ABSTRACT
As the largest cap-and-trade market in the world, the European Union’s (EU’s) carbon emission trading system (ETS) 2 has received both praise and criticism. One early concern related to the allocation of emissions allowances. If allocated to regulated industries in excess of actual emissions, these permits can constitute hidden state aid; and, when distributed in a non-transparent manner, allowances can be a powerful tool to disburse unjustified subsidies, potentially becoming a hotbed for political favouritism.
