Auctioning is the most transparent method for allocating emission allowances and puts into practice the principle that the polluter should pay. Businesses covered by the EU Emissions Trading System (EU ETS) have to buy an increasing proportion of allowances through auctions.
Auctioning is the default method of allocating allowances as of phase 3 of the EU ETS (2013-2020).
The Member States auction their allowances in accordance with the ETS Directive and the Auctioning Regulation. The three EEA-EFTA countries also auction their allowances following the same principles.
From 2021, the UK is no longer part of the EU, however, pursuant to the Protocol of Ireland and Northern Ireland, the EU ETS applies to electricity generation located in Northern Ireland. Therefore, the UK will auction a small volume of allowances corresponding to its share in the Union-wide cap.
The allowances made available to the Innovation Fund and to the Modernisation Fund are auctioned too. Allowances for the stationary installations (general allowances) are auctioned, unless they are allocated for free or placed in the Market Stability Reserve (MSR).
In total, the Commission estimated that 57% of the total amount of general allowances were auctioned in phase 3. In phase 4 (2021-2030), the share of allowances to be auctioned remains the same.
The Member States’ auction shares of general allowances and aviation allowances for phase 4 are published in Commission Decision (EU) 2020/2166 of 17 December 2020.
The total revenues generated by Member States, the UK and EEA countries from the auctions between 2012 and 30 June 2020 exceeded EUR 57 billion.
In 2019 alone, the generated total revenues were above EUR 14 billion, while in the first half of 2020 they reached EUR 7.9 billion.
The ETS Directive provides that Member States should use at least 50% of auctioning revenues or the equivalent in financial value for climate and energy-related purposes. Based on the most recent information available, around 78% of revenues in 2013-2019 were used for climate and energy related purposes.
Member States are requested to report annually on the amounts and use of the revenues generated, under the Regulation on the Governance of the Energy Union and Climate Action. The total figures are annually reported in the Carbon Market Report.
The auctioning of allowances is governed by the Auctioning Regulation, adopted in accordance with Article 10(4) of the ETS Directive. It 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 puts into practice the criteria which the ETS Directive states the auctions must meet, such as predictability, cost-efficiency, fair access to auctions and simultaneous access to relevant information for all operators.
28 countries (25 EU Member States and 3 EEA/EFTA countries) auction their allowances on the common auction platform. To this end, they have signed a Joint Procurement Agreement.
Currently, the European Energy Exchange (EEX) in Leipzig is the common auction platform.
Germany and Poland have opted-out of the common auctioning platform. Germany has nominated EEX as its opt-out platform, while Poland is making use of the common auction platform (EEX) to auction its allowances until further notice.
The common auction platform is nominated for up to five years by a joint procurement between the Commission and the participating countries, in accordance to the rules laid down by the Joint Procurement Agreement.
For third parties, the Commission is the sole point of contact for information concerning the joint procurement procedures.
Please note that the Commission bears no responsibility for the contents of the reports prepared by Germany and the United Kingdom.
From 2021 onwards, 57% of the Union-wide quantity of allowances (EU ETS cap) is in principle to be auctioned. This represents approximately 7.855 billion general allowances for the entire phase 4 of the EU ETS (2021-2030), calculated on the basis of the EU ETS cap, published in November 2020.
However, in accordance with the rules of phase 4 of the EU ETS, part of the volumes that in principle are to be auctioned may be used for the following:
Due to the application of these rules, for the period 2021-2025, ca 51,5% of the annual EU ETS cap will be initially auctioned. This percentage may change after 2025, as the volume of transfers to the free allocation buffer will be established in 2025.
Furthermore, in accordance with the rules of the Market Stability Reserve (MSR), the auction volumes may be reduced (or increased) by the number of allowances to be placed in (released from) the MSR.
In phase 4, the 10 Member States with a GDP per capita below 60% of the EU average in 2013 may opt to continue giving free allowances to the energy sector up to 2030 under Article 10c of the ETS Directive. This is a derogation from the general rule that allowances will not be allocated for free to electricity installations. Only Bulgaria, Hungary and Romania have decided to use this derogation in phase 4. The allowances provided for free under this derogation are deducted from the auction volumes of the Member States concerned.
