LECOURT Stephen

The thesis focuses on the aggregated non-electric sector covered by the EU ETS. The contribution of the non-electric sector to changes in CO2 emissions during the first two phases of the market (2005-2012), from both the final demand and supply side, is compared to that of the electric sector. The implications of the free allocation of allowances to the non-electric sector during the third phase of the market (2013-2020) are examined, which is one of the first in-depth evaluations of the benchmarks established in Phase 3. It is shown that, from both the final demand and the supply side, the non-electric sector, due to its interdependencies and level of activity, contributed more to changes in CO2 emissions than the electric sector did during the period 2005-2012. It is also shown that, despite its redistributive effects, the free allocation mode by benchmarks as it has been defined, remains imperfect and is thus not commensurate with the central role of the non-electric sector in the functioning of the market.

Phase 3 of the European Union Emissions Trading Scheme (EU ETS. 2013-2020) sees the introduction of new rules governing the free allocations of emissions allowances given to energy-intensive industries. In contrast to Phases 1 and 2, allocations will be based on historical production multiplied by best available emissions technology benchmarks. This article exploits an original database to provide a first analysis of the distributional and economic efficiency implications of the new rules. It is shown empirically that the new allocation rules reduce the scope for windfall gains by EU ETS firms while also effectively mitigating carbon leakage risks, even assuming optimistic forecasts of Phase 3 carbon prices. The example of the cement sector is used to show that benchmarking significantly improves the harmonization of the levels of free allocations to competing firms throughout the EU compared to Phase 2. However, it is also found that the use of ex ante output levels to determine allocations still leaves considerable scope for windfall gains and possible distortions of the internal market.

From Phase 3 (2013-20) of the European Union Emissions Trading Scheme carbon-intensive industrial emitters will receive free allocations based on harmonised, EU-wide benchmarks. This paper analyses and evaluates the impacts of these new rules on allocations to key energy-intensive sectors. It exploits an original dataset that combines recent data from the National Implementing Measures of 20 Member States with the Community Independent Transaction Log and ETS-installation NACE code data. The analysis reveals that free allocations to benchmarked sectors will be reduced significantly, though not excessively, in Phase 3. This reduction should both increase public revenues from carbon auctions and has the potential to enhance the economic efficiency of the carbon market. The analysis also shows that changes in allocation vary mostly across installations within, rather than across, countries. Lastly, the analysis finds evidence that the new rules will, as intended, reward installations with better emissions performance, and will improve harmonisation of free allocations in the EU ETS by reducing differences in allocation levels across countries with similar carbon intensities of production.