Auctioning
Auctioning is viewed as a more efficient allocation methodology than free allocation because it encourages those who value allowances most to pay for them; it strengthens the aim of the EU ETS to establish a price for carbon that informs industry’s investment decisions and incentivises abatement.
Phase II (2008 – 2012)
The UK’s Phase II National Allocation Plan (NAP II) states that the UK will auction 7% of allowances – approximately 85 million across the phase – plus any surplus from the New Entrant Reserve (NER) and allowances from closures up to the 10% limit set by the Directive. The 7% for auctions has been taken from the allocation which would otherwise have been given for free to the Large Electricity Producers sector, as that sector is more protected from international competition and has greater potential for abatement than in others sectors.
Government’s consultation on options for auction design closed on 14 March 2008 and Government published its response on 9 June 2008. 9 June 2008 - Government response to consultation document on Phase II auction design
Legislation
The powers to auction are within the Finance Act 2007. The legislative framework for auctions comprises Regulations and a Scheme made by HM Treasury. The Regulations came into force on 11 July 2008 and can be found at: http://www.opsi.gov.uk/si/si2008/uksi_20081825_en_1 The Scheme sets out how auctions will be conducted and the terms governing participation. The Scheme was published by HM Treasury on 29 July and can be found at: http://www.hm-treasury.gov.uk/media/4/E/euetsscheme290708.pdf
Further information
For FAQ on the Scheme click here (PDF 22KB)
Details on the role of intermediaries (known as Primary Participants) in the auctions can be found here
Phase III
The Review
The UK recognises the need to improve the efficiency of the EU ETS and considers the increased use of auctioning to be an important element in this reform. The UK position is under development but our initial position is as follows:
- The Review should consider the benefits of a mandatory minimum level and flexibility for Member States to go further if they choose, for example to capture windfall profits.
- The chosen allocation methodology post 2012 should create the right incentives for industry to price the cost of carbon into their investment decisions.
- The long term ambition should be towards 100% auctioning; however, we recognise that a phased approach will be needed, particularly until there is a global carbon market. We expect solid evidence from industry to support its concerns about auctioning, and any potential exemptions should only be considered using a robust system.
Page last modified: 30 July 2008
Page published: 8 September 2003