Going it Alone?: 3 EU Member States Seek National Auction Platforms for Greenhouse Gas Emission Rights
As the European Union moves towards the third phase of the EU Emissions Trading System (EU ETS) starting in 2013, some countries are rethinking the common European platform for auctioning emission allowances. As at least 50 percent of carbon allowances allocated to regulated industrial sectors are to be auctioned (up from a mere 4 percent auctioned and the rest given away freely in the previous phase), the financial and regulatory stakes are high for the future integrity of emissions trading in Europe.
On February 21st, three Member States of the European Union (Poland, the United Kingdom and Germany) notified the European Commission of their intentions to "opt out" of the common platform for auctioning emission allowances. Instead, the three Member States plan to develop national auctioning platforms in their respective countries.
Prior to opting out, Member States’ of the EU must inform the the European Commission and demonstrate their domestic auctioning plans meet the objectives of "Commission Regulation 1031/2010 on the Timing, Administration and Other Aspects of Auctioning of Greenhouse Gas Emission Allowances ("EU ETS Auctioning Regulation")." Before receiving Commission approval through issuance of a new regulation, the EU Climate Change Committee is consulted. Additionally, under the European Commission comitology procedures, the Council of Ministers can object to the Commission’s issuance of an "opt out" regulation within a 3-month period if it is not in line with the Climate Change Committee’s opinion.
Generally, the EU Commission views it as more cost-efficient for Member States and bidders to work within the EU ETS than through national auction platforms as an EU-regulated system better assures non-discrimination, fairness, transparency and simplicity in the access to and functioning carbon allowances. A centralized auction platform also reduces the risk that the ETS is manipulated by criminal organizations and white collar criminals for the purpose of committing money laundering and insider dealing. In short, a common auction platform encourages better access for small and medium-sized enterprises to the ETS and helps prevent market abuse.
While "opt out" intentions are being criticized by some analysts as contributing to the fragmentation and deregulation of the Europe-wide market for carbon allowances, German officials counter that "the stability of trade will profit when it is spread over different national platforms instead of a central one."
It is anticipated that, in the course of the third trading phase of the EU ETS, approximately 60 percent of all ETS carbon allowances will penetrate the Europe-wide market for carbon allowances through the common auction platform.
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