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This project aims to organise two workshop of experts in order to assemble knowledge in the EU ETS allocation process of Co2 allowances, to draw appropriate observations and lessons from it, and finally to suggest potential improvements for future rounds of the allocation process.

In January 2005, the world’s largest scheme for greenhouse gases has been launched in Europe. Allocation is the only aspect of the EU Emission Trading Scheme (ETS) that can be usefully studied now without waiting for the accumulation of more experience and data. Given the importance of the allocation process for the overall efficiency of any potential emission trading scheme, the process of allocating the emission allowances in Europe has attracted world-wide attention. The recent experience of the European Union in creating and allocating CO2 allowances to sub-national entities offers rich lessons, and the goal of the project is to make this experience more accessible and to draw appropriate observations and lessons from it.

A small group of experts was assembled by FEEM to participate in a thorough discussion and analysis of the issues related to allocating allowances in the EU ETS. Two workshops organised over the course of 2005 provided the occasion for those experts to report on the key issues they confronted during the allocation process, how they dealt with them and for which reasons they were resolved in a particular manner. The experiences of ten representative member states were written up and these contributions constitute the core of the book. In addition, a few selected external experts from academia, the media, and carbon market intermediaries contributed an informed and insightful comment from their vantage points.

Finally, an official from the European Commission (EC) provided his perspective on the process of guidance, co-ordination, review, and approval. To complete the detailed case studies of the participants, the editors conducted an analysis of the insights provided at the workshops and in the participants’ contributions in order to highlight the lessons learnt during the allocation process at the EU level and to suggest potential improvements for future rounds of the allocation process.

The final product of the project is a coherent and insightful analysis of the process by which these nations came to decide limits on CO2 emissions and to distribute the resulting rights to emit to the stationary sources that make up an important segment of their economies.

The project, coordinated by FEEM, in co-operation with Peter Zapfel from the European Commission and with scientific advice by Denny Ellerman from the Massachusetts Institute of Technology, USA, is funded by the European Commission. Its outcome is a book by Cambridge University Press.

The overall layout of the expected contributions was introduced and discussed at the first workshop organised by FEEM in co-operation with the European Commission and Denny Ellerman from the Massachusetts Institute of Technology (MIT). The workshop was held on 7-8 April 2005 at the FEEM Headquarters in Milan, Italy. Ten Member State experts were invited to contribute an informed and insightful perspective on the EU ETS national allocation process in 10 key EU countries. Four external experts coming both from politics and academics have been invited to contribute their experiences to the discussion in order to create a fruitful framework.

Summarizing, the first workshop was aimed at providing the occasion for focused discussions with the objective of:

  • developing an agreed-upon individual country outline that will include the important problems, issues, and lessons for all the selected Member States while also providing the needed unity and coherence in presentation;
  • sharing of views and information on the problems, issues, and lessons from the experience of the Member States.

Then, the second workshop held in Milan on 22-23 September 2005, served as an enforcing mechanism for the preparation of the participants papers and as an occasion to provide comments before the final revision. At the second workshop, the draft of the Member State experts papers based on the discussions of the first workshop were presented. The purpose of the second workshop was thus to build on the outcomes of the first workshop. In addition, it can be considered as the forcing mechanism for the papers and the occasion to provide comments before the final revision.

The written contributions represent the central piece of the projects final report, and were finalised by April 2006, after revisions in view of the comments received from other participants and extensively by the organisers. During this time, the organisers also finalised their introductory and summary chapters which were circulated to all participants for comments. After a phase of final review, the final report was submitted to and accepted by the European Commission in June 2006.

The objective of the final report is to perform as a casebook of use to the policy community and academics. Although not a part of this project, the organisers are in the process of publishing the final report of the project as an edited collection of articles on the allocation process in book form that will be accessible, objective, and useful to the policy community and academics. The book, to be published by Cambridge University Press, will offer the detailed insights arising from the project and is expected to be available by early 2007.

On January 1st, 2005, the EU Emissions Trading Scheme (EU ETS) scheme was officially launched, only two years after the European Council adopted the EU emissions trading Directive. As a consequence of this formal start, the worlds largest ever market in emissions has been established, and European companies now face a carbon-constrained reality in form of legally binding emission targets. Within essentially one year, 2004, the international carbon market has gained momentum through major policy developments and quick market responses, which among others have enabled the establishment of a framework for the EU carbon market. In particular the process of allocating the emission allowances has attracted world-wide attention given the potential lessons to be learnt for a variety of other emission markets.

The overall idea of this project is to gather experiences and lessons learnt in the national allocation of allowances related to the EU ETS. By putting together a small group of experts on the allocation process, a thorough discussion and analysis of crucial issues related to allocating allowances is to be started. Selected experts from key European Member States are invited to report on the crucial issues they have confronted during the allocation process, how they have dealt with them and for which reasons they have been resolved in a particular manner. In this context, also officials from the EC are expected to provide valuable inputs. In particular, an EC point of view on the process of guidance, co-ordination, review, and approval can be very helpful for identifying the weaknesses of the actual allocation process. In addition, a few selected experts from academia are invited to contribute with experiences observed in emissions trading schemes other than the European one. The invited participants are expected to provide written contributions on their experiences and lessons.