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Auctioning

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 the  allowances were auctioned. Over the  period 2013-2020 the share auctioned will be higher and it is estimated that up to half of the allowances may be auctioned. Auctioning is the most transparent allocation method and puts into practice the principle that the polluter should pay.

 
RBC's trading floor © CC BY 2.0 Richard Alvin

Two auction platforms are 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 electricity generators in eight Member States to help modernise production

For the electricity 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 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.

In the context of the 2030 climate and energy framework European leaders have decided in October 2014 that this option should also be available for some Member States during the next decade.

The European Commission has taken positive decisions on all the applications received and has also cleared them under state-aid rules. It set out how it would assess such requests in a ‘derogation package’ adopted in March 2011.

In return for transitional free allocation, the eight Member States have put up national plans setting out investments to be financed through the free allocation with a view to modernising their electricity sectors and diversifying their energy mix. The investments are worth at least as much as the value of the free allowances. To ensure this conditionality, in most Member States concerned eligible operators only receive the free allocation upon proof of the investment of a corresponding amount having been carried out.

For further information on transitional free allocation to electricity generators, see Frequently Asked Questions.

Auctioning share to increase each year over 2013 to 2020

In sectors other than power generation, transition to auctioning takes place progressively. Manufacturing industry received 80% of its allowances free of charge in 2013 but this will decrease annually to 30% in 2020, other than for sectors deemed to be exposed to carbon leakage. Allowances not allocated for free are to be auctioned.

Given the significant weight of power generation in the EU ETS, and even with partial free allocation in eight Member States, more than 40% of the 2013 annual allowances were auctioned and this share will increase, as the volume of allowances allocated for free decreases more than the cap decrease, in the following years. Over the period 2013-2020 the share auctioned may amount to up to half of the allowances. In the second trading period (2008-2012), no more than 4% of the allowances were auctioned. In the aviation sector, 15% of aviation allowances in circulation will be auctioned.

In the context of the 2030 climate and energy framework European leaders decided in October 2014 that free allocation shall not expire, but the share of allowances to be auctioned will not reduce during the next decade. Latest information on the exact amounts to be auctioned can be found on the websites of the auction platforms; see also the relevant questions and answers on the FAQ-page.

Member States' shares in the auctioning volume

Pursuant to Article 10(1) of the ETS Directive, eighty-eight per cent of the allowances to be auctioned in 2013 to 2020 are distributed to the EU Member States on the basis of their share of verified emissions from EU ETS installations in 2005 or the average of the 2005-2007 period, whichever one is the highest. 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.

European leaders have decided that during the next decade ninety per cent of the allowances to be auctioned will be distributed to the EU Member States on the basis of their share of verified emissions. Ten per cent will be allocated to the less wealthy EU Member States for the purposes of solidarity, growth and interconnections. 

The three EEA-EFTA countries will also auction allowances in accordance with the same principles as the EU Member States.

At least half of auctioning revenues to be used for climate and energy related purposes

The revised EU ETS Directive provides that at least 50 % of auctioning revenues or the equivalent in financial value of these revenues should be used by Member States for climate and energy related purposes. Under the Monitoring Mechanism Regulation, Member States are requested to report annually (for the first time by 31 July 2014) on the amounts and use of the revenues generated (article 17 of Regulation (EU) No 525/2013 of the European Parliament and of the Council of 21 May 2013).

In 2013, the total revenues for the EU reached € 3.6 billion. From this, around € 3 billion will be used for climate and energy related purposes such as energy efficiency, renewables, research and sustainable transport - significantly more than the 50% level recommended in the EU ETS Directive.

More information on the use of auctioning revenues can be found in the 2014 report on Progress towards achieving the Kyoto and EU 2020 objectives.

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 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 and small emitters covered by the EU ETS, and best minimises the risk of market abuse.

Following a competitive tender procedure carried out under a joint procurement agreementpdf(485 kB) Choose translations of the previous link  , 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 joint procurement agreement and 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 the joint procurement agreement by the Commission and the 25 participating Member States. The contract with EEX may last up to August 2016.

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 contracts and grants 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 decided to do so.

Germany appointed the EEX as its auction platform. The UK 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.

Auction monitor

The Commission and all Member States also have a joint procurement agreement for appointing an auction monitorpdf(441 kB) Choose translations of the previous link  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.

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 information notepdf(234 kB) Choose translations of the previous link  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. Tender documents will be made available in due time. Tender documents on past and ongoing tenders are accessible via the contracts and grants pages.

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 procurement procedure for the appointment of auction platforms and to 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.