EU emissions trading: An early analysis of national allocation plans for 2008-2012

Based on 18 national allocation plans (NAPs) submitted to the European Commission for phase II (2008-2012) of the EU Emissions Trading Scheme (EU ETS), we find that, on average, the ET budgets in phase II are only about 2.6% below historical emissions in 2005, about 3.1% lower than the budgets in phase I (2005-2007), and 3% below projected emissions in 2010. While the EU-15 Member States (MS) intend to reduce emissions by about 8-11%, the implied excess allocation in the new Member States lies between 17% and 31%. Compared with a cost-efficient split of the required emission reductions, the ET budgets in the EU-15 MS are generally too large. Thus, in total, the burden for the non-trading sectors (households, tertiary and transport) is too high. Furthermore, the high shares of governments' intended and companies' possible use of Kyoto mechanisms challenge the supplementarity principle. Our detailed analyses of the allocation methods of these NAPs (across countries and phases) suggest that MS should adhere to the concepts and methodologies developed in phase I. This implies that only a little progress has been made towards achieving more efficient and more harmonized allocation rules across MS. Untapped potentials to improve environmental effectiveness and economic efficiency crucially hinge on the outcome of the Commission's review process.