Auctioning of CO2 emission allowances in Phase 3 of the EU Emissions Trading Scheme

The revised Directive published in June 2009 suggests auctioning as a basic principle for allocation for the upcoming third trading phase of the EU Emissions Trading Scheme (EU ETS) that runs from 2013 to 2020. The article emphasizes the importance of a properly chosen auction design. Compared with the past and current trading phases, the significantly higher auction share is expected to yield a thin secondary market for CO2 allowances. The main criteria for a viable auction design (price signalling, efficient allocation, and simplicity combined with transparency and credibility) are used to assess different options for an auction design. A specific auction design for the third trading phase - the simultaneous dynamic uniform double auction - is recommended.