Alignment Between Verified Emissions and Freely Allocated Allowances under the EU ETS : An Analysis of Allocation Stringency in the EU27 from a Longitudinal (2005-2024) and Cross-Industry (iron and steel, cement and aluminium) Perspective

Sammanfattning

This study examines how verified emissions and freely allocated allowances have aligned within the European Union Emissions Trading System (EU ETS) during the period 2005-2024. Although the EU ETS has been widely implemented across the EU-27, concerns remain regarding system stringency and how freely allocated allowances correspond to firms actual emissions. Previous research has also highlighted the influence of external economic and market conditions on the development of the EU ETS. The purpose of this study is to assess how the alignment between verified emissions and freely allocated allowances, interpreted as an indicator of allocation stringency, has evolved over time and how it differs across industries. The industries examined are iron and steel, cement and aluminium, which were selected due to their high carbon intensity and the reliability of EU ETS data. A descriptive longitudinal research design is applied, based on secondary quantitative data from the EU ETS covering all EU-27 Member States. The results indicate that the aggregate compliance ratio changed over time, but not as one continuous linear trend. The results further indicate that allocation stringency differs across industries. The study contributes to existing EU ETS research by providing a longitudinal analysis of allocation stringency across all four phases of the system. Future research could build on these findings by using installation-level data or applying research designs better suited for causal analysis.