Auctioning

The auctioning of allowances was brought in for Phase II of the EU ETS as a more efficient allocation method than free allocation. Auctioning encourages those who value allowances most to pay for them.

The UK’s Phase II National Allocation Plan (NAP II) states that the UK will auction 7 percent 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 percent limit set by the Directive. The 7 percent for auctions has been taken from the allocation which would otherwise have been given for free to the Large Electricity Producers (LEP) sector, as that sector is more protected from international competition and has greater potential for abatement than in other sectors.

The consultation on options for auction design closed on 14 March 2008. A formal response was published on 9 June 2008  - Formal response to consultation document on Phase II auction design.

For more information about auctioning in Phase III of the EU ETS, please see the Phase III section of the site. 

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. These Environmental Protection Emissions Trading Regulations came into force on 11 July 2008;
• The regulations have subsequently been amended to allow for criminal penalties;
• The Scheme sets out how auctions will be conducted and the terms governing participation. The Scheme was published by HM Treasury on 29 July 2008;
• HM Treasury has published The Community Emissions Trading Scheme (Auctioning of allowances) Scheme 2009. This replaces the Community Emission Trading Scheme (Allocation of Allowances for Payment) Scheme 2008. The amended Scheme implements a previous commitment to establish a non-competitive bidding facility especially designed for smaller emitters. The scheme was amended on 23 April 2009. 
• HM Treasury has published The Community Emissions Trading Scheme (Auctioning of allowances) (No.2) Scheme 2009. This replaces the Community Emissions Trading Scheme (Auctioning of allowances) Scheme 2009. The amendments in the Scheme clarify the maximum number of allowances able to be bid for in a non-competitive auction. The scheme was amended on 14 September 2009. 

Current auctions

Competitive auctions

The UK was the first Member State to hold an auction in Phase II of the EU ETS (in November 2008) and has held several auctions to date during the phase.

An auction schedule with dates and volumes for future auctions up to November 2011, plus all UK EU ETS auction results, are published on the UK Debt Management Office’s (DMO) website:

• Auction schedule and auction results on the Debt Management Office’s website

• Frequently asked questions on competitive auctioning

Non-competitive bidding facility

In September 2009, registration for a Non-competitive bidding facility was launched, specifically aimed at operators buying allowances for compliance purposes. It was discontinued as from January 2011.

DECC made this decision due to the low level of participation in these auctions. Information from EU ETS operators and market conditions suggests that the demand levels will not increase significantly during Phase II.

The UK competitive EU ETS auctions will continue to run as normal during Phase II. These auctions can be accessed via primary participants. Full information is available on the How to participate page.