Grandfathering, auctioning and Carbon Leakage: Assessing the inconsistencies of the new ETS Directive

Title

Grandfathering, auctioning and Carbon Leakage: Assessing the inconsistencies of the new ETS Directive

Author(s)

Stefano Clo

Organisation

University of Bologna

Year

May 2010

Type

Study

Length

12 p.

Keywords

Carbon leakage

ABSTRACT

The new ETS Directive defines three different allocation rules, granting exemption from auctioning to those sectors exposed to the risk of Carbon Leakage. This article analyses the inconsistencies that characterize this new allocation rule and concludes that the methodology designed to assess the risk of Carbon Leakage is more politically driven than economically grounded. The Carbon Leakage risk assessment results reveal that grandfathering will also be the dominant allocation rule during the third phase. However, not only the exemption from auctioning is unlikely to mitigate Carbon Leakage, instead of improving the allocation transparency and granting harmonization of higher rules, but also, the new ETS allocation rule is likely to increase the distortions of competition, worsening rather than improving the harmonization within the ETS.