Department for Environment, Food and Rural Affairs
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UK to issue European carbon allowances
The UK Government plans to issue EU ETS Phase II carbon allowances once European and Global registry systems are linked and operational. The European Commission and UNFCCC have confirmed that the work required to establish this connection will start on Monday 6th October and will take at least ten days, as stated in the following press releases:
UNFCCC:
http://unfccc.int/kyoto_protocol/registry_systems/items/2723.php
EC: http://ec.europa.eu/environment/climat/emission/citl_en.htm.
All EU registry systems will need to be taken off-line for a period of time during this process. Once this work has been completed the UK registry will remain off-line for a number of additional days while the process of allocating 2008 allowances to operator holding accounts takes place. Once the UK registry is brought back on-line, all 2008 allowances will be available in operator accounts. This is likely to be in early November 2008. A further information note will be issued at this time.
The UK's first auction of allowances is scheduled for Wednesday 19th November 2008 and the number of allowances available at the auction will be announced at least one month beforehand. The application window to become a Primary Participant for participation in the auction is open to the end of October. For further details, see the auctioning web pages:
http://www.hm-treasury.gov.uk/media/B/1/euetsscheme050808.pdf
NOTES TO EDITORS ON REGISTRIES
1. National registries are similar to an on-line banking system. They contain holding accounts, which can be used to hold, transfer and cancel EU Allowances and Kyoto units as well as for compliance purposes under the EU ETS and Kyoto. Permitted installations have compliance obligations and must have an operator holding account, whilst other organisations / individuals do not have any compliance obligations and can only have a person holding account.
2. Within the EU, national registries are currently connected to the European Commission's Community Independent Transaction Log (CITL), which acts as the central communications hub and checks all transactions to ensure that they conform to the rules of the EU ETS. Under Kyoto, national registries must establish a connection to the UNFCCC's International Transaction Log (ITL). In this situation there will be two transaction hubs, with the ITL first checking all Kyoto-related transactions to ensure that they conform to the rules of international trading under Kyoto and secondly the CITL continuing to check all EU ETS-related transactions.
3. In order to connect to the ITL, Member States must first disconnect their national registries from the CITL and then perform a data migration process in order to incorporate any Phase II / commitment period 1 data into the ITL database. The more data the national registry contains, the more complicated and time-consuming the migration process becomes.
4. UK Government is aware that many market participants have forward contracts in place to deliver Phase II EU Allowances by 1st December 2008 and therefore this is a key deadline for the market.
NOTES TO EDITORS ON AUCTIONING
1. The UK NAP for the second trading period (2008-2012) sets aside 7% of the allowance cap for auctioning, amounting to approximately 85 million allowances over the phase.
2. The Community Emissions Trading Scheme (Allocation of Allowances) Scheme ("The Scheme"), published by HM Treasury on 29th July 2008, sits below the Regulations governing auctions. The Scheme is intended to cover many of the detailed elements of running auctions and sets out the conduct and terms of allocation, along with the detailed design of the auctions, and the requirements in order to participate. You can find that announcement if you visit: http://www.hm-treasury.gov.uk/media/B/1/euetsscheme050808.pdf
3. HM Treasury has appointed Defra as the person conducting the auction and Defra has appointed the UK Debt Management Office to act as its agent. The DMO is an Executive Agency of HM Treasury and as Government Debt Manager, has been responsible for auctioning UK Government securities since April 1998.
4. The auctions are open to anyone who holds an account on the registry. The auctions will comprise two bidding stages - i) non competitive and ii) competitive. The first auction, scheduled to be held on 19th November 2008, will involve competitive bidding only. The Government aims to implement the non competitive bidding facility in early 2009.
5. Competitive bids in an auction must be placed through an
intermediary known as a Primary Participant. Any organisation
with an EU ETS Registry Account and an office base in an EEA state
can apply to become a Primary Participant. Organisations apply
directly to Defra and are assessed against the eligibility
criteria set out in the Scheme.
6. Details of approved Primary
Participants will be published on the DMO http://www.dmo.gov.uk. Once
appointed Primary Participants must abide by the "Terms"
set out in the Scheme.
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