EU Member States agree on auction rules as of 2013

On 14 July 2010, the EU Member States unanimously agreed on detailed rules for auctioning most of their carbon permits after 2012, when the next phase of trading starts under the EU Emissions Trading Scheme (EU ETS) For the aviation sector it will commence in 2012.

The draft Regulation foresees a common auction platform for the Member States. Member States who prefer to have their own platform are allowed to ‘opt-out’ of the central platform as long as certain rules and conditions are fulfilled. The national platforms will be coordinated with the common auction platform.
In a press release, the Commission stated that “a common auction platform is expected to be the most cost-efficient approach for Member States and bidders. The Commission considers that a common platform best ensures respect for the principles of non-discrimination, transparency and simplicity, provides the best guarantees for full, fair and equitable access to small and medium-sized enterprises covered by the EU ETS and small emitters, and best minimises the risk of market abuse.” According the press release of the Commission,” It still remains to be seen whether small and medium-sized enterprises will take part in the auctions directly. Most likely they will keep on trading via banks (or some via energy suppliers), which might be a better solution as most of them neither have the skills nor the resources to actively take part in trading on their own.

The commission would have preferred a single platform, but some member states insisted on the possibility to have their own platform. Germany, Poland, Spain and the U.K. had asked for individual auctions. Connie Hedegaard, European Commissioner for Climate Action, said: "I am satisfied to see that Member States have found a compromise which will provide a basis for a solid common auction platform and that Member States can opt out of this common platform provided they meet certain criteria that ensure the proper functioning of auctions and the carbon market."

The auction format will be “single-round, sealed-bid, uniform-price". This means that the bids will be served starting with the highest and the uniform price will be the lowest price at which the full volume can be sold. The bids will not be visible. The dates and volumes of the auctions will be published almost one year in advance within the auction calendar.

The EU, which has given away the majority of allowances at no cost since it started its cap-and-trade programme in 2005, will require most emitters to purchase their allotment of permits during the phase starting in 2013 and running through to 2020. The industry in principle starts with an auctioning share of 20% in 2013 rising up to 70% in 2020. Due to the so called carbon leakage rules, most industry sectors will still start with free allowances in 2013.
In the current phase only 5 percent of the emission permits are auctioned and this amount to 50 percent in 2013 (around 1 billion allowances),which will be a radical change for the companies involved. Climex is worried that many smaller and medium sized industries are not fully aware of the consequences yet and not prepared for what will come.

It is still unclear what the volume of allowances auctioned before 2013 will be. The electricity producers have said they need phase-three permits immediately to hedge the risk of power they are selling now for delivery in 2013 and beyond. West European utilities will no longer get free permits in the third phase, while east European power plants will have to buy 30 percent of their permits at auctions, with the amount rising to 100 percent by 2020. The volume of allowances to be auctioned in 2012 will be discussed and defined later.

The vote on the auctioning regulation starts a three-month scrutiny period where the European Parliament and the Council can raise objections, after which the measure will be adopted by the commission. The Commission states that it “will start the preparations for the procurement of the common auction platform, jointly with the participating Member States, without delay.”

Currently Austria, Germany, the Netherlands and the UK are auctioning EUAs. Climex will be executing the auctions for Austria and the Netherlands. Austria has organised 3 auctions since the start of the second Phase in 2008 and has planned further auctions each year for a total volume of 400,000 allowances. The Dutch auctions will take place around October and will have a volume of 4 million EUAs.
In the UK the Treasury is auctioning through banks. They have already held 13 auctions, each of them with a volume between 4 and 4.4 million EUAs and an average annual quantity of 17 million all the auctions were spot auctions. Germany has weekly platform auctions with 300,000 EUAs on the spot market and 570,000 futures with an average annual quantity of 40 million.