the internal market. |
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| Keywords: | CO2 allowance allocation emissions-performance benchmarking European Union Emissions Trading Scheme (EU ETS) |
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