Auctioning infrastructure put in place
Tuesday, 18 September 2012 18:18

 

 It is already known who has gained a competitive edge in the transatlantic race for contracts for emission auctioning infrastructure in EU ETS and California emission trading schemes. 

 

The preparations for fully-fledged auctioning for GHG emissions allowances have in recent days gained impetus in the EU ETS scheme as well as in California.

  

California conducted the first quarterly auction of California emission allowances on November 14, 2012 and the first quarterly reserve sale is scheduled on March 8, 2013.

 
  

To carry out these undertakings California Air Resources Board (ARB) has contracted with the following organizations:

  

- Markit North America, Inc. to act as the Auction and Reserve Sale Operator (Auction Operator),

 

- Deutsche Bank National Trust Company to act as the Financial Services for Auction and Reserve Sale Provider (Financial Services Provider),

  

- Monitoring Analytics LLC. to act as an independent market monitor.

  

Enforceable compliance obligation under California cap-and-trade program begins with calendar year 2013 greenhouse gas emissions.

 

Also EU ETS starts third-phase auctioning. On 10 September 2012 European Energy Exchange AG (EEX) was appointed as the first transitional common auction platform to auction phase 3 allowances on behalf of 24 Member States under the EU Emissions Trading System (ETS). The platform will also auction aviation allowances. EEX will auction at least 250 million allowances before it will be replaced by the winning bidder of a forthcoming tender procedure for the next common auction platform.

 

 

EEX has also been selected by Germany as its transitional opt-out auction platform. On 30 August 2012, the Commission approved this by means of the recent amendment of the Auctioning Regulation (see box). Thus, in 2012 also German auctions begin for the third trading period and for aviation.

 

The United Kingdom CO2 Phase III and aviation allowances are auctioned on ICE Futures Europe (ICE).

 

Pursuant to the European Commission communication of  11 December 2012 on 2013 auction calendars for general allowances (http://ec.europa.eu/clima/news/articles/news_2012121102_en.htm) the total quantity of 818,855,000 allowances is based on a conservative working estimate of the number of allowances to be auctioned under the cap for 2013. It also deducts, among others, 151,566,054 allowances allocated free of charge by eight Member States to certain electricity generators pursuant to Article 10c of the ETS Directive. The total is comprised as follows:

 

Volume

Auction platform

States

Details

541,197,000

EEX

24 participating Member States, Poland and EEA-EFTA States

Weekly auctions on Mondays, Tuesdays and Thursdays

 

182,560,500

 

EEX

 

Germany

 

Weekly auctions on Fridays

95,098,000

ICE

United Kingdom

 

Fortnightly auctions on Wednesdays

 

Final figures for the cap and auction volumes are contingent on outstanding decisions for phase 2 and 3 implementation aspects (e.g. left-over allowances in phase 2 new entrant reserves, final phase 3 numbers) and may therefore differ from this estimate. At this time, the calendars do not take into account the Commission's draft amendment of the Auctioning Regulation for 'back-loading' 400 million allowances from the 2013 budget. The calendars will be modified accordingly for the remainder of the year following an adoption of this draft amendment.

 

In addition to deducting the 151,566,054 allowances allocated free of charge pursuant to Article 10c of the ETS Directive, 60 million allowances - half of the 120 million from "early auctions" in 2012 - have been deducted pursuant to Article 10(2) of the Auctioning Regulation. The volume to be auctioned by EEX in 2013 as the common auction platform is increased by 30,298,500 allowances carried over from 2012 since they could not be auctioned as the arrangements between the EEX and the auctioneers were not yet in place.

 

The calendars have been closely coordinated between the Commission, the Member States and the auction platforms.

 

Any difference between the volumes established in today's auction calendars and the final figures determined pursuant to Article 10(1) of the ETS Directive will be taken into account in an update no later than July 2013. These calendar updates would also take into account any back-loaded amounts for 2013, if a decision on the back-loading proposal has been made in the meantime by Council and Parliament.

