|Californian v European model for emission allowances auctions – which of them is better suited to the market|
|Wednesday, 02 March 2011 23:49|
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Auctions are the pivotal element of the primary market for emissions allowances in the Californian cap-and-trade as well as EUETS. The Auctioning Regulation present in the EUETS (No 1031/2010 of 12 November 2010) seems generally more detailed than the Regulation Order proposed by Air Resources Board. Contrary to the ARB proposal it specifies for instance such details as consequences of late or non-payment etc.
There are many similarities in the auction design and also some differences of technical nature. But several economical and legal assumptions and measures are original in the Californian model for auctions.
1. Auctioned products – Californian model, contrary to the European one, does not specify auctioned products, the latter provides for two-day spots, five-day futures, and forward and futures (but only on a temporary basis).
2. The number of platforms – under European model several auction platforms are planned: apart from opt-out national platforms (according to the recent news UK, German and Polish), one joint auction platform for auctioning two-day spot or five-day futures and one or two auction platforms for auctioning futures or forwards.
Under Californian scheme pursuant to the Regulation Order proposed by Air Resources Board, the Executive Officer of the ARB may serve as auction administrator or designate an entity to serve as auction administrator. The Executive Officer may direct that the California allowances designated for auction be offered through an auction conducted jointly with other jurisdictions to which California links pursuant to the said Order.
Both schemes are therefore not conclusive on this point.
3. Auction format – under both rules provisions are the simillar: single-round, sealed-bid auction.
4. Lots - under both rules provisions are the similar as regards futures and forwards (1000 allowances in single lot) but differences occur with respect to two-day spots and five-day futures (500 allowances in single lot in EUETS)
5. Resolution of the tied bids – both schemes adopt provisions for random selection of tied bids.
6. Clearing (settlement) price – the clearing (in the Californian scheme: settlement) price refers to the price paid for winning bids. In EUETS as well as in the Californian scheme bidders don’t 'pay-as-they-bid’ (so-called ‘discriminatory-price auctions’ model wasn’t adopted), but pay a uniform-price regardless of the amount of their individual bids. In the latter case, the clearing price is generally set as the price of the lowest accepted bids. Furthermore, in the Californian scheme the auction settlement price is not only the price that all successful bidders will pay for their allowances but also the price to be paid to those entities which consigned allowances to the auction (consignment of allowances to the auction by certain participants is a specific, original measure for the Californian scheme and deserves a separate considerations).
7. When placing the Californian model of auctions in the context of EUETS the specificity of the European Union Emissions Trading Scheme is visible in some original concepts like the possibility for separate national platforms, temporary provisions on auctioning forwards and futures, provisions on auctioneer and special auction monitor (in Californian model the ARB itself carries out the functions of market monitoring).
8. There are also certain differences in auction calendars. In the California the first auction will be conducted on February 14, 2012 with subsequent auctions conducted on the twelfth business day of the first month of each calendar quarter).
In EUETS auction calendar is generally more complicated and uncertain.
As a preliminary issue it should be noted that the concrete dates of auctions in the EUETS are not established in law but leaved to the discretion of the auction platform.
Pursuant to the Auctioning Regulation the auction platform determines the dates and times of the auctions taking account of public holidays that affect international financial markets and any other relevant events or circumstances that, in view of the auction platform, might affect the proper conduct of the auctions necessitating changes. No auctions shall be held in the two weeks over Christmas and New Year of each year. Additionally, in exceptional circumstances, auction platform conducting the auction in the EUETS scheme may, after consulting the auction monitor and obtaining its opinion thereon, change the times of any bidding window, by giving notice to all persons likely to be affected. As from the sixth auction or earlier, the auction platform will conduct auctions of allowances on a weekly basis at least (save for auctions of allowances meant for aircraft operators which shall be conducted on a two-monthly basis at least). There are also specific provisions for national auction platforms.