Debating optimal ways to organise auctions in Brussels last week (6 May), business and government experts attacked the EU executive's draft rules on organising the auctioning of emissions allowances in the EU's emissions trading scheme (EU ETS) for the third trading period, which starts in 2013.
Peter Zapfel, head of the policy coordination office at the Commission's climate action department, said the opt-out option was "a gesture to those member states who have reservations [about] a single platform".
This was understood to mean the UK and Germany, which have formed a blocking minority on centralised auctioning with the support of Spain and Poland. London and Berlin want to continue auctioning on their own platforms - the UK because of its large financial services industry and Germany because of the sheer size of its market - while Spain and Poland have no experience of auctioning.
The Commission's first draft showed that it was going to opt for a centralised auctioning plan (EurActiv 04/03/10), but the proposal sent to member states last month showed that the Commission was backing down from adopting a European approach. It gave member states the chance to opt out from the centralised platform and continue auctioning their allowances at national level until 2016.
France, supported by the majority of member states, believes that a centralised platform is the only way to ensure a single price on the market, said Diane Simiu from the French Environment Ministry.
She argued that member states that do not have enough allowances to auction do not want to pay for the "mistakes" of member states that opt out. She said France had sent to the Commission proposals on providing a more robust regulatory framework for auctioning.
"It is only under these conditions that we will consider the opt-out acceptable," Simiu stressed.
But a UK government representative retorted that the concerns raised are common to the EU platform as well.
"I think there's been an assumption here that the central platform will be faultless," he said. "We have no guarantee of that," he warned, pointing out that it would not make sense to throw out "two completely functioning platforms" in Germany and the UK under such circumstances.
"We need to create the common rules" to ensure that there are no distortions, the UK official stressed.
Indeed, much of the criticism of multiple platforms centred on the lack of rules and market oversight in the current proposal. Fingers were pointed at the Commission for not providing supervision between the platforms, nor a mechanism to sanction platforms that do not function properly.
The common rules include a common definition of access to the platform and ensuring that auctions do not overlap, as this could reduce liquidity on the market and impact on prices. The Commission is keen to have a coordinated auctioning calendar.
Risking oversupply or market certainty?
The industry is hurrying the Commission to put on the table a clear calendar of when auctions will start and what the final volumes will be, arguing that delaying decisions will create uncertainty on the market.
Electricity generators, in particular, want to ensure that a hefty proportion of allowances are auctioned early to help them hedge their forward power contracts.
But market analysts cautioned that the EU executive needs to carry out a diligent balancing act on how many can be put on the market before 2013 to avoid oversupply, which has rigged the market in earlier phases.
"There is a crisis of confidence," argued Imtiaz Ahmad, executive director of Morgan Stanley, stressing that phase three offers a chance to correct past mistakes.