Auctioning is the default method of allocating allowances within the EU emissions trading system (EU ETS). This means that businesses have to buy an increasing proportion of allowances through auctions. In 2013 over 40% of all allowances will be auctioned, and the ETS legislation sets the goal of phasing out free allocation completely by 2027. Auctioning is the most transparent allocation method and puts into practice the principle that the polluter should pay.
Two auction platforms are already in place. The European Energy Exchange (EEX) in Leipzig is the common platform for the large majority of countries participating in the EU ETS. EEX also acts as Germany's auction platform. The second auction platform is ICE Futures Europe (ICE) in London, which acts as the United Kingdom's platform.
An open, transparent, harmonised and non-discriminatory process
The auctioning of allowances is governed by the EU ETS Auctioning Regulation. This covers the timing, administration and other aspects of auctioning to ensure it is conducted in an open, transparent, harmonised and non-discriminatory manner. The Auctioning Regulation seeks to put into practice a number of criteria which the revised EU ETS Directive states auctions must meet, such as predictability, cost-efficiency, fair access to auctions and simultaneous access to relevant information for all operators.
Transitional free allocation for power generators in eight Member States to help modernise production
For the power generation sector, the rule is that operators no longer receive any free allowances but have to buy them. The experience of the first two trading periods shows that power generators have been able to pass on the notional cost of allowances to customers even when they received them for free.
However, eight of the Member States which have joined the EU since 2004 - Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Poland and Romania - have made use of a derogation (under Article 10c of the revised EU ETS Directive) which allows them to give a decreasing number of free allowances to existing power plants for a transitional period until 2019. Latvia and Malta were also eligible to use this derogation but chose not to.
The European Commission has taken positive decisions on all of the applications received. It set out how it would assess such requests in a ‘derogation package’ adopted in March 2011 which can be found under the Documentation tab at the top of this page.
These derogations are limited in terms of:
- Time: free allocation must stop by 2020 at the latest;
- Scope: only installations that started to generate electricity before 31 December 2008, or for which the investment process was "physically initiated" by that date, are eligible to receive free allowances;
- Quantity: the Directive determines a maximum quantity of free allowances that can be granted in 2013, and this has to decrease progressively in the following years to reach zero in 2020.
In return for transitional free allocation, the eight Member States will undertake national plans to modernise their electricity sectors and diversify their energy mix through investments worth at least as much as the value of the free allowances.
For further information on transitional free allocation to power generators, see Frequently Asked Questions.
Auctioning share to rise each year
In sectors other than power generation, the transition to auctioning is taking place progressively. Manufacturing industry will receive 80% of its allowances free of charge in 2013 but this will decrease annually to 30% in 2020. Allowances not allocated for free will be auctioned. In the aviation sector, however, only 15% of aviation allowances will be auctioned over the whole 2013-2020 period.
Given the significant weight of power generation in the EU ETS, and even with partial free allocation in the eight member states, more than 40% of all allowances will be auctioned in 2013 and this share will rise in the coming years.
Latest information on the exact amounts to be auctioned can be found on the websites of the auction platforms; see also the first two questions and answers on the FAQ-page.
Member States' shares in the auctioning volume
Eighty-eight per cent of the allowances to be auctioned are distributed to the EU Member States on the basis of their share of verified emissions from EU ETS installations in 2005. Ten per cent are allocated to the least wealthy EU member states as an additional source of revenue to help them invest in reducing the carbon intensity of their economies and adapting to climate change.
The remaining 2% is given as a 'Kyoto bonus' to nine EU member states which by 2005 had reduced their greenhouse gas emissions by at least 20% of levels in their Kyoto Protocol base year or period. These are Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia.
The three EEA-EFTA countries will also auction limited amounts of allowances.
Auctions are held by auction platforms appointed by national governments but each auction is open to buyers from anywhere in the EU and the EEA-EFTA.
At least half of auctioning revenues used to combat climate change
The revised EU ETS Directive stipulates that at least half of the revenues from the auctioning of general allowances should be used to combat climate change in Europe or other countries. Member States are obliged to inform the Commission of how they use the revenues.
Common auction platform
The Auctioning Regulation provides for the Member States and the Commission to procure jointly a common platform to auction emission allowances on behalf of the Member States.
This is expected to be the most cost-efficient approach for Member States and bidders alike. The Commission considers that a common platform also best ensures respect of the principles of non-discrimination, transparency and simplicity, provides the best guarantees for full, fair and equitable access to small and medium sized enterprises covered by the EU ETS and small emitters, and best minimises the risk of market abuse.
Following a competitive tender procedure carried out under a joint procurement agreement , the Commission and 24 Member States appointed the EEX as the transitional common auction platform for these Member States. Following its accession, Croatia joined the contract with EEX. The three EEA-EFTA states will also contract EEX for the auctioning of their allowances.
The transitional common auction platform will be succeeded by a common auction platform, to be appointed by tender procedure carried out under a joint procurement agreement by the Commission and the 25 participating Member States.
On 21 June 2014 the Commission published a prior information notice announcing the upcoming tender procedure for selection of a common auction platform. The notice provides inter alia indications on the eligibility requirements.
On 1 November 2014 the Commission published a restricted call for a competitive dialogue procedure for the appointment of the second common auction platform. The notice, as well as any further tender documents, are published on the call page.
Opt-out auction platforms for Germany, Poland, UK
Member States are entitled to opt out of the common platform and appoint their 'own' auction platform. Germany, Poland and the United Kingdom have decided to do so.
Germany has appointed the EEX as its auction platform. The UK has appointed ICE Futures Europe (ICE) in London as its auction platform. These appointments have been approved through amendments to the Auctioning Regulation following verification by the Commission that the platforms satisfy the rules of the Regulation and the objectives of the ETS Directive.
In the absence of an opt-out auction platform having been listed, Poland has contracted EEX to auction on its behalf.
The Commission and all Member States also have a joint procurement agreement for appointing an auction monitor to monitor and report on the auctions conducted on all platforms as set out in Article 25 of the Auctioning Regulation.
Two procurement procedures were launched in 2012 and 2013 respectively, but the contract could not be awarded. More information can be found on the contracts and grants webpage. The Commission and the Member States are currently assessing their options.
Joint procurement procedures
The joint procurement agreements between the Commission and the Member States lay down the rules under which they conduct the joint procurement procedures. The procedures are conducted in line with the rules in the Financial Regulation, the standard legal framework for procurement procedures carried out by the Commission.
To ensure maximum transparency, equal treatment and allow for the broadest competition, draft tender documents can be found under the Documentation tab at the top of this page. For third parties, the Commission is the sole point of contact for information concerning the joint procurement procedures. All relevant information will be given in due time and in full respect of the principle of non-discriminatory access to information. See the Commission's on this matter.
Contract Notices are always published on Tender Electronic Daily (TED), the electronic version of the supplement S to the Official Journal of the European Union. Full tender documents will be made available in due time.
Information relevant for candidate auction platforms and potential participants in the auctions
Member States may have to make changes to their national laws to implement certain articles of the Auctioning Regulation to make it possible for potential candidates to participate in the joint procurement procedure for the appointment of the common platform and perform the resulting contract.
Similarly, Member States may have to make changes to their national laws to allow certain categories of companies to apply for admission to bid in the auctions or to allow certain categories of companies to bid on behalf of clients.
Information on the implementation of such provisions by Member States is available under the Documentation tab at the top of this page.