Lessons for Theory and Practice
Edited by Michael Faure and Marjan Peeters
Chapter 13: The European emissions trading system: auctions and their challenges
Stefan Weishaar 1. INTRODUCTION On 25 October 2003, Directive 2003/87/EC governing the European Emissions Trading System (EU ETS) for greenhouse gas emission allowances for energy intensive installations entered into force. Thereby all Member States were obliged to establish an emissions trading scheme as of 1 January 2005. Around 5000 operators with approximately 12 000 installations participate in this multi-jurisdictional attempt to reduce CO2 emissions from four broad sectors: energy, ferrous metals, minerals, pulp and paper.1 The programme is implemented in multiple phases: the first ranging from 2005–2007; the second from 2008–2012, which resembles the Kyoto Protocol compliance period; and subsequent phases are consecutive five-year periods.2 The operation of the Emissions Trading System required the introduction of emission allowances into the market. Member States were obliged to draft socalled National Allocation Plans (NAPs) in order to indicate how to allocate the allowances to operators. During the first trading period 95% of all emission allowances had to be allocated free of charge and in the second trading phase this number only marginally increased to 90%.3 In January 2008 the European Commission delivered a proposal to amend Directive 2003/87/EC in order to improve and to extend the greenhouse gas emission allowance trading system of the Community. At the heart of the proposed amendment lies a fundamental change of the prescribed allocation methods. While free allocation mechanisms, in particular grandfathering, have been employed by the Member States, auctioning is to become the most prominent allocation format in future trading periods. 1 See...
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