The EU ETS is the only credible mechanism for establishing a common carbon price across Europe. Through this report, the authors conclude that
(1) the fundamentals of the EU-ETS Directive do not need to be renegotiated in principle,
(2) Free allocation should be greatly reduced,
(3) The Directive should stipulate a minimum not maximum level of auctioning by member states,
(4) Non-zero free allocation should constitute a temporary derogation for a few specific sectors whilst intergovernmental negotiations are pursued to explore the possibilities for state-based sector agreements and international agreement on border adjustments specifically designed to reduce leakage.
Type: Final paper