Allocation and Related Issues for Post-2012 Phases of the EU ETS Page: 35
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Options for "Cap-Setting"
between sectors, Member States, etc.) would be affected. Projections could be based on data
gathered prior to the start of the ETS, but in practice it seems more likely that the most recent,
up-to-date information would be used for each phase. (There are arguments for both
approaches, which we consider in the evaluation section.)
Projections could be calculated in a variety of ways. The "simple" approach envisaged here
would be to apply growth rates and rates of change of energy- and emissions-intensity to the
various sectors (the ETS and non-ETS sectors, and possibly individual sub-sectors), as a way
of developing the overall ETS share of the total.
Projections could be based on expectations with or without the EU ETS and various other
climate-related policies-depending on views of what would represent the fairest baseline.
It also would be possible to use business as usual ("BAU") projections for one sector (e.g. the
non-ETS sector) and to tighten the cap for the other sector accordingly.15 This would place
the cost burden squarely on the latter sector.
4.2.3.4. Benchmark-based approaches
A fourth approach would depart from the emissions-based approaches described in the three
preceding sub-sections, and instead use other "metrics" to determine each sector's
contribution to the overall cap. We classify all of these under the heading of"benchmarking"
approaches to cap-setting.16
One option for sectors with relatively homogeneous outputs would be to use output data-
pre-ETS historical, post-ETS, or projected-multiplied by an appropriate GHG intensity
benchmark. Such benchmarks could be uniform across the EU, or they could be
differentiated by technology, fuel, other inputs, or region.
For sectors with less homogeneous output, production-based benchmarking would still be
possible. Output data would need to be aggregated into a suitably concise measure-such as
gross value added-and then combined with a GHG-intensity reduction factor that was
consistent with expectations or aspirations of what the sector would achieve.17
As with approaches based on emissions projections, it is likely that the final level of
emissions implied by the application of benchmarks and/or intensity improvement factors
will not be exactly consistent with the overall EU emissions target. Thus it may be necessary
to apply an adjustment factor to make the benchmarked emissions consistent with this overall
target. The adjusted emissions level for those sectors covered by the EU ETS would become
the EU ETS cap. The implication of this adjustment is that benchmarks that are intended to
1 This is similar to the approach to allocation taken by some Member States in Phases I and II. Some Member States
allocated projected emissions to the non-power sector and allocated only the residual amount left over within their
approved total allocation to the power sector.
16 Note that the application of rates of change in energy-intensity and emissions-intensity to projected emissions described
in the previous section is a version of "benchmarking" that could be applied across the economy.
17 Other forms of benchmarking could be used to set Member State shares without reference to individual ETS sectors,
their outputs, or their emissions intensity. For example, Member States could be assigned shares based on (projected)
population levels or (projected) levels of overall economic activity.NERA Economic Consulting
35
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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/m1/41/: accessed April 23, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; .