KAPSARC – To Auction or to Give for Free: Does the Allowance Allocation Regime Matter for Renewable Deployment in the EU

This report analyzes the impact of the allowance allocation regime within the EU Emissions Trading System on renewable energy deployment.

It finds that the choice between auctioning and free allocation of allowances does not significantly affect renewable deployment. Fossil fuel use is more influenced by cost pass-through than allocation regime. Renewables expanded across all EU ETS countries in Phase III, with similar deployment pace regardless of allocation method. Policy effectiveness depends more on governance and enforcement than on allowance allocation design.