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Benchmark-based allocations in EU ETS Phase 3: an early assessment

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  • Oliver Sartor
  • Clement Palli�re
  • Stephen Lecourt

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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  • Oliver Sartor & Clement Palli�re & Stephen Lecourt, 2014. "Benchmark-based allocations in EU ETS Phase 3: an early assessment," Climate Policy, Taylor & Francis Journals, vol. 14(4), pages 507-524, July.
    • Handle: RePEc:taf:tcpoxx:v:14:y:2014:i:4:p:507-524
    DOI: 10.1080/14693062.2014.872888
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    1. repec:dau:papers:123456789/10174 is not listed on IDEAS
    2. Georg Zachmann & Anta Ndoye & Jan Abrell, 2011. "Assessing the impact of the EU ETS using firm level data," Bruegel Working Papers 579, Bruegel.
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    Cited by:

    1. Anouk Faure & Marc Baudry, 2021. "Technological Progress and Carbon Price Formation: an Analysis of EU-ETS Plants," Working Papers hal-04159764, HAL.
    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. Frédéric Branger & Jean-Pierre Ponssard & Oliver Sartor & Misato Sato, 2015. "EU ETS, Free Allocations, and Activity Level Thresholds: The Devil Lies in the Details," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(3), pages 401-437.
    4. Maria-Eugenia Sanin & Sylvain Sourisseau, 2019. "Pervasive EUAs free allocation: the case of the steel industry," Documents de recherche 19-06, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    5. Barreiro-Hurle, Jesus & Perez-Dominguez, Ignacio & Jansson, Torbjoern & Fellman, Thomas & Weiss, Franz, 2016. "The role of technology in avoiding leakage from unilateral mitigation targets in agriculture: the case of the EU," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235079, Agricultural and Applied Economics Association.
    6. Martin, Ralf & Muûls, Mirabelle & de Preux, Laure B. & Wagner, Ulrich J., 2014. "On the empirical content of carbon leakage criteria in the EU Emissions Trading Scheme," Ecological Economics, Elsevier, vol. 105(C), pages 78-88.
    7. Fei Ye & Lixu Li & Zhiqiang Wang & Yina Li, 2018. "An Asymmetric Nash Bargaining Model for Carbon Emission Quota Allocation among Industries: Evidence from Guangdong Province, China," Sustainability, MDPI, vol. 10(11), pages 1-18, November.
    8. Xiong, Ling & Shen, Bo & Qi, Shaozhou & Price, Lynn & Ye, Bin, 2017. "The allowance mechanism of China’s carbon trading pilots: A comparative analysis with schemes in EU and California," Applied Energy, Elsevier, vol. 185(P2), pages 1849-1859.
    9. E. Allevi & G. Oggioni & R. Riccardi & M. Rocco, 2017. "An equilibrium model for the cement sector: EU-ETS analysis with power contracts," Annals of Operations Research, Springer, vol. 255(1), pages 63-93, August.
    10. Daigneault, Adam & Greenhalgh, Suzie & Samarasinghe, Oshadhi, 2017. "Equitably slicing the pie: Water policy and allocation," Ecological Economics, Elsevier, vol. 131(C), pages 449-459.
    11. Wolfgang Eichhammer & Nele Friedrichsen & Sean Healy & Katja Schumacher, 2018. "Impacts of the Allocation Mechanism Under the Third Phase of the European Emission Trading Scheme," Energies, MDPI, vol. 11(6), pages 1-23, June.
    12. Dalai Ma & Yaping Xiao & Na Zhao, 2022. "Optimization and Spatiotemporal Differentiation of Carbon Emission Rights Allocation in the Power Industry in the Yangtze River Economic Belt," Sustainability, MDPI, vol. 14(9), pages 1-15, April.
    13. Rory Hooper & Nihit Goyal & Kornelis Blok & Lisa Scholten, 2024. "A semi-automated approach to policy-relevant evidence synthesis: combining natural language processing, causal mapping, and graph analytics for public policy," Policy Sciences, Springer;Society of Policy Sciences, vol. 57(4), pages 875-900, December.
    14. Marcin Rabe & Dalia Streimikiene & Yuriy Bilan, 2019. "EU Carbon Emissions Market Development and Its Impact on Penetration of Renewables in the Power Sector," Energies, MDPI, vol. 12(15), pages 1-20, August.
    15. E. Allevi & A. Gnudi & I. V. Konnov & G. Oggioni, 2018. "Decomposition method for oligopolistic competitive models with common environmental regulation," Annals of Operations Research, Springer, vol. 268(1), pages 441-467, September.

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