The auctioning rules for aviation allowances in phase 4 are the same as for phase 3, with the difference that in phase 4 the linear reduction factor applies to the aviation cap as well. Thus 15% of the aviation cap is to be auctioned. The bottom up approach is used to determine the aviation cap, pursuant to Articles 3c, and 3e of the ETS Directive. For 2021, approximately 3,8 million aviation allowances are to be auctioned.
For further information on the aviation activities in the EU ETS see also the information related to Aviation.
The auction calendars with exact dates and volumes of general allowances and aviation allowances to be auctioned in the current year are published by the auction platform EEX.
For phase 4 of the EU ETS, the Member States' auction shares of general allowances and aviation allowances are published in Commission Decision (EU) 2020/2166 of 17 December 2020. They were established in accordance with the following rules of the ETS Directive:
In phase 4 of the EU ETS, 90% of the general allowances to be auctioned are distributed among all Member States and EEA-EFTA 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. Special rules apply to Member States that joined after 2005. The rest are distributed among certain Member States (indicated in Annex IIa of the ETS Directive) for the purposes of solidarity, growth and interconnections within the Union.
The aviation auction shares of the Member States are proportionate to their share in the total attributed aviation emissions for all Member States for a reference year. For phase 4, the reference year is 2018 and data from Eurocontrol was used to calculate these aviation auction shares.
|EEX (common auction platform)||Participating Member States, Innovation Fund, Modernisation Fund||Weekly auctions on Mondays, Tuesdays and Thursdays|
|EEX||Germany||Weekly auctions on Fridays|
|EEX||Poland||Weekly auctions on Wednesdays|
There is a reduction by half in the amount auctioned in August and usually a pause in auctions around the end of the year.
The volume of aviation allowances to be auctioned is currently very small compared to the amount auctioned for stationary installations. Therefore, usually the auctions of aviation allowances take place once every three months on the common auction platform. Germany and Poland each hold only one aviation auction per year. Information on the exact timing, frequency and volume per auction are published by the current auction platform EEX.
The auction calendars with exact dates and volumes of general allowances and aviation allowances to be auctioned in the current year per Member State, as well as for the Innovation Fund and the Modernisation Fund, are published by the auction platforms. Further, they publish information on the auction results after each auction. The only auction platform at the moment is EEX.
The auction reports are published on quarterly basis. They include details on the auctions for the 27 Member States and the 3 EEA-EFTA States. Reports are also published for the auctions of the United Kingdom in phase 3 of the EU ETS.
The amounts of allowances auctioned in phase 3 were as follows:
|Year||Auctioned amounts published in the auction calendars|
|General allowances||Aviation allowances|
* Early auctioning.
** Includes 2019 volumes for the UK.
During phase 3 of the EU ETS, the Member States’ auction shares were determined in accordance with the following riles:
In accordance with Article 3d(3) of the ETS Directive, the aviation auction shares of the Member States are proportionate to their share in the total attributed aviation emissions for all Member States for the reference year. For phase 3, the reference year was 2010. Data from Member States were used to calculate these aviation auction shares for the period 2013-2020.
The table below gives an overview of the dates as from which the Member States and EEA EFTA States started auctioning allowances:
|Member/EEA EFTA State||Date|
|Germany||As from 26 October 2012|
|UK||As from 21 November 2012|
|Austria, Bulgaria, Finland, France, Italy, Latvia, Romania, Slovenia, Slovakia, Spain and Sweden||As from 13 November 2012|
|Netherlands||As from 20 November 2012|
|Cyprus, Lithuania, Luxembourg, Portugal||As from 27 November 2012|
|Greece||As from 4 December 2012|
|Hungary, Malta||As from 11 December 2012|
|Denmark||As from 18 December 2012|
|Estonia, Belgium||As from 7 January 2013|
|Ireland||As from 18 February 2013|
|Czech Republic||As from 18 March 2013|
|Poland||As from 16 September 2013|
|Croatia||As from 8 January 2015|
|EEA EFTA states||As from 3 June 2019|
With the start of phase 3 of the EU ETS in 2013, auctioning is progressively replacing free allocation as the main method for allocating allowances to all EU ETS sectors except aviation. This best ensures the efficiency, transparency and simplicity of the system and creates the greatest incentive for investment in a low-carbon economy. Auctioning also eliminates windfall profits, which arise when operators charge their customers the cost of allowances they have received for free.
