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Discussion Paper: Architecture of the EU Emissions Trading System in Phase 3 and the Distribution of Allowance Asset Values

Author:

Åsa Löfgren, Dallas Burtraw, Markus Wråke, and Anna Malinovskaya

Summary:

Recent changes to the EU Emissions Trading System introduce structural changes regarding the initial distribution of emissions allowances, which are worth tens of billions of euros. A key change is the expanding role for auctions, which account for about half of the allowance allocation now and will be a growing share going forward. The use of revenue from auctions is a decision left to EU Member States and appears increasingly important. Well over half of auction revenue to date has been directed to energ and climate related purposes.

Further, we do not find evidence that Member States have used state aid to electricity-intensive firms to strategically support domestic industry. The trading system is evolving in a way that is likely to improve its performance, but there remain important questions related the future pric of allowances and the distribution and use of asset value created under the trading system.

Date:

October 2015

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Updated: 2015-10-23
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