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Free allocation in hte 3rd EU ETS period: assessing two manufacturing sectors

Stenqvist, Christian LU and Åhman, Max LU (2016) In Climate Policy 16(2). p.125-144
Abstract
This paper provides an analysis of the EU ETS harmonised benchmark-based allocation procedures by comparing two energy-intensive sectors with activities in three Member States (MS); the cement industry (CEI) and the pulp and paper industry (PPI) in UK, Sweden and France. Results show that the new procedures are better suited for the homogenous CEI, for which allocation is to decrease in a consistent manner. For the heterogeneous PPI – with diverse product portfolios, technical infrastructure and fuel-mixes – the allocation procedures cause dispersed outcomes. The lack of product benchmark curves, biased reference values on fuel-mix and specific energy use as well as other issues, leads to allocations that do not represent the average... (More)
This paper provides an analysis of the EU ETS harmonised benchmark-based allocation procedures by comparing two energy-intensive sectors with activities in three Member States (MS); the cement industry (CEI) and the pulp and paper industry (PPI) in UK, Sweden and France. Results show that the new procedures are better suited for the homogenous CEI, for which allocation is to decrease in a consistent manner. For the heterogeneous PPI – with diverse product portfolios, technical infrastructure and fuel-mixes – the allocation procedures cause dispersed outcomes. The lack of product benchmark curves, biased reference values on fuel-mix and specific energy use as well as other issues, leads to allocations that do not represent the average performance of the 10% most GHG efficient installations. Another issue with the 3rd phase allocation procedure is that grandfathering is still present via the historically based production volumes. How to deal with structural change and provisions regarding capacity reductions and partial cessation is an issue, which is highly relevant for the PPI but less so for the CEI. In manufacturing sectors such as cement industry (CEI) and pulp and paper industry (PPI), the new banchmark-based allocation procedures have managed to reduce the EU-wide free allocation in the 3rd period compared with the 2nd period. For the homogenous CEI the outcome of stricter allocation is consistent between Member States. However, free allocation based on grandfathering of prerecession activity levels and CO2 performances is likely to create long positions in coming years. Our results disclose differing outcomes between sectors and Member States, with cases of conspicuous supply of allowances in the heterogeneous PPI. Lack of product benchmark curves, biased reference values on fuel-mix and specific energy use etc., leads to allocations that do not represent the average performance of the 10% most GHG efficient installations. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
EU ETS, Climate policy, industry
in
Climate Policy
volume
16
issue
2
pages
125 - 144
publisher
James & James
external identifiers
  • wos:000368733100001
  • scopus:84955379102
ISSN
1469-3062
DOI
10.1080/14693062.2014.979130
language
English
LU publication?
yes
id
0a99b845-efdb-4312-8a48-7eba0c282f4e (old id 8600601)
date added to LUP
2016-02-08 14:59:06
date last changed
2017-01-01 04:17:06
@article{0a99b845-efdb-4312-8a48-7eba0c282f4e,
  abstract     = {This paper provides an analysis of the EU ETS harmonised benchmark-based allocation procedures by comparing two energy-intensive sectors with activities in three Member States (MS); the cement industry (CEI) and the pulp and paper industry (PPI) in UK, Sweden and France. Results show that the new procedures are better suited for the homogenous CEI, for which allocation is to decrease in a consistent manner. For the heterogeneous PPI – with diverse product portfolios, technical infrastructure and fuel-mixes – the allocation procedures cause dispersed outcomes. The lack of product benchmark curves, biased reference values on fuel-mix and specific energy use as well as other issues, leads to allocations that do not represent the average performance of the 10% most GHG efficient installations. Another issue with the 3rd phase allocation procedure is that grandfathering is still present via the historically based production volumes. How to deal with structural change and provisions regarding capacity reductions and partial cessation is an issue, which is highly relevant for the PPI but less so for the CEI. In manufacturing sectors such as cement industry (CEI) and pulp and paper industry (PPI), the new banchmark-based allocation procedures have managed to reduce the EU-wide free allocation in the 3rd period compared with the 2nd period. For the homogenous CEI the outcome of stricter allocation is consistent between Member States. However, free allocation based on grandfathering of prerecession activity levels and CO2 performances is likely to create long positions in coming years. Our results disclose differing outcomes between sectors and Member States, with cases of conspicuous supply of allowances in the heterogeneous PPI. Lack of product benchmark curves, biased reference values on fuel-mix and specific energy use etc., leads to allocations that do not represent the average performance of the 10% most GHG efficient installations.},
  author       = {Stenqvist, Christian and Åhman, Max},
  issn         = {1469-3062},
  keyword      = {EU ETS,Climate policy,industry},
  language     = {eng},
  number       = {2},
  pages        = {125--144},
  publisher    = {James & James},
  series       = {Climate Policy},
  title        = {Free allocation in hte 3rd EU ETS period: assessing two manufacturing sectors},
  url          = {http://dx.doi.org/10.1080/14693062.2014.979130},
  volume       = {16},
  year         = {2016},
}