Harmonising New Entrant allocation in the Nordic Energy Sectors - current principles and options for EU ETS phase II

The study finds that current allocation rules does have an impact on investment decisions, and can significantly distort competition if they remain unchanged. As a first best solution, the authors recommend that the Nordic countries do not allocate free allowances to new entrants in the energy sector. Instead operators would have to buy allowances, either from the government or on the open market. This should be combined with adjusted rules on allocation to existing installations in order to avoid putting new installations at a disadvantage compared to existing installations. Finally, the authors recommend that the Nordic countries investigate what options are available to provide greater certainty in the allocation, for instance through allocating allowances for longer periods into the future