EUETS Allowance Auctioning Phase II EUETS Allowance Auctioning in the UK Lee Oliver Workshop on EU Emission Trading Scheme – Monitoring, Reporting and.

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Presentation transcript:

EUETS Allowance Auctioning 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 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 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 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.