Woerdman, Edwin; Clò, Stefano; Arcuri, Alessandra --- "European Emissions Trading and the Polluter-Pays Principle: Assessing Grandfathering and Over-Allocation" [2008] ELECD 417; in Faure, Michael; Peeters, Marjan (eds), "Climate Change and European Emissions Trading" (Edward Elgar Publishing, 2008)

Book Title: Climate Change and European Emissions Trading

Editor(s): Faure, Michael; Peeters, Marjan

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847208989

Section: Chapter 5

Section Title: European Emissions Trading and the Polluter-Pays Principle: Assessing Grandfathering and Over-Allocation

Author(s): Woerdman, Edwin; Clò, Stefano; Arcuri, Alessandra

Number of pages: 23

Extract:

5. European emissions trading and the
polluter-pays principle: assessing
grandfathering and over-allocation
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 emis-
sion 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 histori-
cal 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 2005­2007 and at least 90% of the allowances free of charge for the
five-year period 2008­2012.
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), ...