Managing new entrants in the emission trading system of the EUImpact study on the free allocation of CO2 emission rightsUploaded: 1 of January, 2004

The study analyses the problem of new entrants in the EU Emissions Trading System (ETS). Following the Directive and the relating documents the study discusses the definition and characteristics of new entrants, and the conditions of market entry. Besides analysing the provisions for new entrants within the documents launched for public consultation by the Hungarian Government, it examines the social institutions and the expected structure of the domestic emissions market. It also analyses the institutional alternatives of handling the state-owned emissions units and the Reserve Fund. The study furthermore reviews the possible links to other licensing procedures of the Hungarian Energy Office (HEO) concerning the establishment of new power plants, expansions of power plants, changing the fuel, the pause and final stop of the production. The study also gives a medium-term estimation of the expected new entrants capacity in the Hungarian electricity production sector, and their demand for carbon-dioxide allowances. The study gives recommendations for the HEO on the mentioned issues. The appendix reviews how other member countries National Allocation Plans (NAP) treat the issue of allowance allocation to the new entrants.

The second study analyses the possible effects of the free allocation and trade of the CO2 allowances on domestic electricity prices, with a special attention on the public utility prices. The first part gives price forecasts based on modelling the production decisions of the domestic electricity sector on the basis of the first (20. 9. 2004.) and second (8. 10. 2004.) version of the NAP. The second part of the study is a brief legal assessment trying to assess the chances that a free CO2 quota allocation leads to public utility price increase. This is a concern due to the possible claim of electricity producers involved in long-term supply agreements with the state for price increase due to their production cost increase.