Allocation method

Because dairy cows or calves are culled for meat production, four different methods to allocate the enviromnental emissions at the farm and outside the boimdary of the fluid milk supply chain may be used (Cederberg and Stadig, 2003). The allocation method assumes, (1) no allocation is used and only milk production impacts the enviromnent ... 

All-in dyeing method, 9 177 Allinger force fields, 26 744, 745 All-in paste, 9 216 Allocation methods, in life cycle assessment, 24 815 Allomone, 24 473 Allo-ocimene, 24 490, 495 oxidation of, 24 491 Allo-ocimene diepoxide, 24 491 Allo-ocimene epoxide, 24 491 Allo-ocimenols, isomeric, 24 490 All-organic transistors, 22 222-223 D-Allose, 4 698... 

The ALLOC method with Kernel probability functions has a feature selection procedure based on prediction rates. This selection method has been used for miik >s5) and wine > data, and it has been compared with feature selection by SELECT and SLDA. Coomans et al. suggested the use of the loss matrix for a better evaluation of the relative importance of prediction errors. 

Occupancy expenses such as rent, utilities, and other facility costs often are allocated using a square-footage allocation method. Under this method, costs are allocated to the prescription department using the percentage of the store square footage occupied by the prescription department. For Good Service Pharmacy, this percentage is 25.8 percent. 

The typical allocation method for other indirect expenses is percent of sales. Since the prescription... 

The details of allocation methods matter new entrant, closure, and incumbent allocation rules all affect the incentives, pricing and efficiency of the scheme. 

Table 1. Effect of allocation methods to power sector incumbents...

Changes in profits due to ET-induced changes in production costs and power prices. This category of profit changes is independent of the allocation method. In fact, the estimation of this category of profit changes is based on the assumption that all companies have to buy their allowances and, hence, that C02 costs are real costs. 

The economically efficient allocation methods are auctions or a one-off free allocation of allowances. The first set of impacts will result if allowances are only allocated in the future, if the power stations are operational today. The value of future allocations delays closure of plants beyond their socially efficient lifespan. This effect is reinforced if the amount of allocation increases with the C02 intensity of the technology. With such technology-specific allocation, more C02-intensive technologies receive additional encouragement to stay operational, further delaying the shift towards less C02-intensive power stations. 

Figure 9. Effect of various allocation methods on England Wales C02 emissions in period 2008-2012 (assuming fixed C02 price on C02 emissions). NEA = new entrant allocation, UB = uniform benchmark, FS = fuel-specific benchmark, OB = output-based.

Figure 10 illustrates the impact on electricity prices of the different allocation methods for the same England Wales cases. The simulations are run on the assumption that European C02 prices are not affected by the changes of C02 emissions in the UK. If various EU countries implement allocation plans that would increase national C02 emissions, then this assumption is no longer valid, and C02 prices will rise and feed through to higher electricity prices. 

Table 3 summarizes the impact of different allocation methods examined for our GB simulation which are based on the assumption that the UK emission pattern will have limited impact on the European allowance price, which is therefore set as fixed. 

Figure 10. Effect of various allocation methods on England Wales prices in period 2008-2012 on electricity price (assuming fixed C02 price).

Fuel-specific benchmarks applied to existing power stations create incentives to shift production towards more C02-intensive generators. Whether we refer to fuel-specific updating or NE allocation, for any given price of C02, these allocation methods will result in C02 emissions in excess of the auctioning case. If operators and investors expect that future NAPs are similar to current NAPs, then they anticipate receiving fuel-specific allocation in the future. If the C02 budget were fixed, this would imply that C02 prices, and hence electricity prices, would have to rise. 

It is essential to disentangle these two effects since, as we shall see, different allocation criteria would impact them in completely different - and often opposite - ways. Hence, in the present article, we analyse two contrasting allocation methods. In the former, labelled grandfathering (GF), the number of free allowances a firm gets is independent of its current behaviour. As we demonstrate later, this assumption applies well to the US S02 trading system, but much less to the EU ETS. 

In the latter, labelled output-based allocation (OB), firms receive allowances proportional to their current production level - sometimes known as intensity-based allocation. In its pure form, this allocation method is currently excluded by the Commission, because it amounts to an ex-post adjustment (allocation dependent upon behaviour during the same trading period), but it does incorporate some features of the real-word allocation method. Notably, repeated allocation over sequential periods gives the potential for updating based on output or emissions in the previous period, which offers a weaker (deferred) form of output-based allocation, as detailed in Section 2. The allocation methods used by Member States in phase 1 thus stand somewhere in between our two polar cases, and so are the methods allowed by the directive for phase 2. 

Compared to auctioning or grandfathering, all these features constitute an incentive for firms to increase their production level. Unfortunately, modelling the precise features of all 25 NAPs would be very difficult the allocation methods differ across Member States, and the NAPs for 2008-2012 are not yet decided. Instead we shall model two extreme cases, knowing that the actual allocation method in the EU ETS stands somewhere in between them ... 

A simple theoretical model will help us understand how the two allocation methods differ. Let us take a set of N homogeneous firms competing under Cournot competition with a linear demand curve on the goods market. These firms choose an output and an abatement level in order to maximize their profit ... 

Equation 5 is the usual condition of equalization of the marginal abatement cost to the price of C02, which is unaffected by the allocation method. This result is consistent with (and is indeed the basis of) Tietenberg s conclusion above. 

According to the latest observations on the EU electricity market and to the emerging windfall profits debate in the EU, we assume that power generators have the ability to pass on to electricity customers 100% of their extended cost rise. For the sake of convenience, this rise in a given country equals the C02 price multiplied by the national unitary emission of the power sector, whatever the allocation method for the cement industry may be - as if the allowances in the electricity sector were always grandfathered. 

Finally the allocation method - notably the updating criteria, the treatment of new entrants and the closure rules - turns out to be a variable of importance to determine the competitiveness impacts and the C02 emissions reduction achieved at the world level under the EU ETS. 

Second, the allowance price depends on the allocation method, not only in the cement sector, but in the whole set of sectors covered by the EU ETS, especially power production. For a given emissions cap (or amount of allowances allocated), the allowance price would be higher under output-based allocation than under grandfathering. 

As already noted, an exception may apply when the allocation method has perverse dynamic effects, as discussed in Section 2.5. 

Article 10 regulates the allocation method and foresees that in the first trading period at least 95% of the allowances have to be allocated... 

Alongside the fundamental allocation procedure according to the grandfathering principle, a decision had to be taken as to whether or not the differences for the allocation to individual installations should be made dependent on their sectoral classification. Allocation differentiated by sector - in principle the definition of sector caps - only played a secondary role in the whole discussion process on the allocation methods. In retrospect, two reasons were decisive for this ... 

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