Free Allocation

The practice, in an emissions trading system, of giving some allowances to covered companies free of charge rather than selling them at auction. It is usually based on benchmarks or historical output, and is typically used for sectors exposed to international competition to address the risk of carbon leakage.

Why it matters in the room

The share of free allocation and the schedule for reducing it are among the most negotiated details of any trading system, and they matter for trade discussions about whether a carbon price has actually been paid.