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The EU must allocate fewer emission allowances and stop making free allocations
Date:9/28/2009

EU emissions trading has put a price on something that used to be free the right to pollute the atmosphere.

Allocating free allowances creates problematic expectations among companies; "If we emit a lot today, we'll be given a large number of emission allowances tomorrow." This runs completely counter to the idea of encouraging emission reductions, says the researcher Markus Wrke, at the University of Gothenburg, Sweden.

Markus Wrke is a researcher at IVL Swedish Environmental Research Institute Ltd, and in his doctoral thesis he examines European energy and climate policy, in particular emissions trading. He believes that the academic discussion on emissions trading made a relatively deep impression on the European Commission and the Swedish Government when the revisions of the EU ETS that will apply from 2013 were drawn up.

"It was disappointing that the negotiations between the Member States and the European Parliament then resulted in a somewhat watered-down decision. I nevertheless feel that my research is contributing to making the system better. It is worse that while I and other researchers identified shortcomings in the trading system early on, back in 2004, no serious changes will be made until 2013.

Wrke feels that the EU emissions trading system offers great potential and could play a key role in reducing European greenhouse gas emissions. With a correctly designed trading scheme, the EU can attain the targets that are set, at the lowest possible cost to society.

But in important respects the present-day system and rules provide incentives that are completely the opposite of what was intended. As emission allowances have been allocated free and on the basis of historical emissions, expectations have been raised that high emissions today can be rewarded tomorrow. As a result, investments in climate-efficient technology which would have happened if the emission allowances had instead been auctioned have probably be
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Contact: Karin Backteman
karin.backteman@economics.gu.se
46-317-862-595
University of Gothenburg
Source:Eurekalert

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