The European Commission has published a comprehensive overview of allocation methods used to distribute pollution allowances in emission trading systems. Completed by consultants for the environment directorate, the study sets out the pros and cons of different methods. Auctioning emerges as marginally preferable in terms of economic impact.
EU governments are currently debating how to create the bloc's first emission trading scheme - for carbon dioxide releases (EED 13/12/01). The choice of allocation method promises to be one of the most difficult issues to settle, because of the potential for market distortion and the major sums involved. The report's authors estimate that euros 30bn worth of allowances will be distributed annually through the scheme.
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