Several other jurisdictions that use emissions trading systems auction carbon credits under their specific rules, or are considering doing so. Further information can be found in the ICAP Status Reports (2020 report). The annual volumes to be auctioned under the EU ETS, however, are by far the largest.
The auctions of the EU ETS allowances are carried out by auction platforms. The allowances are sold by the auctioneers on behalf of the Member States, for the Innovation Fund and the Modernisation Fund. The market participants may bid at each auction to buy allowances.
Each Member State and EEA-EFTA State appointed an auctioneer to be able to auction its share of allowances. The auctioneer is responsible for providing the allowances to be auctioned to the auction platform on behalf of the appointing State. It also receives the auction proceeds and disburses these proceeds to the appointing State.
The auctioneer may be a private or public body. A list of auctioneers can be found under the Documentation tab at the top of this page.
The auction platform must be a regulated market authorised under EU financial markets legislation.
Regulated markets have been chosen because they are bound by EU law (the Markets in Financial Instruments Directive II and the Market Abuse Regulation ) to provide a number of safeguards in the conduct of their operations. These safeguards include, among others, arrangements to identify and manage the potential adverse consequences of any conflicts of interest, to identify and manage risks that the market is exposed to, and to have transparent and non-discretionary rules and procedures for fair and orderly trading.
The Auctioning Regulation provides for a common auction platform. An overwhelming majority of stakeholders, a large majority of Member States and the Commission's impact assessment supported a single EU-wide auction platform as it would best meet all objectives laid down in the EU ETS: it is most cost efficient, most transparent, best ensures respect of the principle of non-discrimination, and offers the greatest level of harmonisation and predictability as compared to auctioning through two or more parallel national auction platforms.
However, the adopted rules gave Member States the possibility to opt-out and appoint their own auction platform. Germany and Poland have made use of this option. Opt-out auction platforms must conform to the framework set out in the Auctioning Regulation, which provides for further rules to ensure adequate coordination between the opt-out auction platforms and the common auction platform.
At present, one platform is auctioning allowances under the Auctioning Regulation: European Energy Exchange (EEX) in Leipzig. This is the common auction platform used by 25 Member States and the 3 EEA-EFTA States, nominated after a joint procurement procedure with the Commission. EEX also serves as Germany’s opt-out auction platform. As Poland has not appointed an opt-out auction platform, it is using the common auction platform until further notice.
The maximum appointment duration for any auction platform is five years.
In early November 2020 following a joint procurement procedure with the Commission and the participating Member States, EEX was appointed as the common auction platform for a period of 5 years. Previously, under the same procedure, EEX was nominated as the transitional common auction platform from 2012 until August 2016, and in July 2016, as a common auction platform for a period up to five years starting from September 2016.
EEX has also been contracted as Germany’s platform several times since 2012.
The auctions are carried out by auction platforms appointed by the national governments and the Commission for the common auction platform, or by the opt-out Member States for the opt-out platforms. However, each auction on any of the auction platforms is open to buyers established anywhere in the EU and the EEA-EFTA. The following entities are eligible to bid in the auctions:
Where investment firms, credit institutions or exempt persons bid on behalf of their clients, they must ensure that those clients are themselves eligible to apply for admission to bid, i.e. are included in one of the categories above, as per Article 18 of the Auctioning Regulation.
Unauthorised brokers are not eligible to apply for admission to bid, but could play a role in facilitating the formation of business groupings.
Neither the auctioneer nor the auction platform or its staff may apply to bid in the auctions.
The auction platform must consider each application for admission in order to prevent auctions being used as a vehicle for money laundering, terrorist financing, criminal activity or market abuse. The auction platform must carry out customer due diligence checks. Complete information on the admission process and criteria can be found on the website of the auctions platforms ( EEX ).
The entities that are eligible to bid must submit a request to the auction platform to be admitted to bid. Once admitted, bidders are able to access the auctions through the internet. The auction platforms also offer dedicated connections for the auctions. Complete information on the means of access can be found on the website of the auctions platforms ( EEX).
SMEs and small emitters covered by the EU ETS can access the auctions directly after going through the due diligence checks. They may also access the auctions through an intermediary or form a business grouping to act as an agent on their behalf. This may offer them the advantage of minimal transaction costs as well as certainty on the price and quantity of allowances they wish to receive.
