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

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 todayâ  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.
- ICF International (United States) United States
- University of Cambridge United Kingdom
- ICF International (United States) United States
economic incentives, emissions trading, power sector, allowance allocation, Allowance allocation, Emission trading, Power sector, Economic incentives, jel: jel:D92, jel: jel:D24, jel: jel:L10, jel: jel:Q28
economic incentives, emissions trading, power sector, allowance allocation, Allowance allocation, Emission trading, Power sector, Economic incentives, jel: jel:D92, jel: jel:D24, jel: jel:L10, jel: jel:Q28
citations This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).182 popularity This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.Top 1% influence This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).Top 1% impulse This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.Top 1%
