News

A dynamic allocation model for the EU Emissions Trading System

Published: 23/06/2014

In order to structurally improve the functioning of the EU Emissions Trading System (ETS), an enhanced system of free allocation of emission allowances is proposed, called ‘dynamic allocation’. 

Dynamic allocation couples the free allocation of emission allowances to actual production (instead of historical production) in combination with a benchmark that includes a realistic carbon efficiency improvement rate. The dynamic allocation method is an elegant, improved allocation mechanism that prevents carbon leakage, facilitates long-term planning by investors and provides incentives for carbon-efficient growth.

This report is a direct follow-up of the Dutch Energy Agreement for sustainable growth, in which structural improvement of the EU ETS is one of the key pillars. The Agreement was closed by a broad group of stakeholders and authorities in September 2013.