Public Policy: Using Market-Based Approaches - Department for ...

A more detailed and diagrammatic description of the auction process is depicted
in Figure 11.1.
Figure 11.1
Allocation of allowances – the auction process
Start
The Department publishes
scheme rules, announces up
to £215 million available for
emissions reductions and
invites participants
Companies apply to participate
via 3-stage process
The Department has discretion
to abandon the auction
NO
Auction begins
The Department announces
starting price per tonne of
reduction in 2006, £100
Participants bid quantities
of reductions they will
make at that price
The Department determines
budget for the auction
(in practice £215 million,
but could have been less)
Is Department
satisfied with bids
received?
9 auction rounds
took place
Participants bid
quantities of
reductions they will
make at new price
The Department announces
new, reduced price
Source: Report by the Comptroller and Auditor General, The UK Emissions Trading Scheme: A new way to combat
climate change. National Audit Office, April 2004.
The outcome of the auction was that participants bid to reduce emissions by a
total of 4.03 million tonnes in 2006 at a price of £53.37 per tonne in 2006, or
equivalently £17.79 per tonne over the lifetime of the UK-ETS. 163 However, three
direct participants subsequently dropped out so the final amount of reduction
purchased was 3.96 million tonnes.
The 3.96 million tonnes are to be achieved in a period of five years, thus each
year direct participants must achieve 20 per cent of their promised reductions.
At the beginning of the scheme, participants submitted bids for the total
emissions reductions they would achieve in 2006, relative to a predetermined
YES
Is (price x quantity)
more than the
incentive budget?
NO
Auction clears – participants
are committed to deliver
reductions they bid in final
round, at clearing price
(£53.37 in practice)
End
Section 11 – Emissions Trading
163 Participants must deliver annual reductions increasing by 20 per cent per year starting in 2002 and ending in
2006. Thus the reductions in 2006, relative to the baseline, represents one-third of the cumulative total reductions
from 2002-06. Therefore the price of £53.37 per tCO2e in 2006 corresponds to £17.79 per tCO2e over the lifetime
of the Scheme.
YES
153