In its guidance on National Allocation Plans (NAPs), the European Commission has discouraged Member States from adopting allocation methodologies that would provide incentives to firms affecting their compliance behavior. The purpose is to promote economic efficiency and to prevent strategic...

This paper investigates abatement incentives for allowance allocation based on output and sector specific benchmarks, here called output based allocation or benchmarking. Special attention is given to updated allocation and we assume that allowances can be traded with other sectors (open cap)....