The design of the auctions has been made as simple as possible to facilitate participation by SMEs. For example, all successful bidders pay the same clearing price so that SMEs and small emitters will not be disadvantaged by having less knowledge than larger participants have.
The auction format is a single-round, sealed bid, uniform price auction. This is a simple auction format that facilitates participation, including by SMEs and small emitters covered by the ETS Directive.
During a single bidding window of the auction, bidders can place any number of bids, each specifying the number of allowances (in lots of 500) they would like to buy at a given price. The bidding window is open for at least two hours. Directly following the closure of the bidding window, the auction platform determines and publishes the auction clearing price at which demand for allowances equalled the number of allowances offered for sale in the auction concerned.
Successful bidders are the ones who have placed bids for allowances at or above the clearing price. All successful bidders pay the same price, regardless of the price they specified in their bids.
Articles 7, 9 and 32(5) of the Auctioning Regulation define provisions on cancellation of auctions and spreading of the corresponding volumes over subsequent auctions so as to ensure a predictable and smooth repartition of any volumes from cancelled auctions without significant increases of individual auction volumes.
In this respect, pursuant to Article 7(8) of the Auctioning Regulation, should a cancellation occur for an auction, which is not consecutive to previous cancellation(s) but already includes adjustments from such cancellation(s), the spreading of the volume cancelled would take place as from the first auction which is not subject to other adjustments due to previous cancellation(s).
The auctioned allowances are classified as financial instruments in accordance with Annex I-C of the Market in Financial Instruments Directive II. The Auctioning Regulation provides for allowances to be auctioned in the form of two-day spot or five-day futures. The exact product specifications are available on the auctioning webpages of the auction platforms: EEX.
Spot and short-term futures products have been chosen for their simplicity and because, unlike long-term futures, they do not lock in the trading of the auctioned allowances to the auction platform(s), which could have a potentially negative impact on competition between trading places in the secondary market.
The costs of the auction process, including the costs of setting up the technical infrastructure, the actual conduct of the auctions and carrying out due diligence checks on bidders, is paid for by the bidders through the fixed and variable fees they pay to an auction platform to participate in the auctions.
When introducing the auctioning as the default method of allocation of the EU ETS allowances in phase 3 of the EU ETS, the ETS Directive, required the European Commission to adopt a Regulation on the timing, administration and other aspects of auctioning to ensure that auctioning is conducted in an open, transparent, harmonised and non-discriminatory manner. This was a measure to bring greater efficiency of the system, more harmonisation, avoidance of distortion of competition and greater predictability. Achieving these objectives would have been at risk without appropriate rules at EU level.
The importance of these rules is underpinned by their legal form: a Regulation is the strongest form of EU legislation and its rules are directly applicable in all Member States.
Fair and orderly auctioning is ensured, firstly, by the provisions of the Auctioning Regulation on access to the auctions and on the determination and publication of the auction calendars. The auction platform is obliged to ensure that appropriate ‘know-your-customer’ checks are carried out before it grants admission to any potential bidder.
Secondly, the auction platform must be a regulated market, which ensures that it meets strict standards and will be supervised by the national competent authority for financial markets of the Member State in which it is located.
The Auctioning Regulation includes detailed provisions to mitigate the risk of anti-competitive behaviour. The auctioning process is covered by the Market Abuse Regulation.
Finally, in order to ensure fair treatment of clients, the Auctioning Regulation lays down an authorisation requirement and rules of conduct for intermediaries in case they are not covered by the rules of conduct provided for in the EU Financial legislation. It is, however, optional for Member States to put in place a legal framework for the authorisation of such intermediaries.
More information on carbon market oversight is available on the page 'Ensuring the integrity of the European carbon market'.
Auctions and auction platforms are supervised at various levels:
These different layers of supervision are interlinked and complementary.
Authorisation and supervision of an auction platform rests with the national competent authorities of the Member State in which an auction platform is located. The rules that apply to an auction platform's organisation and conduct are those of the Markets in Financial Instruments Directive II and of the Auctioning Regulation.
