The community Emissions Trading System (allocation of allowances) UK auctions 2008:

DEPARTMENT OF ENERGY AND CLIMATE CHANGE News Release (2008/4) issued by COI News Distribution Service. 17 October 2008

ANNOUNCEMENT OF VOLUME OF ALLOWANCES FOR THE FIRST UK AUCTION

The Government intends to auction 4 million allowances at the first EU ETS auction in the UK on 19 November 2008. During 2009 the Government plans to auction 25 million allowances.

The first UK auction will provide for a competitive bidding facility. Bids must be placed through an intermediary, referred to as a Primary Participant. Subsequent auctions will include a non-competitive component to facilitate direct access to the auctions for the smaller compliance buyers.

The bidding window will be open between 08:00 and 10:00 GMT on Wednesday 19 November 2008.

VAT will be chargeable on EU allowances in order to avoid any distortion of competition with existing carbon markets.

Notes to editors

1. The EU Emissions Trading System (EU ETS) aims to reduce emissions of carbon dioxide at least cost to industry. Participants are allocated emissions allowances that they can trade to help them meet their emissions reductions targets.

2. The System works on a "cap and trade" basis. Member States' governments are required to set an emissions cap for all installations covered by the scheme. Each installation will then be allocated allowances for the particular commitment period in question. The number of allowances allocated to each installation for any given period is specified in a document called the National Allocation Plan (NAP). Anyone who is not covered by the System will be able to open an account on the Registry and buy and sell allowances.

3. If an installation fails to surrender sufficient allowances to cover its annual emissions, it will face financial penalties (currently set at E100 per tonne), and also the requirement to surrender sufficient allowances the following year.

4. 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. HMT has appointed the Department of Energy and Climate Change (DECC) as the person conducting the auction. DECC has appointed the UK Debt Management Office (DMO) to act as its agent.

5. The auctions are open to anyone who holds an EU ETS Registry account. The auctions will comprise two bidding stages - i) non-competitive and ii) competitive. The first auctions will involve competitive bidding only. The Government aims to implement the non-competitive bidding facility early in 2009.

6. The Government will be appointing intermediaries (known as Primary Participants) to facilitate the competitive stage of auctions. Organisations will need to apply to Defra to become Primary Participants and will be assessed against the eligibility criteria set out in the Scheme. These include having an office in an EEA state, having the ability to meet financial commitments supported by suitable credit ratings, the ability to effectively participate in an auction on behalf of others, and systems to prevent the disclosure of confidential information (including having 'Chinese walls' within their organisation).

7. Once appointed, Primary Participants must abide by the "Terms" set out in the Scheme. These include accepting instructions to act on behalf of any organisation with an EU Registry account (known in this process as 'indirect bidders'), subject to anti-money laundering checks and their own objective checks on the indirect bidders' ability to pay for allowances. This ensures that UK auctions are open to all and that Primary Participants cannot refuse to place bids on behalf of an indirect bidder without good reason.

8. In accordance with 'The Community Emission Trading (Allocation of Allowances for Payment) Scheme that establishes a transparent mechanism for determining the clearing price at auction, the Treasury intends to determine a reserve price below which no allowances may be allocated by auction. The reserve price will be calculated by applying a discount rate and markdown to the prevalent secondary market price before the close of the bidding window.

Department of Energy and Climate Change
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