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An Erratum to this article is available Abstract The article investigates four alternative allocation schemes for emission allowances.

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The investigated schemes are emission-based allocation, production-based allocation with actor-specific emission factors, production-based allocation with benchmarking and production-based allocation based on data on best available technology BAT. All the examined schemes apply free allocation based on historical activities.

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No allocation scheme unambiguously meets all criteria. Each has its advantages and disadvantages.

Emission-based allocation schemes are most straightforward, transparent and are the easiest to implement. Production-based allocation schemes meet more of the criteria, but are more costly to implement and require more data.

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Data on BAT will not be available to the extent necessary in order to base an allocation scheme implemented for the trading starting on BAT. It is unlikely that any given allocation scheme will be perceived as fair by all concerned parties, no matter how sophisticated it is.

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The overall characteristics of the studied allocation schemes are summarised in the paper. Due to the lack of abatement cost curves, it is not possible to accurately model capital flows between the trading sectors. Data availability will most probably limit the options available to the authorities designing the allocation schemes.

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