(B.) Market Construct (cont.)
Transactions involving allowances are tracked and categorized by the EPA. The
agency collects information about the buyer and seller and the serial numbers of the
transacted allowances. EPA does not, however, record the allowance price, instead deferring to
the market, which can more efficiently process this information. Also, because companies
are not required to report allowance transfers to EPA until the allowances are used
for compliance, many transactions have not yet been recorded in ATS even though
the private agreements are in place. EPA also does not track option trades and
other transactions that have not been reported to EPA.
The ATS has two types of accounts: unit accounts and general accounts. The unit account holds allowances that were initially issued to those sources required to participate in the program. In addition, unit accounts track allowances as they are traded, withdrawn for compliance purposes, and ultimately retired for compliance.
General accounts are much like unit accounts in which trades are tracked. However, EPA does not adjust these accounts during annual compliance period reconciliation. These accounts can be opened free of charge by anyone wishing to participate in emissions trading—including sources that already have unit accounts. The allowances in general accounts are not subject to allowance deductions to cover actual emissions and can be held indefinitely.
Traders, environmental groups, citizens and other entities operate through general accounts in the ATS. General accounts are opened by submitting an Allowance Account Information form to the EPA. Once the agency has received this form, it will send confirmation of the new account, and the applicant is ready to trade.
Over-the-counter Market
One of the basic markets for emissions allowance trading is the
over-the-counter market. Over-the-counter trading directly matches buyers and sellers, rather than moving
trades through a centralized system. By contrast, trades for exchange-listed stocks are
done through specialists that ensure the efficient movement of each listing. Emissions
trading markets move with the participation of buyers, sellers, brokers, market makers,
and traders—each using a direct link to purchase or sell allowances.
The prices for buying or selling emissions are fluid and determined with each individual trade. Because of the over-the-counter format, there is no central recording structure for current allowance bids and asks. Price information is readily available from market sources, such as brokers, traders, and indexes published by trade journals.