Towards Auctioning

Emissions trading systems have come to the fore as the most economically
efficient mechanisms that can be employed to bring about an optimal greenhouse
gas reduction goal. Even though much has been written about the advantages and
disadvantages of these systems, one element of crucial importance and#8211; emission
allowance allocation and#8211; has not been considered in adequate depth until the
present study. Such an analysis takes on increased importance as it seems
likely that market-based auctioning will become the default allocation method
throughout the EU under a proposed amendment to the Emissions Trading System
(ETS) established by Directive 2003/87/EC.

Taking a law and economics approach and#8211; that is, using a combined perspective of
industrial economics and legal analysis and#8211; this important book examines the
potential for anticompetitive distortion that may result from auctioning
emission allowances. Among the issues investigated in depth are the following:

-
whether the current setup of the EU ETS fosters allocative efficiency or
whether this allocative efficiency is hindered by legal impediments or
constraints;

-
whether EU competition law can serve to remedy anticompetitive effects
stemming from Member State actions taken pursuant to Directive 2003/87/EC;

-
which allocation formats are most desirable from an allocative efficiency and
environmental effectiveness point of view;

-
the importance of initial allocation and adjustment of out-of-equilibrium
situations under the amended ETS;

-
whether auctioning allowances serves the attainment of market equilibrium even
in the continuing presence of and#8216;polluter havensand#8217;

-
the effect of the ECJand#8217;s so-called and#8216;joint application jurisprudenceand#8217; on the
ETS; and

-
the allocation of allowances from a state aid perspective.

The book provides both a coherent typology of emission allowance allocation
mechanisms and the main characteristics of the present emissions trading
system, setting the gained insights into a broader perspective. It examines
how various assignment mechanisms deal with issues such as price
determination, allocative efficiency and environmental effectiveness. It
considers how market-based allocation mechanisms compare with administrative
allocation mechanisms, particularly those based on the widely applied
grandfathering method. And perhaps most important and#8211; and of especial value to
practitioners and policymakers and#8211; it identifies the auction design challenges
that must be addressed by the Commission in its implementing regulation due by
30 June 2010.