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European Union: Draft Regulation on Auctioning of Emissions Trading System Allowances

(July 28, 2010) On July 14, 2010, the Climate Change Committee of the European Commission endorsed the Commission's proposal for a regulation that establishes rules governing the auctioning of emissions allowances under the EU Emissions Trading System (ETS) and of emissions allowances to be used by aircraft operations. The ETS, established in 2005, is the first international emissions trading system and includes the 27 EU members as well as Norway, Iceland, and Liechtenstein. Pursuant to the proposed regulation, beginning in 2013 auctioning will replace free allocation as the principal method used to allocate emissions allowances to all ETS sectors except aviation. (Press Release, IP/10/948, RAPID, Emissions Trading: Member States Back Unanimously Commission Proposed Rules for Auctioning of Allowances (July 14, 2010),

It is expected that auctioning will benefit the ETS system by improving its efficiency, transparency, and simplicity and will also reduce windfall profits gained by operators who pass on to their customers the cost of the allowances, even when such allowances are given free of charge. In the field of aviation, 15% of emissions allowances will be auctioned beginning in 2012. The aviation allowances may be used by aircraft operators only. (Id.)

The proposal calls for a “single-round, sealed-bid, uniform-price” auction format that can be easily accessed by ETS operators and other bidders. Small- and medium-sized companies covered by the ETS as well as small emitters will enjoy “full, fair and equitable access” to auctioning. Lastly, the proposal contains rules to eliminate the danger of money laundering, terrorist financing, financial crime, insider dealing, and market manipulation in connection with the auction process. The proposal will be adopted at the end of a three-month review period by the European Parliament and the Council of the EU, provided they raise no objections. (Id.)