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New Entrant Allocation in the Nordic Energy Sectors

An Update

image of New Entrant Allocation in the Nordic Energy Sectors

This report presents an update of the findings of the TemaNord2006:516. The original report showed that phase I allocation plans can distort competition between fuels, technologies and member states. This update shows that there is little evidence of progress in phase II. The report concludes that competitiveness of member states, fuels and technologies is likely to be distorted by allocation methodologies for new entrants in the energy sector in phase II of the EU ETS. The recommendation for the future is to remove or at the very least significantly reduce free allocation to new entrants in the energy sectors.

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Comments on NAPs

Denmark is together with Finland the only country in the study which have reduced the allocation to new entrants considerably. Just as in the first trading period, the allocation to new entrants is based on installed MW fossil-fuel electricity and heat respectively. The allocation in phase II is 1185 allowances per MW fossil-fuel electricity generation capacity installed (down about 30% compared to phase I). The heat generated in a CHP is allocated 305 allowances per MW fossil-fuel heat capacity (down 13% compared to phase I). This allocation is valid under the condition that the electricity-generating installation is expected to have at least 3 000 full load hours annually. If the full load hours are expected to be lower the allocation is reduced. If the installation solely produces heat the allocation is also reduced.

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