Impacts of the allocation mechanism under the third phase of the European emission trading scheme

This paper focuses on the following two key research questions in the context of the change in allocation rules in the move from Phase I/II (2005-2012) to Phase III (2013-2020) of the European Emission Trading Scheme (EU ETS): First, how do allocations compare with actual installation-verified emissions in Phase III? For that purpose we analyse changes in sector-country allocations and verified emissions between Phase II and Phase III. The analysis is based on a selection of 2150 installations present in all phases of the EU ETS, taken from the European Union Transaction Log (EUTL). The results show that over-allocation has been considerably reduced in Phase III. Overall, allocation for the selected sectors decreased by 20% in 2013 compared to 2008 but varying across installations. Second, we investigate, whether the introduction of benchmarks in Phase III may have triggered carbon-reducing measures for industrial processes. For that purpose, we analyse for four product groups (cement clinker, pig iron, ammonia and nitric acid) the specific emissions (per tonne of product). Care was taken to define a data set with a similar delimitation of emission and production data. The findings were cross-checked through selected expert interviews. Our findings indicate that there is no evidence so far for improving specific emissions, though the strong improvement for nitric acid, as well as some improvement linked to ammonia occurring before the start of Phase III may have been supported by the introduction of Phase III.