Directive 2003/87/EC establishing a scheme for greenhouse gas emissions allowance trading within the European Community and amending Council Directive 96/61/EC provides for general principles on the auctioning of EU carbon allowances, in particular for the Commission to monitor and submit each year a report on the functioning of the European carbon market.
In the November 2012 report on the state of the European carbon market in 2012, the Commission reported that "the EU ETS has created a functioning market infrastructure…. However, the effect of the crisis compounded by a number of regulatory provisions related to the transition to Phase 3 have caused serious imbalances to emerge between supply and demand in the short term with potentially negative long-term repercussions." The imbalance between supply and demand comes from several factors, including the renewed economic slowdown and other temporary elements related to the transition to Phase 3 (such as record use of international credits and auctioning of Phase 2 allowances and remaining allowances in the new entrant reserve), and the efficiency of projects under the Clean Development Mechanism.
In order to address the rapid increase of supply and to provide certainty for market participants, the Commission proposed to change the auctioning timetable provided for in Regulation (EU) No 1031/2010 of November 12, 2010.
The Commission proposed a draft amendment to Regulation (EU) No 1031/2010, approved by the Climate Change Committee on January 8, 2014, which aims at reducing the auctioning of 900 million allowances from 2014 to 2016 (400 in 2014, 300 in 2015, and 200 in 2016) and at postponing their auctioning to 2019 (300), and 2020 (600) (thereby completing Article 10(2) of Regulation (EU) No 1031/2010 and adding the Annex IV).
The impact assessment carried out by the Commission demonstrates that such "back-loading" technique will improve the market balance by slowing down the build-up of the surplus in the early years of Phase 3. The back-loading is also expected to increase the carbon price with limited impact on competitiveness for the energy-intensive sector.