The windfall dilemma

The EU Emissions Trading Scheme (EU ETS) is aimed at allowing the market to determine the most efficient way of reducing greenhouse gas emissions. Like the US sulphur dioxide emissions trading regime, the EU ETS is a 'cap and trade' system, where total emissions are capped by limiting the overall allowance granted to emitting facilities. Critically, facilities such as power generators can trade their allowances, which introduces an open market dynamic.

The advent of the EU ETS has, however, c