Empowering the EU ETS Allowance Market: Safeguarding Against Price Volatility and Carbon Leakage. TranSust.Scan Working Paper

Based on the experiences in phase 1 of the EU Emission Trading Scheme and the emerging evidence in phase 2 we suggest complementary activities within the framework of the decisions of December 2008 that empower the carbon market in phase 3. We analyse the controversies about price volatility and suggest an auctioning procedure with a reserve price. For the assessment of the risk of carbon leakage we state the difficulties for categorising the relevant industries and suggest a cooperative procedure with an active involvement of subsectors which also helps distributing the free allowances based on benchmark criteria.