Page type: primary-anchored (mirrors Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021, SI 2021/484)
UK ETS Auctioning Regulations
The Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021 govern how UK ETS allowances are sold at auction. Each allowance permits the emission of 1 tonne of CO2 equivalent. Made by the Treasury under Finance Act 2020 s.96, because auction revenue is fiscal.
Primary source: ~/knowledge/sources/legislation/uk/si-2021-484-ets-auctioning.md
Related: UK ETS Order (the parent scheme creating the cap, allowances, and compliance obligations)
Last updated: 2026-04-05
Auction design (Part 2)
Format: Uniform-price sealed-bid auction. All winners pay the same clearing price, regardless of their individual bid prices. Bidders cannot see other bids.
Minimum bid: 500 allowances (one lot).
Reserve price: GBP 22 per tonne CO2e, adjustable by Treasury direction. UK ETS allowances have traded well above this since launch.
Unsold allowances: Distributed across the next four auctions (quarter each). If any single auction would exceed 125% of its normal volume, the excess goes to the market stability mechanism account.
Secondary market price check: The auction platform can reject all bids if every bid is significantly below the prevailing secondary market price. This prevents collusive under-bidding.
Volume calculation (Part 3)
Annual auction volume = AC - (AFA + IC + RFS + NER + BF) + T
The formula starts with the annual cap (from the UK ETS Order) and subtracts free allocations to aviation, industry compensation, sector reserves, new entrant reserves, and any brought-forward volumes. Transitional volumes are added.
Aviation free allocation ends entirely from 2026. All aviation allowances will be auctioned.
Who can bid (Part 4)
Five categories: operators/aircraft operators with holding accounts, investment firms, credit institutions, business groupings of operators, and public bodies controlling operators. Intermediaries (investment firms, credit institutions) may bid on behalf of clients.
The auctioneer, auction platform staff, and anyone with significant influence over platform management are barred from bidding.
Admission requires a UK ETS registry holding account, a bank account, customer due diligence under Money Laundering Regulations, and demonstrated financial standing.
Cost containment (Reg 12)
If prices rise sharply, Treasury may bring forward allowances from future years or create additional allowances. If prices fall, unsold allowances flow to the market stability account. This two-way mechanism is the UK equivalent of the EU ETS Market Stability Reserve, but operates through Treasury direction rather than an automatic trigger.
The Treasury-DESNZ tension
DESNZ sets the emission cap and climate policy. Treasury controls the auction mechanism and receives the revenue. This creates structural tension: tighter caps increase auction revenue (good for Treasury) but raise compliance costs for industry (a DESNZ concern). The auctioning regulations sit under the Finance Act, not the Climate Change Act.
Cross-references
- UK ETS Order 2020: the parent scheme
- Finance Act 2020, s.96: enabling power
- Market Abuse Regulation (EU 596/2014): abuse framework
- Money Laundering Regulations 2017: admission due diligence