Free allocation of emission allowances and CDM/JI credits within the EU ETS

The first two trading periods of the EU Emissions Trading Scheme (EU ETS) included extensive free allocation of emission allowances.

Since the carbon price is passed on – in an economically rational way – to the electricity price in the electricity production sector, electricity producers were able to reap substantial additional revenue, a significant amount of which results from the free allocation of emission allowances. Taking into account the nuclear fuel tax (to be introduced in Germany from 2011 onwards) which also aims to absorb additional revenue from the EU ETS, the additional revenue for electricity producers from the first and second trading periods of the EU ETS considered in this paper are estimated to amount to € 39 billion (without nuclear fuel tax) or approx. € 34.8 billion (with nuclear fuel tax).