Auctioning of allowances in the EU ETS

Auctioning of allowances is a transparent allocation method that allows market participants to acquire allowances at market prices. Member states exercised this right only marginally during the second phase where only 4 % of the total amount was auctioned and most allowances where allocated free of charge.

During the first phase of the EU ETS (2005 – 2007) member states were allowed to auction up to 5 % of allowances and in the second phase (2008 – 2012) up to 10 %. It was estimated that approximately 57 % of the allowances were auctioned during the third phase (2013 – 2020).

The Auctioning Regulation

The auctioning of allowances in the third phase and beyond is governed by the Auctioning Regulation specifying the timing, administration and other aspects of how the auction will take place.

The auction process must be transparent, harmonised and non-discriminatory. Each auction must respect the internal market rules and must therefore be open to all potential buyers on non-discriminatory terms.

Auctioning in practice

Beginning in the third phase, a large proportion of operators may have to buy part of the allowances needed for compliance. Operators in the ETS can either buy allowances from other ETS participants or through auctions.

Auctions are held by auction platforms designated by the respective Member State and each tenderer can apply for authorisation to any auction platform within the EU or EEA.

One of the auction platforms is the European Energy Exchange AG (EEX), which serves as a joint auction platform for 25 Member States and separately as auction platforms for Germany and Poland respectively. The second auction platform is ICE Futures Europe (ICE), which serves as an auction platform for the UK.

As emission allowances are fungible, allowances from any auction platform can be used for completion throughout the ETS. Anyone who meets the requirements of each platform can participate in the auctions.

Bidders can access the auctions over the internet and auction platforms also offer dedicated connections. The auction format is a one-time bid and a uniform price for items of either 500 or 1000 allowances depending on the auction platform.

The auction calendar determined by the auction platforms specifies the date, bid window, size and other details for each auction to be held in a calendar year.

The use of revenues

Revenues from auctions are distributed among the Member States. How the revenue is used is governed by the ETS Directive (2003/87/EC). In Sweden, the revenue is controlled by the National Debt Office.