First Movers Compensation

The planned reforms of the European Union Emissions Trading System (EU ETS) have increased uncertainty about the future development of emission allowance prices. Falling prices could weaken the economic case for lower-emission industrial production and jeopardise the expected emission reductions from investments already committed to. Against this background, KlimaUnion asked adelphi to examine a targeted instrument to protect industrial frontrunners from low certificate prices.

The paper examines how a compensation instrument could safeguard emission reductions if EU ETS prices turn out lower than investors expected. It considers who could be eligible, what form the support could take, how it could be allocated, and how long it could be granted. The aim is to set out the practical design of such an instrument, not to argue for or against it.

adelphi developed the conceptual design of the instrument and assessed eligibility requirements, the type and allocation of support, and its duration against criteria such as effectiveness, efficiency and practical feasibility. Building on this, adelphi estimated the possible costs of the first phase.