Evaluation of Alternative Initial Allocation Mechanisms in a European Union Greenhouse Gas Emissions Allowance Trading Scheme Page: 31
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Background on Emissions Trading and Initial Allocation 31
a. Facility Data Used (Input, Output, Emissions)
There are several facility-specific data that can be used to determine the shares allocated
to individual facilities. Three types of data have commonly been used in previous and existing
programmes: (1) fuel inputs, (2) product output, and (3) emissions. Combinations of these three
have also been used.
(1) Fuel or Other Input
Input-based mechanisms are fairly common, in part because the metric may be relatively
easy to measure. The most common "input-based" allocation mechanism is the use of "heat
input"-that is, the total energy content of fuel inputs, measured in joules or Btu-in allocations
to electric power generating facilities. Other input-based mechanisms have allocated allowances
based on the volume or mass of different types of fuels, with each fuel assigned a particular
allocation weight.22 Examples of allocation mechanisms using heat input include the U.S. SO2
allowance programme and the U.S. NOx programmes, which are described in Chapter III.
(2) Product Output
Output-based mechanisms determine initial allocations according to a recipient firm's
production levels. Output-based mechanisms become more complicated when trading
programmes include products that are not directly comparable, as when multiple sectors are
included. If output-based mechanisms are applied to a multiple sector trading programme, it
may be necessary to allocate to the individual sectors initially based upon more directly
comparable metrics such as heat input or emissions. Similar complications also arise for single
sectors with a heterogeneous product mix, such as the cement or pulp and paper sectors. The
same is even true with heat and power generators: electricity and heat are both forms of energy,
but it is not clear that they should receive the same allocation per unit of energy. If the
allocation is not based upon a simple equality, some decision must be made regarding the
appropriate "weighting factor" to use for each product when determining the allocation.
22 In cases where these weights represent "emissions factors," it may be more appropriate to classify the metric
under the emissions-based metrics described below.
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NERA Economic Consulting. Evaluation of Alternative Initial Allocation Mechanisms in a European Union Greenhouse Gas Emissions Allowance Trading Scheme, text, 2010; Brussels, Belgium. (digital.library.unt.edu/ark:/67531/metadc29350/m1/55/: accessed June 25, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; .