Proposals for the early auction of allowances ahead of phase III of the EU emissions trading scheme (EU ETS) starting in 2013 have been welcomed by industry and other stakeholders. But there is still concern over whether new auctioning platforms will be in place in time.
The European Commission says the earliest auctions will occur in 2012, the last year of the current phase II, and be subtracted from the phase III cap for 2013 and 2014 . In a paper and consultation ending on 7 February, it proposes early auction of 100 to 300 million EU emissions allowances (EUAs).1
Early auctions of EU allowances for phase III are considered necessary for a smooth change from the second to the third trading period of the EU ETS, cutting price instability and ensuring “proper functioning of the market”. They are thought vital to the power sector, which buys big volumes as a hedge against later price spikes.
In its written response, the European power sector trade association Eurelectric broadly welcomed the proposed range of EUAs to be auctioned, favouring a volume nearer 300 million.
It rejects concerns that the auctions, if well-timed, could flood the market, pointing out the volumes would not be additional. It says they are crucial for a smooth transition and stopping “a severe risk of price spikes in the carbon market”.
Eurelectric also raises deep concerns that the new auctioning platforms and registry infrastructure may not be ready in time (ENDS Report 426, pp 53-54). Alongside the International Emissions Trading Association it calls for early auctions to test the new systems. A clear auction timetable needs to be released as early as possible
But research by analysts Point Carbon released at a stakeholder meeting in December 2010 suggests “there would be no need for early auctions” if 300 million allowances from the phase III new entrants reserve for newcomers into the scheme earmarked to raise revenue for carbon capture and storage and renewable projects were sold in 2012 (ENDS Report 427, pp 47-48).
The climate action directorate will now submit a draft amendment to the auctioning regulations for scrutiny by its climate change committee.