Energy Prices and Emissions Trading: Windfall Profits from Grandfathering?

26 Pages Posted: 16 Sep 2008 Last revised: 7 Nov 2014

See all articles by Edwin Woerdman

Edwin Woerdman

University of Groningen - Faculty of Law

Oscar Couwenberg

University of Groningen - Faculty of Spatial Sciences

Andries Nentjes

University of Groningen - Faculty of Law

Date Written: January 1, 2009

Abstract

The greenhouse gas emissions trading scheme in the European Union primarily uses grandfathering until 2012, which means that polluters get emission rights free of charge based on their historical emissions. Energy consumers accuse energy producers of making windfall profits by incorporating the market value of those free rights into the energy prices. However, we develop a numerical example to illustrate that the reasoning of the producers is correct. We also explain why this market value is only partly passed on to consumers. We consider various measures and conclude that only auctioning the rights after 2012 nullifies the additional profits.

Keywords: emissions trading, energy prices, windfall profits, opportunity costs, grandfathering, auctioning

JEL Classification: D21, D62, K32, Q48, Q54

Suggested Citation

Woerdman, Edwin and Couwenberg, Oscar and Nentjes, Andries, Energy Prices and Emissions Trading: Windfall Profits from Grandfathering? (January 1, 2009). University of Goningen Faculty of Law Research Paper 01/2009, Available at SSRN: https://ssrn.com/abstract=1268230 or http://dx.doi.org/10.2139/ssrn.1268230

Edwin Woerdman (Contact Author)

University of Groningen - Faculty of Law ( email )

9700 AS Groningen
Netherlands
+31 50 363 5736 (Phone)
+31 50 363 7101 (Fax)

Oscar Couwenberg

University of Groningen - Faculty of Spatial Sciences ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
31 50 363 3907 (Phone)

HOME PAGE: http://www.rug.nl/staff/o.couwenberg/?lang=en

Andries Nentjes

University of Groningen - Faculty of Law ( email )

9700 AS Groningen
Netherlands

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