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EU Emission Trading - Economical Effects of Emission Auctions

image of EU Emission Trading - Economical Effects of Emission Auctions

In the third trading period (2013-2020) of EU ETS, around two thirds of the total European wide allocation will be auctioned on average. Allowances for auctioning will be allocated among the Member States according to a predefined formula. In order to prevent carbon leakage, i.e. migration of EU industries to other areas to avoid carbon costs, industries found to be exposed to high cost increases or industries with high trade intensity will still get free allowances, according to industry benchmarks. Free allocation reduces the number of allowances to be auctioned. The list of Industry sectors to be entitled to receive free allowances is going to be finally decided by the end of 2009. The report discusses the impact of allocation of free allowance for each of the Nordic countries, both in terms of free allocation to national industries and in terms of auctioning volume. Auctioning of emission allowances creates substantial revenues for the individual Member State. The EU ETS directive recommends that an amount equivalent to half of the income is earmarked for measures to combat climate change. The Nordic countries already spend more on climate combat than the recommendations require.

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Recycling of auction revenues

The main purpose of the EU ETS is to create an economic incentive to restructure energy production and shift consumption away from carbonintensive products. This is believed to be beneficial for the society in the long run by mitigating climate change.

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