ETS - Emission Trade System
Auctioning is the most transparent method for allocating emission allowances and puts into practice the principle that the polluter should pay. Businesses covered by the EU Emissions Trading System (EU ETS) have to buy an increasing proportion of allowances through auctions.
On 14 July 2021, the European Commission adopted a series of legislative proposals setting out how it intends to achieve climate neutrality in the EU by 2050, including the intermediate target of an at least 55% net reduction in greenhouse gas emissions by 2030. The package proposes to revise several pieces of EU climate legislation, including the EU ETS, Effort Sharing Regulation, transport and land use legislation, setting out in real terms the ways in which the Commission intends to reach EU climate targets under the European Green Deal.
From 2021, the UK is no longer part of the EU, however, pursuant to the Protocol of Ireland and Northern Ireland, the EU ETS applies to electricity generation located in Northern Ireland. Therefore, the UK will auction a small volume of allowances corresponding to its share in the Union-wide cap.
The allowances made available to the Innovation Fund and to the Modernisation Fund are auctioned too. Allowances for the stationary installations (general allowances) are auctioned, unless they are allocated for free or placed in the Market Stability Reserve (MSR).
In total, the Commission estimated that 57% of the total amount of general allowances were auctioned in phase 3. In phase 4 (2021-2030), the share of allowances to be auctioned remains the same.
In accordance with the ETS Directive, in the aviation sector, 15% of all issued aviation allowances are auctioned (see FAQ).
The Member States’ auction shares of general allowances and aviation allowances for phase 4 are published in Commission Decision (EU) 2020/2166 of 17 December 2020.