EU ETS - EU Allowances

Decarbonization
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Hello!

Could someone explain the logic of EU carbon allowances and where / how they can be purchased?

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The EU ETS follows a ‘cap-and-trade’ approach: the EU sets a cap on how much CO2 can be emitted – which decreases each year – and companies need to have a European Emission Allowance (EUA) for every tonne of CO2 they emit within one calendar year. They receive or buy these permits – and they can trade them. This is not extended to the maritime sector just yet, but it is already agreed that it will.

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Hello,

You may purchase EU carbon allowances (EUAs):

A. Auctions - EEX auction platform
In 2021, the European Commission signed a five-year contract with the European Energy Exchange AG (EEX) for the services of the third common auction platform under the EU Emissions Trading System (EU ETS) where 28 countries (25 EU Member States and 3 EEA/EFTA countries) auction their allowances on the common auction platform.

Interested companies should register to the EEX platform to participate in these auctions and purchase EUAs at a fixed price at auctions arranged several times a year by the platform.

How to participate in the Auctions?

There are several ways to participate in the auctions.
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  • Direct Access - bid directly at EEX:
    A. Full Membership: all products of EEX
    B. Power Markets Plus Membership: all products of EEX excl. EEX Natural Gas
    C. Emerging and Environmental Markets: Emissions Auctions via Auction System
    D. Auction Only - System: Emissions Auctions via Auction system
    E. Auction Only – Helpdesk: Emission Auctions via Market Operations

  • Indirect Access - bid via an intermediary.
    Intermediaries are eligible to bit on own behalf and on behalf of clients in accordance with Article 18 of the Auctioning Regulation.
    F. Intermediaries: Emissions Auctions via Intermediary

Here is a comparison of the different ways for auction participation according to EEX Group in 2022.

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Depending on the way selected to participate in the auctions, there are different forms and documents that need to be submitted to the platform. Then you receive a confirmation that you are ready to participate in the auctions.

The biting window usually opens several times per year from 9:00 – 11:00 am CET. No later than 11:15 am CET the results of minimum, maximum, and other biting details are published.

B. Trading - Secondary market trading venues
Secondary market trading venues offer emission allowances or derivatives (futures or/and options) that complement the trading instruments in the EU ETS with products on the spot side.

Trading venues all need to have authorization issued by their national supervisory authority. To obtain and maintain such authorization, they must comply with a number of organizational and operational requirements.

One can trade these on different exchanges as well as over-the-counter (OTC) markets, and their value varies based on the forces of supply and demand.

C. Bank EUAs for use in future years
Storing EUAs for future use is an option that can come in handy in case you anticipate higher emissions in the future and wish to have enough allowances to balance out those emissions.

References:

https://www.eex.com/en/markets/environmental-markets/eu-ets-auctions

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Does the EU ETS only apply to CO2 emissions from ships, or does it include other types of emissions as well?

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Hi @Ahmed

The European Union has decided to incorporate maritime emissions into the EU Emissions Trading System (EU ETS), effective from January 1, 2024. Under this directive, shipping companies will be required to provide allowances for 40% of their emissions in 2024, which will increase to 70% in 2025.

The complete application of this directive will begin in 2026. Additionally, starting from 2026, shipping companies will have to provide allowances for methane and nitrous oxide emissions, in addition to CO2.

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