At the moment, ambitious CO2 emission reduction goals co-exist with continued existence and even building of high-emission power plants in the Netherlands. This study identifies two explanations for this situation. First, long-term public policy regarding climate change is so vague that companies are not able to take them into account when they make investment decisions. It concerns, among others, the uncertain design of the European Emission Trading Scheme (EU ETS) after 2012. Second, the Dutch allocation mechanism of emission rights under the EU ETS appears to be biased towards high-carbon technologies and allows strategic firm behaviour. The policy consequences of these findings are twofold. First, efforts need to be undertaken to improve the distribution of emission rights among participants. Benchmarking can be done, but it should be as independent of historic use and fuel type as possible. The auctioning of emission permits is also an option. Whether significant alternations to the EU ETS system will be made and which changes are to be expected is, however, uncertain. It highly dependents on the political climate in Brussels and in other EU member states. Therefore, govern-ment regulation might also be needed in the short term. It would direct firms into the right direction by stimulating the adoption of no regret technical measures.