On 29 July 2008, HM Treasury published The Community Emissions Trading Scheme (Allocation of Allowances) Scheme 2008 (the 'Scheme'), which sets out the terms and conduct of allocation of allowances in the UK's auctions for Phase II of the EU Emissions Trading Scheme ('EU ETS'). This will be of interest to parties wishing to participate in the auctioning of allowances, other investors and stakeholder groups and to parties wishing to be appointed as intermediaries in the competitive stages of the auction process.


Under Phase II of the EU ETS (2008-2012), Member States set a CO2 emissions cap for all installations covered by the EU ETS. Participating installations are allocated free allowances for a particular commitment period, which are specified in a National Allocation Plan ('NAP') and are based on their historic emissions.

The UK's Phase II NAP sets aside 7% of the allowance cap for auctioning or sale, amounting to approximately 85 million allowances over the entire phase. This amount is taken from allowances which would otherwise have been allocated free of charge to the power sector and may be increased during Phase II in particular with allowances from installations which ceased operating before the end of the phase.

Scheme Details

In December 2007, the Government consulted on the proposed type, form and process for the auction or other allocation of EU allowances ('EUAs') during Phase II of EU ETS.

The Scheme was published in addition to the 'Community Emissions Trading Scheme (Allocation of Allowances for Payment) Regulations 2008', which came into force on 11 July 2008. These Regulations were then subsequently amended by the 'Community Emissions Trading Scheme (Allocation of Allowances for Payment) (Amendment) Regulations 2008' to provide a sufficient deterrent to wrongful disclosure of confidential information in auctions by making it a criminal offence. These Amendment Regulations come into force on 12 August 2008.

While the Regulations allow the Government to make allocations of EU emission allowances for payment, the Scheme sets out the conduct and terms of the auction as well as the participation requirements. Auctions are open to anyone holding an account at a EU ETS registry in any EU Member State.

The auctions will comprise of two bidding stages - a non-competitive stage and a competitive stage. The initial auctions will only involve competitive bidding and the current version of the Scheme reflects this by only allowing bids to be placed by intermediaries appointed to facilitate this stage of the auction process ('Primary Participants'.)

Primary Participants will be assessed by DEFRA against eligibility criteria set out in the Scheme. These criteria require having the ability to participate effectively in an auction on behalf of others, having the ability to meet financial commitments supported by suitable credit ratings and having adequate systems in place to prevent disclosure of confidential information, including having in place 'Information Barriers'. Applicants wishing to become Primary Participants should apply to DEFRA.

Next Steps

The Government aims to hold the first auction by the end of 2008 with confirmation of the date 2 months in advance.

The Government aims to have the non-competitive element of the auction in place for early 2009 and intends to publish a revised Scheme setting out the terms for this in due course.

To access the Scheme document, please click here.

To access the consultation document, please click here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 30/07/2008.