Grandfathering CO2 Emission Allowances

ECN report by J.P.M. Sijm, K.E.L. Smekens, T. Kram, M.G. Boots, ECN-C--02-022

The Energy research Centre of the Netherlands (ECN) has finalised a new report entitled "Economic Effects of Grandfathering CO2 Emission Allowances". The report analyses the potential capital transfers between economic sectors resulting from the grandfathering of tradable CO2 emission allowances in Western Europe over the period 1990-2030. Four different policy variants of grandfathering are studied by means of a bottom-up optimisation model called MARKAL-MATTER. In addition to the potential capital transfers, the study estimates the abatement costs of these policy variants.

One of the main conclusion of the report is that capital transfers among economic sectors due to grandfathering are sensitive to the policy variants considered as it can affect both the size and the direction of these transfers. As a percentage of industrial output, however, these capital transfers are generally rather modest, although they are more substantial in a variant covering all emissions than in a variant covering the emissions of the exposed sectors only. Moreover, in all policy variants, they can be quite significant at the disaggregated level of individual sectors.

The full report can be downloaded as pdf file from the ECN website: Making the Kyoto Protocol operational - Kyoto Mechanisms For more information on the report please contact (e-mail): Jos Sijm.