This report presents an update of the findings of the TemaNord2006:516. The original report showed that phase I allocation plans can distort competition between fuels, technologies and member states. This update shows that there is little evidence of progress in phase II. The report concludes that competitiveness of member states, fuels and technologies is likely to be distorted by allocation methodologies for new entrants in the energy sector in phase II of the EU ETS. The recommendation for the future is to remove or at the very least significantly reduce free allocation to new entrants in the energy sectors.