 

Aviation allowances

 

In view of the Commission's proposal to defer the enforcement of the requirement for aircraft operators to surrender allowances for emissions in 2012 for flights into and out of Europe, the 2013 auction calendars for aviation allowances are not expected to be determined before January 2013. On 16 November, the remaining auctions for 2012 aviation allowances were put on hold. Once the Commission’s proposal is agreed, the volume that was originally scheduled for these auctions will be adjusted and will be auctioned in February to April 2013. The auctions of phase 3 aviation allowances will start from May 2013.

 

 
 

 

Besides the above general outlook, the information of utmost practical importance for future potential users of auctioning infrastructure is that pursuant to the provisions of the Auctioning Regulation an auction platform must not abuse the contract appointing it to unduly leverage the competitiveness of its other activities, notably the secondary market it organises.

 

Therefore, the listing of EEX as an auction platform is conditional upon EEX providing the option to candidate bidders to be admitted to bid in the auctions without being required to become a member of or a participant in the secondary market organised by EEX or of any other trading place operated by EEX or by any third party.

 

 Recognising the primary function of the auctioning calendar to determine in detail the dates and volumes of auctions throughout a year, in the current uncertain situation it is noteworthy  that the initial auction calendar for 2013 is determined without taking into account the proposed back-loading volume for 2013. As follows from the European Commission’s MEMO-12-861 of 14 November 2012 following the adoption of the amendment to the Auctioning Regulation that provides for the backloading, the auction platforms (EEX and ICE) will update the 2013 auction calendars, reducing the volume for the remainder of the year.  

 

Aviation allowances auctions for 2012 after the European Commission decision of 16 November 2012

 

 Pursuant to Article 2 of the European Commission's Proposal for a Decision of the European Parliament and of the Council derogating temporarily from Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community (2012/328 (COD)) Member States should cancel all 2012 allowances in respect of flights to or from aerodromes in countries outside the European Union that are not members of EFTA, dependencies and territories of EEA Member States or countries having signed a Treaty of Accession with the Union that have either not been issued or, if issued, have been returned to them. 

The percentage of auctioning remains at 15% as laid down in the Directive. Consequently, a lower quantity of aviation allowances will be auctioned for 2012 that proportionately reflects the lower number of total allowances in circulation.

 

Statistics of the California 2012 auction and publication of the reserve price for 2013

  

On November 14, 2012 California held its first auction of greenhouse gas allowances. The auction included a so-called “Current Auction” of 2013 vintage allowances and an “Advance Auction” of 2015 vintage allowances. Pursuant to auction statistics published by the California Air Resources Board (ARB) Settlement Price Per Allowance cleared at $10.09 for 2013 vintage allowances and at $10.00 for 2015 vintage allowances.

 

Auction Reserve Price for both sets was established at  $10.00.

 

The proportion of total submitted bids to total 2013 allowances available for sale for 2013 vintages was 3.10 showing moderate interest in auction, however the same value for 2015 vintage allowances amounted to 0.14 only, which resulted in only 5,576,000 2015 vintage allowances being sold from the totality of 39,450,000 2015 allowances available for sale at this auction.

  

Moreover, Herfindahl–Hirschman Index (a measure of the concentration of allowances purchased by winning bidders relative to the total sale of current vintage allowances in the auction) shows in my opinion rather low level of concentration (the values 1133 for 2013 vintages and 1485 for 2015 vintages.

 

Interesting parameter is that compliance entities bought 97.0% of 2013 vintage allowances and 91.0% 2015 vintage allowances. It appears to show that speculative trading in California allowances has the potential to rise.

  

When it comes to future California auctions, 2013 Annual Auction Reserve Price Notice issued by the California Air Resources Board on December 3, 2012 specified the 2013 auction reserve price at $10.71 for allowances to be auctioned in 2013 for the quarterly auctions as part of the current auction (2013 vintage allowances) and advance auction (2016 vintage allowances).

 

Australian auctions

 

Due to the fact that on 1 July 2015 the Australian carbon pricing mechanism will move to a flexible phase Australian forward auctions are likely to start in the first half of 2014 (2013-14 financial year). See further information on Australian system for auctioning carbon units.

 

 

 

 
 

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