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ountries participating in the EuropeanEmissions Trading System (EU ETS) willsoon be facing significant changes tocurrent regulations. Under the current scheme, based on internationalagreements, all companies operating "installations",i.e. technical units the exploitation of which can leadto emission of harmful substances, are obliged toreport their CO2 emissions annually and to surrender acorresponding number of allowances held. Up until now, each participant would receive anallotted amount of free emission allowances accordingto a pre-agreed plan of allocation based on capsnegotiated by governments of the EU Member States,with a secondary market running smoothly in parallel.Companies that wish to purchase additionalallowances can obtain them on the spot market or inthe form of derivatives such as futures or options.Additionally, some stock exchanges allow auctions,where the number of allocations placed on the marketin individual transactions tends to be very high inrelation to the daily turnover.From next year until the end of 2020, participants of theEU emissions trading system will have to face theimplementation of amended EU Regulations. The mostsignificant changes concern the way in which allowancesare registered and placed on the market. From thebeginning of 2012 the current, decentralised system ofemission registers is to be replaced by one consolidatedEuropean Union register (EUTL - European UnionTransaction Log). This means that, among otherrequirements, company owners will need to undergothe registration process all over again and learn new ITsystems, while administrators of the system will be ableto monitor registrants more closely than ever before. When the new rules come into force, administratorswill have the power to request that members of theboard of a future account holder, or its representativeswho are to be given access to the register ofdeclarations, submit a declaration confirming that theyare not subject to legal proceedings relating toembezzlement of CO2 emission allowances or otherunits created in line with the Kyoto Protocol,introducing into circulation money from illegal orundisclosed sources, financing terrorism or otherserious crimes, thus ensuring that the account will notbe used for those purposes. Those criteria, along with an obligation to ascribe toeach account an additional authorised representativeso that each transaction on the account is authorisedby at least two people, will undoubtedly enhancecredibility and safety of the whole system. At the sametime, however, more stringent rules can contribute tocreating entry barriers for companies wishing to takepart in the trade system, for whom the participation inthe EU ETS is not currently mandatory. The resultingconfusion caused by those changes can lead to adecrease in the volume of transactions compared tocorresponding periods in previous years.Another important change to be introduced after 2012is the way allowances are placed on the market. From2012 onwards, carbon market will be divided into theprimary shares market, primary free emissions marketand secondary market, already in place. This meansthat auctions will not be the only way to obtainallowances, hence interested parties will be able tochoose whether to take part in them at all. Accordingto European Commission estimates, auction sales willconstitute over 50 per cent of the total volume ofallowances for the years 2012-2020. (The auctioningprocess is regulated by the provisions of theEUETS-PURCHASING EMISSIONS ALLOWANCES IN2013-2020088CARBON FINANCEMACIEJ WISNIEWSKI, PRESIDENT, CONSUS S.A.C

CARBON FINANCE089Commission Regulation (EU) no 1031/2010 of 12November 2010 on the timing, administration andother aspects of auctioning of greenhouse gasemission allowances pursuant to Directive2003/87/EC of the European Parliament and of theCouncil establishing a scheme for greenhouse gasemission allowances trading within the Community.)In the last year of the second clearing period (Phase II)the introduction of "trial" auctions has beenannounced. The auctions will trade in allowanceswhich can be used in the third clearing period (PhaseIII), 120 million of allowances in total. The advantagesof such an experiment include an opportunity to testthe functioning of the system, preparing companies forincoming change as well as certainty of obtaining unitsneeded in Phase III. However, a few issues related to the validity ofallowances held by companies from Phase II remainsomewhat unclear. EU Directives account for suchconversions but the way of calculating their value hasnot as yet been decided. It is expected that theconversion factor will be used by the EuropeanCommission as a means of controlling the supply ofallowances in subsequent periods which shouldcompel companies to participate in the trial auctions. Sales of allowances at auctions will either take theform of two-day spot or five-day future contracts.Which of these two options will be used will be decidedduring the process of appointment of the commonauctioning platform. For auctions held before 2013,allowances EUA valid for the period 2013-2020 willbe sold in the form of forwards or futures with an optionof delivery before the end of December 2013. Theform of contract will be decided by Member States.One of the advantages of the use of auctions is the factthat all parties will have access to CO2 emissionsallowances on equal terms. According to Directive2009/29/EC, allowance auction should also guaranteeopenness, transparency and cost-effectiveness.Another definite advantage is the fact that individualcountries will be able to dispose freely of revenue fromsales of allowances at auctions. At least 50 per cent of income from the sale ofallowances at auction is intended to be used to fundenvironmentally-friendly investments such as thoseproposed in Art. 10 of the Directive of the EuropeanParliament and of the Council 2009/29/EC of 23 April2009 amending Directive 2003/87/EC so as toimprove and extend the greenhouse gas emissionallowance trading scheme of the Community. Nevertheless, purchasing additional CO2 emissionallowances after 2012, particularly in the light of thecontinuing financial crisis, will pose a considerablechallenge. A growing market interest in futures (i.e.contracts with delivery occurring at a specified future