Phase II EUETS Allowance
Auctioning in the UK
Lee Oliver
Workshop on EU Emission Trading Scheme – Monitoring, Reporting
and Verifying Requirements
Belgrade, Serbia 7-8 May 2012
EUETS Allowance Auctioning
Allowance Auctioning
• UK first member state to auction EUETS
allowances.
• Regular auctioning has also been carried out in
Germany.
• Austria, Ireland, Lithuania and The Netherlands
have also carried out some auctioning / direct
sales.
• More countries likely to undertake auctioning /
sales of new entrant reserve allowances before
end of Phase II.
EUETS Allowance Auctioning
Why Auction?
• Helps businesses take account of full cost
of carbon.
• Creates incentive to change behaviour
and reduce energy consumption.
• Free allowance mechanism requires
complicated benchmarking.
• Windfall profits from free allocations, but
also losers.
EUETS Allowance Auctioning
Directive Requirements
• Auctioning conducted in open, transparent, harmonised
and non-discriminatory manner.
• Predictable process.
• Full, fair & equitable access for small and medium sized
enterprises (including small emitters).
• All participants should have access to the same
information at the same time.
• Appropriate legal framework to minimise risk of money
laundering, terrorism financing, financial crime, insider
dealing or market manipulation.
• Avoid undue administrative costs.
EUETS Allowance Auctioning
UK Phase II Auctions
• UK National Allocation Plan (NAP) for Phase II set aside
7% of allowances for auctioning (~85 million allowances
from 1.2 billion cap).
• These were taken from allowances that would otherwise
have been given free to Large Electricity Producers.
• Further allowances available from New Entrant Reserve
and closed installations.
• Auction model developed following public consultation.
• Consultation document developed by industry, public
sector and academia.
EUETS Allowance Auctioning
Number of Allowances Auctioned in
Phase II (millions)
• Graph.
• 4 (2008), 25 (2009), 35.8 (2010), 30.7
(2011), 19 (2012)
EUETS Allowance Auctioning
Competitive Auction Process
• Each auction announced at least two months in advance
with number of allowances to be auctioned at least one
month in advance.
• Auctions open to anyone holding a UK EUETS Registry
account.
• Participants submit bids through an intermediary
(‘primary participant’) who has direct access to the
auction.
• Auctions held by UK Debt Management Office using
experience of auctioning UK Government Securities,
Treasury Bills etc.
• Independent observer oversees auctions.
EUETS Allowance Auctioning
Primary Participants
• Participate on own behalf and on behalf of
others.
• Need to meet eligibility criteria; UK EUETS
Registry account, office based in EEA State etc.
• Large financial institutions;
 Easily checked by Government.
 Good credit.
 Can afford cost exposure of large allowance
purchases.
 ‘Chinese Walls’.
EUETS Allowance Auctioning
Primary Participants
• Carry out checks to guard against potential
money laundering; check financial standing of
bidders.
• Indirect bidders choose primary participant to bid
through.
• Primary participant obliged to take on any
indirect bidder (unless good reason not to).
• No charge made to indirect bidders; primary
participant receives a discount from Government
on the price of each allowance.
EUETS Allowance Auctioning
Bidding and Allocation
• Sealed bids only; no sight of other participants’ bids
(price or size).
• Submitted via Bloomberg electronic platform or by
telephone during two hour bidding window.
• Bids ranked and allocated on descending price basis
until cumulative total reaches total of allowances
available = clearing price.
• Those who bid above clearing price receive full
allocation, those below receive no allowances.
• Money goes to Government consolidated fund for
general purposes.
EUETS Allowance Auctioning
Allowance Price
• Allowances not be sold for less than reserve
price.
• Calculated by applying a discount rate to
prevalent secondary market price.
• If triggered reserve price only announced at
auction end.
• Full payment required within two working days of
auction.
• Allowances allocated within three working days
via UK EUETS Registry.
EUETS Allowance Auctioning
Non-Competitive Auctioning
• From January 2010.
• Smaller buyers usually buying to comply.
• Bid for up to 10,000 allowances at clearing price
determined by competitive auction.
• Non-competitive bidding not in excess of 30% of
total allowances available.
• Discontinued; little interest owing to current
surplus of available allowances.
EUETS Allowance Auctioning
Phase III
• Most Phase II allowances allocated free.
• From 2013 expected that approximately half of
allowances will be auctioned.
• No free allowances for electricity production.
• Limited derogation for some EU member states until
2020.
• Installations continuing to receive free allowances
required to invest in modernising electricity generation.
• Sectors identified as exposed to carbon leakage will
continue to receive free allowances based on ambitious
benchmarks.
EUETS Allowance Auctioning
Common European Platform
• Auctioning Regulation; may require changes to national
laws.
• Call for tender currently out for transitional common
auction platform.
• Germany, Poland and the UK (fiscal security policy)
decided to appoint their own auction platforms.
• UK platform to be run by International Climate
Exchange.
• Commission will verify that these satisfy rules of the
Auctioning Regulation and EUETS objectives.
• Auction monitor assigned to survey auctions on all
platforms.
EUETS Allowance Auctioning
Common European Platform
• Each member state will have an allowance share
and will receive income from it’s auctioning.
• Anyone will be able to bid, subject to security
checking procedures.
• May be some limits on amount of allowances that
can be purchased.
• Possible delay between bidding and receiving
allowances.
• EUETS Registry account required by all potential
bidders.
EUETS Allowance Auctioning
Auctioning of Aviation Allowances
• First UK auction of aviation allowances end
2012.
• Conducted via UK Phase III national platform.
• Aviation allowances kept separate from
installation allowances.
• Future allowances via EU common platform and
national platforms.
• Auctions likely to be at separate times to avoid
confusion.
EUETS Allowance Auctioning