Climate Change and European Emissions Trading
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Climate Change and European Emissions Trading

Lessons for Theory and Practice

Edited by Michael Faure and Marjan Peeters

This timely book focuses on the EU-wide greenhouse gas emissions trading scheme for major sources. It combines legal and economic approaches and reviews the major revision of this scheme. A distinguished range of authors assess the experiences thus far and also consider future development from both theoretical and practical perspectives. They also discuss many design options, including auctioning, credit and trade, the inclusion of aviation emissions, and linking possibilities. Moreover, attention is paid to the role of legal principles, the role of case law, and to aspects of democratic accountability within an emissions trading scheme. Ways to avoid carbon leakage and the role of national climate policies are also discussed. This book makes clear that the economic efficiency and effectiveness of an emissions trading scheme depend to a large extent on the specific legislative choices, and hence the legislative design of such a scheme deserves meticulous attention.
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Chapter 5: European Emissions Trading and the Polluter-Pays Principle: Assessing Grandfathering and Over-Allocation

Edwin Woerdman, Stefano Clò and Alessandra Arcuri


Edwin Woerdman, Stefano Clò and Alessandra Arcuri* 1. INTRODUCTION The European Union (EU) holds an Emissions Trading Scheme (ETS) for carbon dioxide (CO2) and other greenhouse gases. This market has been up and running since 2005, based on Directive 2003/87/EC. It is a ‘cap-and-trade’ scheme that allocates emission caps to polluters. This means that their emission targets are based on absolute standards that define emission ceilings. When a polluter manages to keep emissions below his ceiling, he can sell this surplus in the form of emission rights, called ‘allowances’, to a polluter that wishes to increase emissions (e.g. Woerdman, 2005). To create political acceptability, ‘grandfathering’ has been used as the primary method of allocating the allowances. This means that polluters received most emission rights free of charge primarily based on their historical emissions, so that they did not have to buy rights in an auction. As stated in Article 10 of Directive 2003/87/EC, every EU Member State was required to allocate at least 95% of the allowances free of charge for the three-year period 2005–2007 and at least 90% of the allowances free of charge for the five-year period 2008–2012. However, a popular perception in the economic and legal literature is that grandfathering is inconsistent with the polluter-pays principle. ‘Free allocation * Corresponding author: Dr. E. Woerdman (Associate Professor of Law and Economics), University of Groningen, Faculty of Law, Department of Law and Economics, P.O. Box 716, 9700 AS Groningen, The Netherlands, Telephone + 31 50 363 5736, e-mail:...

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