The Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021

Cost containment mechanism

12.—(1) If this regulation applies the Treasury may authorise one or more of the following measures—

(a) changing the distribution of allowances to be auctioned at auctions within a calendar year;

(b) increasing the volume of allowances to be auctioned in a calendar year by bringing forward part of the volume of allowances to be auctioned in a subsequent calendar year;

(c) the release of up to 25% of the allowances held in the new entrants reserve provided for in article 34G of the Trading Scheme Order for auction in that calendar year;

(d) the release of allowances from the market stability mechanism account held by the UK ETS Authority for auction in that calendar year.

(2) This regulation applies if the average price for one allowance (the “average carbon price”) is more than—

(a) during year one, an amount equal to 2 x A for three consecutive months;

(b) during year two, an amount equal to 2.5 x A for three consecutive months;

(c) during year three, and in subsequent years, an amount equal to 3 x A for six consecutive months.

(3) Where the Treasury authorises an increase in the volume of allowances to be auctioned in a calendar year under paragraph (1), the UK ETS Authority may direct the registry administrator to create additional allowances for auction in that year.

(4) When there is no end of day settlement prices for December futures contracts relating to allowances, the end of day settlement prices for December futures contracts relating to EU emission allowances may be used to calculate the average carbon price in the United Kingdom in relation to any date before 31st December 2020.

(5) For the purposes of this regulation—

(a) “A” is the average carbon price in effect in the United Kingdom during the period of two years ending on the day immediately before the first month in which the carbon price increased as referred to in paragraph (2);

(b) “year one”, means the year starting on 1st January 2021, and “year two” and “year three” are to be construed accordingly;

(c) the average carbon price in effect in the United Kingdom on a day (“the relevant day”) is the average end of day settlement price, calculated over the period (“the relevant period”) of—

(i) three months preceding the relevant day, when the calculation is made during year one or year two, or

(ii) six months preceding the relevant day, when the calculation is made during year three or in subsequent years,

of December futures contracts, as traded on the relevant carbon market exchange.

(d) the “average” end of day settlement price is calculated by dividing the sum of the end of day settlement price for each day in the relevant period for which an end of day settlement price is published by the number of days in the relevant period for which an end of day settlement price is published.

(e) a “December futures contract” is a futures contract for allowances, or (if paragraph (4) applies), EU emissions allowances, deliverable in December of the calendar year in which the contract is made;

(f) “EU emissions allowances” means an allowance to emit one tonne of carbon dioxide equivalent during a specified period, which is valid for the purposes of meeting the requirements of Directive 2003/87/EC of the European Parliament and of the Council of 13th October 2003 establishing a system for greenhouse gas emission allowances trading within the Community(1), and which is transferable in accordance with the provisions of that directive;

(g) “end of day settlement price”, in relation to futures contract, means the end of day settlement price per tonne of carbon dioxide equivalent published by the carbon market exchange on which the futures contract is traded;

(h) “relevant carbon market exchange” in relation to any calendar year, or part of a calendar year, means the largest carbon market exchange as determined by volume of sales in that calendar year of the December futures contracts for the calendar year traded on the exchange.

(1)

OJ L 275, 25.10.2003, p. 32.