Designing national allocation plans for EU-emissions trading - a first analysis of the outcomes

In this paper the main design issues of 16 National Allocation Plans (NAPs) are presented in a systematic way for the first period (2005-2007) of the EU Emissions Trading System (EU ETS). These NAPs have either been submitted to the European Commission (EC) by the EU Member States (MS), or were available as draft versions in early May 2004. Further quantitative and qualitative analyses of these NAPs lead to the conclusions that - unless the review process by the EC leads to significant modifications - (i) the EU ETS is unlikely to result in any major emission reductions in this first period; (ii) many MS allow for a generous allocation to the emissions trading sector at the cost of other sectors and the general taxpayer; (iii) competitive distortions are likely to arise from the different national interpretations of the installations to be covered by the EU ETS and from the partial-system character of the EU ETS; (iv) barriers to economic efficiency will arise from a probable EU-wide ban on banking and ex-post adjustments of allocated quantities for newcomer installations. Finally, for the vast majority of participants transaction costs are expected to be high compared to costs for compliance.