Why Auctioning gains Prominence in the EU's Emission Trading Scheme
The trading of emission allowances has gained increasing prominence as a key climate protection policy throughout the world. The findings of the analysis by Dennis Taenzler and Sybil Steuwer of Berlin based think-tank Adelphi Research suggest that the establishment of emissions trading is currently entering a decisive stage since arguments against the free allocation of allowances are gaining strength. Accordingly, the following conclusion is drawn: If allowances are allocated for free, power companies are most likely to price-in the value of allowances into electricity prices. This can lead to considerable windfall profits. These windfall profits can only be avoided in a fair manner when selling allowances and thus receiving revenue. This is no longer an exclusive insight of economists. Based on initial experiences in emissions trading and allocation, European policy-makers now widely favor auctions.
This report was recently presented at a Washington DC event by the Heinrich Boell Foundation and the Environment and Energy Study Institute (EESI).
Download the report here (136 MB, 32 pages)