EU ETS, Free Allocations and Activity Level Thresholds. The devil lies in the details

Frédéric Branger (), Jean-Pierre Ponssard, Oliver Sartor and Misato Sato
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Frédéric Branger: CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, AgroParisTech
Oliver Sartor: IDDRI - Institut du Développement Durable et des Relations Internationales - Institut d'Études Politiques [IEP] - Paris
Misato Sato: LSE - London School of Economics and Political Science

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Abstract: This paper investigates incentives for firms to increase output above the activity level thresholds (ALTs) in order to obtain more free allowances in the EU Emissions Trading Scheme. While ALTs were introduced in order to reduce excess free allocation to low-activity installations, for installations operating below the threshold, the financial gain from increasing output to reach the threshold may outweigh the costs. Using installation level data for 246 clinker plants, we estimate the effect of ALTs on output decisions. The ALTs induced 5.8Mt of excess clinker production in 2012 (4% of total EU output), which corresponds to 5.2Mt of excess CO2 emissions (over 5% of total sector emissions). As intended, ALTs do reduce overallocation (by 6.6million allowances) relative to a scenario without ALTs, but an alternative output based allocation would further reduce overallocation by 39.5million allowances (29% of total cement sector free allocation). Firms responded disproportionately to ALTs in countries with low demand, especially in Spain and Greece. The excess clinker output lead to increased EU clinker and cement exports, production shifting between plants and also an increase in clinker content of cement thus reducing the carbon efficiency of cement production.

Keywords: Activity level thresholds; EU ETS; carbon trading; free allowance allocations; cement (search for similar items in EconPapers)
Date: 2014-10-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-eur and nep-reg
Note: View the original document on HAL open archive server: https://hal.science/hal-01072736v1
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Related works:
Working Paper: EU ETS, Free Allocations and Activity Level Thresholds - The Devil Lies in the Detail (2015)
Working Paper: EU ETS, free allocations, and activity level thresholds: the devil lies in the details (2015)
Working Paper: EU ETS, Free Allocations and Activity Level Thresholds. The devil lies in the details (2014)
Working Paper: EU ETS, free allocations and activity level thresholds, the devil lies in the details (2014)
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