Member States have expressed their support for a draft Regulation concerning the auctioning of emission allowances during the third trading period of the EU Emissions Trading System (EU ETS) beginning in 2013.

The draft Regulation also covers aviation allowances which can only be used for aviation emissions. Aircraft operators will be subject to the EU ETS from 2012.


The revised EU ETS Directive requires the European Commission to adopt a Regulation on the timing, administration and other aspects of the auctioning of allowances to ensure the auctions are conducted in an open, transparent, harmonised and non-discriminatory manner.

From the start of the third EU ETS trading period in 2013, auctioning will gradually replace the free allocation of allowances for all EU ETS sectors except aviation. The draft Regulation governs the auctioning of allowances valid for the third, and subsequent, trading periods of the EU ETS, including any early auctions of allowances taking place before 2013.

The third trading period of the EU ETS runs from 2013 to 2020. During that period more than half the total number of allowances available will be auctioned. By comparison, less than 4% of the total allowances available during the second trading period, running from 2008 to 2012, will have been auctioned. For aviation, 15% of total available allowances will be auctioned in 2012 and this proportion will remain constant for subsequent years.

The auction platforms

The draft Regulation requires Member States and the European Commission to jointly procure a common platform to conduct auctions on behalf of Member States. A common auction platform is generally accepted to be the most cost-efficient approach for both Member States and bidders.

In particular, the Commission considers that a common platform is the best way to ensure non-discrimination, transparency and simplicity in the auction process, which in turn should provide full, fair and equitable access to small and medium sized enterprises covered by the EU ETS. A single platform is generally thought to minimise the risk of market abuse.

However, at the insistence of some Member States, the draft Regulation also contains an option permitting Member States to establish their own auction platform. Any Member State that intends to set up its own platform is required to notify the Commission of this decision within three months of the Regulation entering into force.

As the co-existence of a common auction platform alongside one or more opt-out auction platforms means there will not be full harmonisation of the auction process, the arrangements put in place by the Regulation will be reviewed within five years.

Auction procedure

The draft Regulation provides for a "single-round, sealed-bid, uniform-price" auction format which is intended to be easily accessible for EU ETS operators and other eligible bidders. It also provides for a predictable auction calendar with annual allowance volumes being determined automatically on the basis of a rule in the Regulation.

During a single bidding window, bidders can place any number of bids electronically, each of which will specify the number of allowances the bidder would like to purchase at a given price. The bidding window must be open for at least two hours. Immediately after the bidding window closes, the auction platform will determine and publish the "clearing price" at which demand for allowances via the bids is equal to the number of allowances offered for sale. Successful bidders will be those who have placed bids at or above the clearing price. All successful bidders will pay the clearing price, regardless of the price specified in their bids.

The auction platforms are required to decide and publish the details of individual auctions for a given calendar year almost a year in advance. The number of allowances to be auctioned in 2012 will be determined at a later date.

Fraud prevention and financial protection

The draft Regulation provides the necessary legal framework to minimise the risks posed by money laundering, terrorist financing, financial crime, insider dealing and market manipulation.

The categorisation of allowances

Allowances will be auctioned as "spot products" and will be delivered within a maximum of five working days after the auction. The exact product specifications will be determined during the procurement of the auction platform.

Auctions of "futures" and "forwards" with delivery by 31 December 2013 at the latest can be held if it is desirable to conduct the first auctions before modifications to national registries and information technology infrastructure have been implemented.


The common auction platform will hold auctions at least weekly for EU allowances and at least once every two months for aviation allowances. The frequency of auctions on any opt-out auction platform has yet to be determined, but the draft Regulation lays down a minimum amount of allowances to be offered at each auction which will limit the number of auctions that can be held.

An auction calendar will set out details including the dates, bidding windows and size of each auction to be held during a calendar year. The quantity of allowances auctioned will be spread evenly across the year, with auctions being held less frequently during holiday periods in the summer. No auctions will be held during the Christmas and New Year period.

The common auction platform will determine and publish its auction calendar by 28 February of the preceding year. Any opt-out auction platforms will be required to determine and publish their auction calendars by 31 March of the preceding year.

Permitted participants

Any EU ETS operator or aviation operator is eligible to apply for admission to bid in the auctions, as are their parent, subsidiary or affiliate undertakings. Operators can also form business groupings to bid as an agent on their behalf. In addition to operators, investment firms and credit institutions authorised and regulated under EU law may apply for admission to bid.

Intermediaries benefitting from an exemption from the authorisation requirements of EU law, but which have been authorised under rules laid down in the draft Regulation may also participate in the auctions.

The "auctioneer" role

The auctions will be conducted by a regulated market authorised under the EU legislation governing financial markets. This could either be an existing regulated carbon market exchange operating on the secondary market, an existing financial market exchange or a newly established regulated market.

The common auction platform will be chosen through a joint procurement by the Commission and those Member States choosing to auction their allowances through that platform. To take part in the joint procurement, the Commission and Member States will need to sign a joint procurement agreement. Member States who wish to opt out may be given observer status.

Next steps

The Commission will now submit the draft Regulation to the European Parliament and the Council for a three month scrutiny period. Provided the Parliament and the Council do not raise any objections, the Commission will adopt the Regulation in October 2010, at which point it will become directly applicable in all Member States. The Commission, and Member States wishing to use the common auction platform, will then begin the procurement process.