On 14 November 2008, ICAP hosted the second Global Carbon Market Forum on “Auctioning carbon allowances – towards robust auction design and implementation” in Washington, DC.

About 130 participants discussed new developments and perspectives regarding the design and implementation of auction mechanisms for allocating carbon allowances.

The conference provided a basis for the exchange of experience made with other government conducted auctions of economic assets (treasury bonds, spectrum licenses, airport landing slots etc.) and experience from auctions carried out under operational carbon trading schemes. Furthermore, issues such as what auction design should be used for carbon allowances and what market implications could arise if different auction designs would be used were discussed. Finally, the conference also dealt with technical details, for example how frequently auctions should take place or if there should be any restrictions in terms of who is allowed to participate in auctions. The use of auctioning revenue was another issue discussed by the conference participants.

The conference’s program, presentations and report are available for download below.

Background

Established ETS worldwide have up to date mainly focused on giving away allowances for free in their design of an allocation mechanism. Therefore, practical experience of allocation mechanisms is largely limited on the variants of grandfathering allowances. However, the interest in auctioning as an allocation method for carbon allowances is growing for several reasons:

Distributing carbon allowances is an exercise that is rather difficult to manage for regulators as assets have a substantial value. In addition, free of charge allocations require a substantial amount of robust emissions and other data to avoid distributional outcomes to be perceived as unfair. Finally, regulated companies will pass on as much of the allowance value to their customers (in the form of increased prices) as the market situation allows, even if the allowances are allocated for free.

Summary of the outcomes of the conference

Overall, the following conclusions were drawn at the end of the conference:

  • Generally, conference participants supported auctioning. Reasons include that it can prevent windfall profits, that it provides revenue and, most importantly, that it is efficient.
  • As input for structuring auctions, several points were named: An auction should be frequent (at least quarterly), transparent and simple. Many different auction types were presented at the conference; the UK, Germany, and RGGI, for example, are all taking different approaches.
  • It seemed that most panelists preferred the idea of auctioning 100% as fast as possible instead of to gradually phasing in. This issue, however, presents major political hurdles.
  • The method of auction does not seem to impact the ability to link emissions trading systems. However, the decision about auctioning or distributing allocations for free does matter. Concerning linkage, the cap level is the most important design feature along with the respective price of carbon.
  • Linked policy and understanding of the best way to use proceeds appears to be an additional discussion that needs to take place as we link carbon markets.
  • Second Global Carbon Forum - Report Download
  • Second Global Carbon Forum - Program Download
  • All Presentations of Session 1 Download
  • All Presentations of Session 2 Download
  • All Presentations of Session 3 Download
  • All Presentations of Session 4 Download