Auctioning carbon allowances in Europe : the legal and regulatory aspects

Abstract

Auctioning is a market-based instrument that will at the start of 2013 be set as the default allocation method for the issuance of emission allowances within the European Union Emissions Trading Scheme (EU ETS). This thesis aims at presenting a coherent legal and regulatory analysis of this mechanism in light mainly of Directive 2003/87/EC as revised (EU ETS Directive) and the Commission Regulation (EU) No 1031/2010 (Auctioning Regulation). A brief introduction of the legal principles, regulatory framework and practical aspects grounding the EU ETS and the context within which auctions will take place, will be developed in Chapter I. Whether auctioning is the best allocation approach to attain emission reductions and investment in clean technologies will be examined in Chapter II, alongside an overview of the environmental effectiveness of comparable allocation methods. Exceptions to full auctioning have been formulated and these will thereafter be illustrated. Chapter III will delve into three composite elements of the auctioning system. It will initiate with a discussion on the legal nature of emission allowances, advance to a critical analysis of the auction platform whereon allowances will be auctioned and ultimately conclude with a review of the eligibility requirements for access thereto. The challenges encountered for a proper auction design to be preventive of abusive and anti-competitive behaviour will be highlighted in Chapter IV. Assimilations will be made to risks already known to the European framework and challenges that the European carbon market has hitherto encountered. Supervisory, oversight and enforcement responsibilities will also be addressed. The study will be concluded in Chapter V with a reflection of how the EU ETS can improve its market performance standards and rid of the obstacles currently faced with. A few comments will thereafter be made on the challenges that local operators subjected to the revised scheme will have to tackle.