Allocation and Related Issues for Post-2012 Phases of the EU ETS Page: 5
i, 127 p. : ill.View a full description of this text.
Extracted Text
The following text was automatically extracted from the image on this page using optical character recognition software:
Criteria and Principles for Assessing Allocation and Cap-Setting Options
2.2.2. Functioning of the allowance market
A second aspect of the efficiency of the trading scheme relates to the proper functioning of
the allowance market. This aspect is related to the efficiency of abatement options, but can
be distinguished from it.
A number of commentators on the EU ETS have expressed the view that various market
participants may not behave "rationally" in the allowance market. This is most often
discussed in reference to whether installations or operators account for the opportunity to sell
unused allowances in the allowance market and thus consider emissions as an "opportunity
cost" (whether or not they have received any allowances for free). Failure to account for real
opportunity costs would be economically "irrational". If such "irrational" behaviour of
participants were in fact a real feature of the current allowance market, then it may be
appropriate to consider whether allocation could "correct" it. Certain allocation approaches
may be better able to do this than others.
Before considering potential corrective action, however, it would be important to assess the
significance of purported "irrational" behaviour, since there may be alternative explanations
for the apparent "irrationality." In particular, the high volatility followed by low prices that
have characterised the EU ETS during much of the first phase, combined with the widespread
uncertainty about future allocations, may have reduced incentives for operators to reduce
their emissions. If this were the case, decisions based on these incentives may be entirely
"rational," and may in fact reflect the expected opportunity costs that firms actually faced.
Thus care should be taken when considering ways to modify allocation to "correct" such
behaviour, to ensure that any "corrections" address real efficiency concerns.
2.3. Administrative Feasibility and Costs
Any initial allocation mechanism will entail some administrative costs to set up and manage
the system. These administrative costs include those incurred by governments and regulators
as well as those incurred by operators of covered emissions sources and other market
participants.
It is useful to organize criteria into the following two components:
* Costs to establish and maintain the allocation approach; and
* Transactions costs.
2.3.1. Costs to establish and maintain the allocation approach
The allocation of allowances can be data-intensive and require significant administrative
resources. Costs to authorities include the development and assessment of different
allocation methodologies, including consultation and negotiation with affected parties. They
also may include research efforts to develop benchmarks, growth projections, or other
components of the allocation formulae, as well as the collection and verification of baseline
data. Additionally, costs of allocation may be incurred through the execution of actual
allocation processes (such as auctions or free disbursements of allowances to registries) and
the development of associated information technology infrastructure. Stakeholders also areNERA Economic Consulting
Upcoming Pages
Here’s what’s next.
Search Inside
This text can be searched. Note: Results may vary based on the legibility of text within the document.
Tools / Downloads
Get a copy of this page or view the extracted text.
Citing and Sharing
Basic information for referencing this web page. We also provide extended guidance on usage rights, references, copying or embedding.
Reference the current page of this Text.
Harrison, David, Jr.; Radov, Daniel & Klevnas, Per. Allocation and Related Issues for Post-2012 Phases of the EU ETS, text, October 22, 2007; [Brussels, Belgium]. (https://digital.library.unt.edu/ark:/67531/metadc29374/m1/11/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; .