EU Nations Set Carbon-Auction Rules to Start in 2013

European Union member states unanimously approved rules for auctioning most of their carbon permits after 2012, when the next phase of trading begins in the world’s largest emissions market.

The EU, which has given 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 in the phase that starts in 2013 and runs through 2020. The European Commission, the EU regulator, said countries will be able to apply for permission to run national auctions alongside a common European platform in the system’s third and later phases.

“The commission would have preferred a single platform,” EU Climate Commissioner Connie Hedegaard said in an e-mailed statement. “But some member states insisted on the possibility to have their own platform. So I am satisfied to see that member states have found a compromise.”

Germany, Poland, Spain and the U.K. had asked for individual auctions. The U.K. government, which already has its own platform for selling CO2 permits, said in an e-mailed statement today that it “successfully secured concessions which will allow it to continue to hold its own national auctions.”

Today’s vote paves the way for the commission to start talks on early auctions of phase-three CO2 permits before 2013. RWE AG, Germany’s second-biggest utility, is one of the companies that said it needs phase-three permits immediately to hedge the risk of power it is selling now for delivery in 2013 and beyond.

No More Freebies

West European utilities will no longer get free permits in the third phase, while east European power plants will have to buy 30 percent of their permits at auctions, with the amount rising to 100 percent by 2020.

The volume of allowances to be auctioned in 2012 will be set “at a later stage,” the commission said today.

The International Emissions Trading Association, a Geneva- based lobby for carbon traders, welcomed the adoption of auctioning regulation. The market now expects the EU regulator and governments to “rapidly advance” discussions on the timetable for early auctions, including publication of volumes “ideally” in September.

“It is a relief that the framework for running these auctions in a harmonized and safe manner across the EU is now established,” said Simone Ruiz, European policy director at IETA in Brussels. “We will indeed see a radical change from 2013, when over 50 percent of emission permits in the system will be auctioned compared to around 5 percent today.”

The vote on the auctioning regulation sets up a three-month scrutiny period in the council of ministers and the European parliament, after which the measure will be adopted by the commission.

EU permits for December closed 1.2 percent higher at 14.01 euros ($17.87) a metric ton on London’s European Climate Exchange, paring this month’s decline to 8.2 percent. They earlier dropped to 13.61 euros, the lowest level since April 13.

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