The EU Emission Trading Scheme. National Allocation Patterns and Trading Flows

Claudia Kettner, Daniela Kletzan-Slamanig and Angela Köppl
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Daniela Kletzan-Slamanig: WIFO

in WIFO Studies from WIFO

Abstract: The EU Emission Trading Scheme (EU ETS) covers emitters from industry and the energy sector and 40 percent of the EU's total greenhouse gas emissions. It is the biggest implementation of a cap-and-trade scheme worldwide and the core instrument of European climate policy since its start in 2005. Based on a database comprising more than 10,000 installations in 26 EU countries, this paper provides a thorough analysis of the performance of the EU ETS in the period 2005-2010. In the first part, we analyse allocation patterns – i.e., the stringency of allocation caps and distribution issues – on EU and country level comparing the results of the EU ETS pilot phase and the first three years of the Kyoto phase. In the second part of the paper, we assess trading flows of European Allowance Units (EUAs) between EU countries comparing the results for the first and second trading period and analyse the use of project-based credits in the second trading period. Our analysis shows a higher overall stringency of the 2008 allocation caps compared to the first trading period reflecting the stronger role of the European Commission. For the following years we find, however, a surplus of allowances reflecting the decline in emissions due to the economic crisis. Traded certificates account for only a small share in EU-wide surrendered allowances, but increased in the second trading phase. Our analysis reveals that some countries have been net importers of EUAs despite national surpluses of allowances. This may either be due to differences in allocation patterns within EU countries, EUA transfers between associate companies or due to excess imports because of wrong (emission) growth expectations.

Date: 2012
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