Auctions under the EU ETS

1
Auctions under the EU ETS

• Bill Thompson
• Carbon Expo, 28 May 2008

2
Auctions in EU ETS Phase 2

• EU ETS Article 10 requires
• Member States shall allocate 90 of allowances
  free of charge
• Disposal of non free allowances up to Member
  State
• Some Auctions
• UK Two auctions so far
• Structure of primary participants and indirect
  bidders
• Auction plans for 86m EUA in total via 6 auctions
  per annum
• Planned trial of non-competitive bid structure
  for smaller bids
• Austria Auction via Climex exchange platform
• The Netherlands Auction planned later in 2009
• Some Sales
• Germany currently sales via KfW bank selling
  spot and forward via 2 Exchanges
• Ireland EUA sold into market
• Norway (EEA) sales planned
• Latest news
• Germany plans for auctioning announced yesterday
  

3
Phase 3will be different

• Only auctions specified - no mention of sales
• From 2013 onwards, Member States shall auction
  all allowances which are not allocated free of
  charge Revised EUETS Article 10
• Quantum leap in auctioning scale
• Commission anticipates at least 60 of Phase 3
  cap for auctioning
• A tight and urgent timetable
• By 30 June 2010, the Commission shall adopt a
  regulation on timing, administration and other
  aspects of auctioning Article 10(4)
• In order to ensure an orderly functioning of the
  carbon and electricity markets, the auctioning of
  allowances for the period from 2013 onwards
  should start by 2011 and be based on clear and
  objective principles defined well in advance
  .Recital 22
• Commission consultation paper on Phase 3
  auctioning expected any day

4
Phase 3 EUETS on auctioning Shall and Should

• Shall
• Member States shall auction
• Commission (EC) shall adopt a regulation on
  timing, admin other aspects
• EC to ensure auctioning is conducted in an open,
  transparent, harmonised and non discriminatory
  manner
• Auctions shall be designed to ensure that
• Operators esp. SMEs to have full fair and
  equitable access
• All participants have access to same information
  at the same time
• Organisation and participation in auctions is
  cost efficient
• Access to allowances to granted for small
  emitters
• Member States shall report on each auction within
  one months

• Should
• The process should be predictable especially.
• timing and sequencing of auctions
• estimated volumes of allowances to be made
  available
• Proceeds from the auctioning of allowances should
  be used to cover administrative expenses of the
  management of the Community scheme.
• Allowances which remain in the new entrants'
  reserve in 2020 should be auctioned.

5
Phase 3 auctioning main points

• Auctions NOT sales
• Nothing to stop Member States from holding joint
  auctions
• Joint / central auctions using common auction
  platform is preferable
• benefits of simplicity / harmonisation/
  cost-efficiency invites participation by
  compliance buyers
• 27 Member States / 27 different platforms / 27
  contract terms / 27 sets auction rules / 27
  settlement conditions etc etc.is complex
  potentially expensive, and difficult to oversee
• Simple auctioning mechanism is preferable
• cost-effectiveness transparency benefits
• ensures SMEs have full, fair and equitable access
• Difficult to justify use of auction
  intermediaries E.g. UK Phase 2 system of primary
  indirect participants.
• Due to shall requirements of
• Operators, especially SMEs to have full, fair
  and equitable access
• All participants to have access to same
  information at the same time
• With huge increase in volumes, an early start is
  preferable