The UK’s national auction platform for carbon allowances for phase 3 of the EU emissions trading scheme (EU ETS) has been approved by the Climate Change Committee of the European Commission.
The decision on 11 July, which is subject to three months' scrutiny by the European Council and Parliament under the EU’s auctioning regulation, should allow auctioning of post-2012 EU allowances (EUAs) for installations and aviation to start in November.
The commission itself expects 120 million tonnes of carbon dioxide equivalent in EUAs to be auctioned early – in November and December – to smooth the transition to phase 3, which runs from 2013-20. However, this has been criticised in view of low-carbon prices (ENDS Report, March 2011).
The energy and climate department (DECC) said the UK’s share would be 12MtCO2e. Another 7MtCO2e of allowances for the aviation sector will be auctioned separately by the end of 2012.
The commission has also sanctioned early auction of 300 million EUAs from phase 3 through the European Investment Bank to fund carbon capture and storage, and innovative renewable projects.
The UK, Germany and Poland are the only member states that have decided to take advantage of the opt-out provision. This allows them to set up their own national platforms rather than use the common platform, but national platforms must be approved and regulated by the commission.
DECC announced in April that it had appointed ICE Futures Europe as its preferred supplier to run the UK's auctions. Germany, whose platform was approved in April, and the EU will begin auctions on their respective new platforms after the summer.
Phase 3, which is governed by the 2008 amended EU ETS directive, will see allowances auctioned under a central emissions cap rise from just 3% at present in the UK to at least 50% as free allocations are pared back.
There will also be tighter restrictions on use of UN international offsets. Allowance volumes will be governed by the UK’s national implementation measure, a draft of which was submitted to Brussels in January (ENDS Report, January 2012).
But the effectiveness of increased auctioning is likely to be severely limited because the EU is still deliberating measures to withhold surplus allowances to boost the carbon price after the recession hits demand.
Please note this article has been republished with the kind permission of the ENDS Report.