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Interpreting the rules for EU ETS Phase III
The document examines the criteria for identifying sub-sectors exposed to a significant risk of carbon leakage under EU ETS Phase III. It argues that calculating additional costs without accounting for free allowances is logically inconsistent, as free allocation is intended to mitigate the very leakage it is meant to identify. Using UK data, the author illustrates that a gradual inclusion of sectors as free allocations decline from 80% in 2013 to 30% by 2020 provides better visibility, allows for learning, reduces economic distortions, and maintains incentives for international climate cooperation.
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Document type: Briefing