New Entrant Allocation in the Nordic Energy Sectors: incentives and options in the EU ETS

In the EU Emission Trading Scheme (EU ETS), the treatment of new entrants has proven to be one of the most contentious issues. This paper analyses the impact of allocation to new entrants in the energy sector, and identifies options for improved regulation in this field. The point of departure for the discussion is a comparative analysis of the allocation in phase I and phase II of the EU ETS to two hypothetical energy installations should they be located in different EU Member States. The study focuses on the Nordic countries due to their integrated energy market. The quantitative analysis was complemented with interviews with policy makers and industry representatives. The results suggest that current allocation rules can significantly distort competition. The annual value of the allocation is comparable to the fixed investment costs for a new installation and is not insignificant compared to expected revenues from sales of electricity from the installation. The study finds that the preferred option would be that Nordic countries should not allocate free allowances to new entrants in the energy sector. This should be combined with adjusted rules on allocation to existing installations and closures in order to avoid putting new installations at a disadvantage. A second less preferred choice would involve harmonised benchmarks across the Nordic countries

Subscribe to our newsletter

Last updated: 2021-05-05

IVL Swedish Environmental Research Institute

About IVL

IVL Swedish Environmental Research Institute has a wide environmental profile. We combine applied research and development with close collaboration between industry and the public sphere. Our consultancy is evidence-based, and our research is characterized by interdisciplinary science and system thinking.

Contact

Ikon med telefon

+46 (0)10-788 65 00

Social media

Ikon med LikedIn
Ikon med twitter
Ikon med facebook

© 2015 IVL Svenska Miljöinstitutet AB | About Cookies | How we process personal data

Ikon med kryss
To top