Auctions in emissions trading
Since 2013, auctions have become the fundamental principle, and in particular, electricity producers have since been required to purchase 100 percent of the certificates through auctions.
In the second emissions trading period from 2008 to 2012, only some of the countries in the European Union (EU) made use of the possibility set out in the Emissions Trading Directive to auction or sell up to 10 percent of their certificates. These include Austria, Germany, Great Britain, the Netherlands, and Ireland.
In Austria, a total of 1.3 percent of the certificates were auctioned during the entire period.
Auctions for the trading period from 2013
With the Climate and Energy Package of 2008, the Emissions Trading Directive was amended in numerous points. A significant innovation concerns the allocation method. Whereas certificates were previously largely allocated for free, auctions became the fundamental principle from 2013 onwards. In particular, there are no longer any free certificates for fossil electricity production, except for a temporary exemption possibility for electricity generation in some new member states. In contrast, sectors in industry that are exposed to strong international competition will initially continue to receive a large share of certificates for free. The reason for this system change lies especially in the view that auctions best comply with the polluter pays principle and provide the greatest incentives to invest in climate-friendly measures.
Use of auction revenues
Due to the magnitude alone, it was absolutely necessary to establish clear EU-wide harmonized rules. This was done with the Auctioning Regulation (EU) 1031/2010. Due to the system change, significantly more revenues are now generated than before, whereby the auction revenues are transferred to the member states according to a key already set out in the Emissions Trading Directive. The key is essentially based on each country’s share of emissions in the Emissions Trading System (ETS).
Less clearly regulated is the question of what purposes the revenues should be used for. The European Parliament had demanded a mandatory earmarking but was unable to enforce it. Therefore, the directive now contains a formulation that does not oblige the states but clearly recommends that at least 50 percent of the revenues be used for climate-related measures such as the promotion of renewables and energy efficiency, research and development, or adaptation to climate change. Not only domestic measures are mentioned here but also financial support for developing countries, including efforts to prevent deforestation. This provision was reinforced by a political declaration of the European Council as part of the overall compromise on the Climate and Energy Package in December 2008.