Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector

Karsten Neuhoff (), Kim Keats and Misato Sato ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The allowance allocation under the European Emission trading schemes differs fundamentally from earlier cap and trade programs, like SO2 and NOx in the USA. Because of the iterative nature of negotiations of the overall budget, the allocation also has to follow an iterative process. If power generators anticipate that their current behaviour will affect future allowance allocation, then this can distort today’s decisions. Furthermore, the National Allocation Plans (NAPs) contain multiple provisions dealing with existing installations, what happens to allocation when they close, and allocations to new entrants. We provide a framework to assess the economic incentives and distortions that provisions in NAPs can have on market prices, operation and investment decisions. To this end, we use both analytic models to illustrate the incentives effects and results from numerical simulation runs that estimate the magnitude of impacts from different allocation rules.

Keywords: Allowance allocation; Emission trading; Power sector; Economic incentives (search for similar items in EconPapers)
JEL-codes: D24 D92 L10 Q28 (search for similar items in EconPapers)
Pages: 23
Date: 2006-05
New Economics Papers: this item is included in nep-eec and nep-ene
Note: IO
References: Add references at CitEc
Citations: View citations in EconPapers (115)

Downloads: (external link)
http://www.electricitypolicy.org.uk/pubs/wp/eprg0618.pdf (application/pdf)

Related works:
Journal Article: Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector (2006)
Working Paper: Allocation, Incentives and Distortions: The Impact of EU ETS Emissions Allowance Allocations to the Electricity Sector (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0642

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().