Professional intermediaries like investment firms, credit institutions or other persons authorised to bid in EU ETS auctions on behalf of their clients are also licensed and supervised by the relevant national (typically financial) authorities of the Member State where they are located. When bidding on behalf of clients in the auctions, such intermediaries have to abide by the rules set out in the Auctioning Regulation and/or in Markets in Financial Instruments Directive II.
Rules against market abuse, set out in the Market Abuse Regulation, apply to behaviour and transactions of any bidder in the EU ETS auctions. On-going supervision in this area is carried out by the national competent authorities of the Member State where an auction platform is located. However, competent authorities of other Member States are also empowered to act and their involvement may be indispensable in cross-border investigations and enforcement.
The Financial Intelligence Unit (FIU) in the Member State where the auction platform is located is the national competent authority for combating money laundering and terrorist financing. It is responsible for supervising the auction platform and must ensure compliance of the auction platform with its obligations under the Auctioning Regulation in relation to customer due diligence, the monitoring and record keeping of the relationship with the bidders, surveillance of the auctions, and related notification requirements. The FIU in the Member State where the auction platform is located cooperates with other FIUs through the FIUs Platform and with the national law enforcement authorities in order to effectively prevent and sanction money laundering and terrorist financing, in accordance with Anti-Money Laundering Directive.
The supervision by the competent authorities is without prejudice to the obligation on the auction platform to survey the auctions itself. The Auctioning Regulation requires the auction platforms to report the information from the auctions to the national competent authority. This obligation is similar to the obligations established by the financial market legislation.
The Auctioning Regulation requires that the maximum appointment duration for any auction platform is five years.
The procurement procedures for the common auction platform 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 are made available on DG CLIMA's contracts and grants page.
The Commission is the sole contact point for candidates and tenderers.
Three procurement procedures have been completed for the appointment of common auction platform:
The Joint Procurement Agreement between the participating Member States and the Commission for the procurement of the common auction platform lays down the rules for the conduct of joint procurement by these States and the Commission.
Among other things, it provides that:
The procurement procedures themselves are conducted pursuant to the procurement rules in the Financial Regulation, which is the legal basis for procurement procedures carried out by the Commission.
The Member State opting out from the common auction is to select its opt-out platform after a public procurement procedure in accordance with the EU and national public procurement rules. After choosing its intended auction platform, the Member State concerned notifies its plans, including all relevant details, to the Commission. The Commission verifies that the selected opt-out auction platform satisfies the rules of the Auctioning Regulation and the objectives of the ETS Directive. The Commission may determine whether obligations or conditions could be required for ensuring adequate coordination between the different auction platforms.
If the Commission is satisfied that the opt-out platform respects the rules and can be expected to achieve the objectives of the ETS Directive, it puts forward a draft amendment of the Auctioning Regulation to list the opt-out platform in Annex III to that Regulation. The adoption of this amendment follows the same procedure as the adoption of the Auctioning Regulation itself. The opt-out platform can start conducting auctions only when the amendment to list it has entered into force.
Under this procedure, EEX has been listed three times as Germany’s opt-out auction platform (see Annex III of the Auctioning Regulation). Poland has not procured its platform and is, therefore, auctioning on the common auction platform.
Following the 2019 revision of the Auctioning Regulation, when a Member State decides to re-appoint its opt-out auction platform under the same conditions and obligations as already listed in Annex III of the Auctioning Regulation, the appointment and these same conditions and obligations continue to be valid without an amendment to the Auctioning Regulation. This is conditional upon the confirmation from the Commission and the Member State concerned that the requirements of the Auctioning Regulation and the objectives of the ETS Directive are satisfied.
In the absence of an opt-out auction platform being listed, the Member State concerned has to auction its share of allowances on the common auction platform, to ensure that the envisaged volume of allowances comes to the market as foreseen in the Auctioning Regulation. Pursuant to this rule, Poland had entered into contracts with EEX as common auction platform to auction its allowances.
Member States may not give preferential treatment to national companies while appointing their opt-out platform. Any Member State that opted not to use the common auction platform must carry out a public procurement procedure to nominate its opt-out platforms in accordance with EU and national public procurement rules.
All auction platforms, including the opt-out platforms, must give all eligible bidders equal access to auctions and no preference may be given to companies registered in any particular Member State. The provision that any auction platform must be a regulated market helps to ensure that all participants are treated in a fair and non-discriminatory way.