Member states could dash EC, industry hopes for single EU emissions auction
Author: Peter Koh
3 Nov 09 | 16:45 GMT+1
IN BRIEF
The European Commission and industry groups could lose their battle for a single European Union-wide auction platform for emission allowances as Germany, Poland, Spain and the United Kingdom, which want to manage their own auctions, have enough votes to block an eventual qualified majority vote on the proposed regulation. Despite the potential veto hanging over this central issue, an outline of the commission's draft proposal shows progress on a number of other important details.
The European Commission and industry groups could lose their battle for a single EU-wide auction platform for emission allowances as Germany, Poland, Spain and the UK, which want to manage their own auctions, have enough votes to block an eventual qualified majority vote on the proposed regulation, stakeholders say.
Companies with operations covered by the Emissions Trading Scheme in several EU countries could face greater administrative and compliance complications as a result.
From 2013 at least half of the allowances under the EU ETS will be auctioned instead of being allocated to businesses free of charge.
The potential of the four countries to veto the proposed regulation means that the commission could have to flesh out the proposed alternatives to a central platform, its so-called "hybrid" and "coordinated" options, when it publishes its draft regulation.
These alternative approaches have been criticised by the commission as being more complex, more expensive and more prone to abuse than the centralised option.
Despite the potential veto hanging over this central issue, the commission has made progress on a number of other important details.
An outline of a draft published by the commission showed that it had decided that auctions ought to be held evenly and on a weekly basis, with minor variations in volume and frequency over August and Christmas.
The commission also made it clear to stakeholders in a meeting late last week, that it was opposed to the auctioning of futures, an issue that the power sector had lobbied for strongly.
Instead, the commission detailed proposals for an instrument it calls "spot futures" which would go some way to meeting the concerns expressed by the power sector over the higher upfront costs demanded by spot allowances, relative to futures. "Spot futures" would have a low upfront cash requirement of 10-20 percent and be structured so as to fall under the Markets in Financial Instruments Directive but delivery would be measured in days rather than years, as would be possible with real futures.
A central role is envisaged for regulated exchanges and Multilateral Trading Facilities as they would be eligible to bid to run auction platforms. The commission hopes to organise a competitive dialogue tendering process with interested groups, but stakeholders consulting with the commission point out that this would only make sense if the centralised auction process is selected, as under the hybrid and coordinated options the tendering process would be left to member states.
Concerning auction design, the commission has come out in favour of single-round, sealed-bid, uniform-price auctions.
Among the substantial issues unresolved is the amount of allowances that could be auctioned early. Eurelectric, the electricity generators' industry group, argues that its members could require up to one billion allowances to be auctioned before the third phase of the emissions trading system begins.
The commission hopes auctioning could begin by the third quarter of 2011.