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MODELLING THE ALLOWANCE ALLOCATION METHOD OF THE EU ETS
The paper evaluates the EU ETS allocation method—specifically the New Entrants Reserve (NER) and grandfathering—against output-based allocation (OBA), full auctioning, and border adjustments in the cement industry. It finds that while the EU ETS method effectively tackles carbon leakage, it creates economic distortions between new and existing plants, leading to lower overall welfare compared to border adjustments or OBA. The analysis suggests that the EU ETS method's primary advantage is its lower distributional impact on consumers and producers.
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Document type: Research paper
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