Presentation is loading. Please wait.

Presentation is loading. Please wait.

EPA’s Experience with Allowance Auctions Brian McLean, USEPA Joe Kruger, National Commission on Energy Policy.

Similar presentations


Presentation on theme: "EPA’s Experience with Allowance Auctions Brian McLean, USEPA Joe Kruger, National Commission on Energy Policy."— Presentation transcript:

1 EPA’s Experience with Allowance Auctions Brian McLean, USEPA Joe Kruger, National Commission on Energy Policy

2 Overview of EPA SO 2 Auction Basics Basics Purpose/goal of EPA auction Purpose/goal of EPA auction Design of the EPA auction Design of the EPA auction EPA’s experience with the auction EPA’s experience with the auction Recent developments Recent developments Conclusions/Lessons Learned Conclusions/Lessons Learned

3 Basics Title IV of the Clean Air Act Amendments provides for a small SO 2 auction (about 2.8%) Title IV of the Clean Air Act Amendments provides for a small SO 2 auction (about 2.8%) Auction proceeds are returned to sources Auction proceeds are returned to sources First auction was held in 1993 and the 14 th auction was held last March First auction was held in 1993 and the 14 th auction was held last March SO 2 auctions are a very small part of the SO 2 market SO 2 auctions are a very small part of the SO 2 market

4 Purpose of the EPA Auction Provide source of allowances for new entrants Provide source of allowances for new entrants Early fears of “hoarding” Early fears of “hoarding” Title IV also included direct sales provision for the same purpose. Title IV also included direct sales provision for the same purpose. Support development of market Support development of market Price discovery Price discovery But not interfere with private market But not interfere with private market

5 Design of EPA Auction Form, vintages, frequency of auction decided by Congress Form, vintages, frequency of auction decided by Congress Price discriminating auction Price discriminating auction Spot and 7-year advance auction Spot and 7-year advance auction Annual auction, open participation Annual auction, open participation

6 Design of EPA Auction (continued) EPA sought credibility for fledgling market EPA sought credibility for fledgling market Initially tried to enlist Treasury Dept. Initially tried to enlist Treasury Dept. Decided to use a private exchange to administer Decided to use a private exchange to administer Put out a “no-cost” RFP Put out a “no-cost” RFP Chose Chicago Board of Trade (CBOT) (other applicants were NYMEX and Cantor-Fitzgerald) Chose Chicago Board of Trade (CBOT) (other applicants were NYMEX and Cantor-Fitzgerald) EPA administers proceeds from auction and returns funds to companies EPA administers proceeds from auction and returns funds to companies

7 Early Experience with Auctions First auction in 1993 First auction in 1993 Clearing price ($131) was about half of what was thought to be the “market” price Clearing price ($131) was about half of what was thought to be the “market” price Some observers attributed low price to auction design (this was refuted by subsequent research) Some observers attributed low price to auction design (this was refuted by subsequent research) Over the next year, the market and auction prices largely converged Over the next year, the market and auction prices largely converged

8 Allowance Price vs. Auction Clearing Price

9 Who has been using auction? Auctions open to everyone Auctions open to everyone Power producers have bought roughly 2/3 Power producers have bought roughly 2/3 Traders/brokers have bought roughly 1/3 Traders/brokers have bought roughly 1/3 NGO’s/Schools/individuals <1% NGO’s/Schools/individuals <1% Additional Provision: Allowances may be offered up for sale Additional Provision: Allowances may be offered up for sale Only 345,000 offered, with 15,000 successfully sold (most over first 4 years) Only 345,000 offered, with 15,000 successfully sold (most over first 4 years)

10 Recent Developments In 2005, CBOT decided to stop running auction In 2005, CBOT decided to stop running auction EPA took over administration and ran 2006 auction EPA took over administration and ran 2006 auction EPA is integrating auction operation into allowance management software EPA is integrating auction operation into allowance management software Greater efficiency Greater efficiency Quicker turnaround Quicker turnaround

11 Lessons Learned The purpose of an auction should guide its design The purpose of an auction should guide its design Auctions important for price discovery in early years when there is limited information Auctions important for price discovery in early years when there is limited information Fears about market power and hoarding were unfounded Fears about market power and hoarding were unfounded Speed, efficiency, accuracy, and transparency are important for ensuring credible administration Speed, efficiency, accuracy, and transparency are important for ensuring credible administration


Download ppt "EPA’s Experience with Allowance Auctions Brian McLean, USEPA Joe Kruger, National Commission on Energy Policy."

Similar presentations


Ads by Google