London, 14 December 2010

The European Union must organize early auctions of carbon allowances before the world’s biggest emission-trading system moves to the next phase in 2013, a traders association said today. The 27-nation EU, which gave away the majority of allowances since it started its cap-and-trade program in 2005, will require most emitters to purchase their allotment of permits when the second trading period ends in 2012 - Bloomberg.

The EU is planning to provide emitters before 2013 with 300 million phase-three allowances from a European Investment Bank reserve to spur clean-energy projects. The bloc also may decide to hold early auctions of permits for the next phase, a needed step, the International Emissions Trading Association said.

“Zero-auction is not an option,” Simone Ruiz, European policy director at IETA, told a stakeholder meeting organized by the EU regulator today in Brussels. The bloc will auction about 60 percent of all CO2 permits in 2013, according to estimates by the European Commission. That proportion will increase in coming years.

The cap for carbon-dioxide discharges for that year has been set at 2.04 billion tons, including aluminum and chemical makers joining the program in the third phase. This would be worth around 30 billion euros ($40 billion) at today’s prices. A further adjustment is planned for airlines, which will become part of the system in 2012.

“We will move from a situation where we have about 4 percent of all allowances being auctioned on the market by member states to a centralized system with more than 50 percent of allowances being auctioned, and the markets need to know that the commission and member states are capable of doing this,” Ruiz said.

‘Smooth Transition’

The volume deemed necessary by analysts and power companies to ensure “a smooth transition” to the third phase ranges from 100 million to 300 million permits, the commission’s climate department said in a discussion paper for today’s meeting. Those amounts are in addition to the 300 million allowances to be sold from the EU’s New Entrants Reserve.

Still, some participants at a recent  meeting, including the Oslo-based carbon research company Point Carbon, signaled lower estimates from the levels expected a year or two ago amid a decline in industrial output and EU plans to sell permits from the reserve.

“The assumption we have now for early auctioning is zero,” said Stig Scholset, an analyst at Point Carbon. “We don’t think there will be any early auctioning if the 300 million NER allowances are actually auctioned before the start of phase three.”

Decision Next Year

A decision on early auction volumes will be included as an annex to the auctioning regulation that member states agreed to on July 14.

“Realistically we’re looking at a decision in the first half of next year,” said Yvon Slingenberg, head of emissions- trading at the commission’s climate directorate. “I think the range that we have put forward in our discussion paper is broadly accepted. It was interesting to hear also some views that we could consider going lower, up to zero, and we will certainly take it with us for further consideration.”

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