Cap-and-trade only does its job if there is a price. A new scheme arrives with a cap, an allocation method and a registry — and then allowances sit in accounts because there is no venue on which to discover what abatement is worth. Standing up the market is a smaller problem than writing the scheme, and it is the one most often left until last.
This is the position of most emissions schemes outside the handful of mature ones: a legislature has created an obligation, a registry records who holds what, and the market that was supposed to find the cheapest tonne of abatement never quite got built.
Free allocation is a spreadsheet exercise; auctioned allocation is typically a sealed-bid process operated by an appointed bank or agency a few times a year. It works, it is expensive, and it produces a price at four points in the calendar rather than continuously.
Emitters that are long trade with emitters that are short by telephone, if at all. Most simply hold what they were given and true up at the deadline, which means the cap constrains output without ever revealing where abatement is cheapest — the entire economic argument for the instrument.
A few dozen large emitters, in one jurisdiction, often in one or two sectors. That is a market where a handful of trades can move the reference, where the appearance of coordination is unavoidable, and where a regulator has to be able to demonstrate otherwise.
Cap-and-trade is politically contested wherever it is introduced. Questions about whether an auction was fair, whether a price spike was manipulated, or why a particular emitter did well arrive from legislators and journalists rather than from a compliance department, and they arrive months later.
Both halves of the scheme — the primary allocation and the secondary market — are auction problems, and they can run on one engine with one audit trail rather than as two unrelated procurements.
A call session collects sealed interest, disseminates an indicative price while it fills, and uncrosses at the price that clears the offered volume. Every successful bidder pays the same price. That is the standard mechanism for allowance auctions, and running it on the venue rather than in a spreadsheet makes it reviewable.
Auction reserve prices and cost-containment thresholds are policy decisions with an operational half: orders below the floor do not execute, and breaching a ceiling halts trading rather than printing through it. Price bands and session control are configuration, applied by an operator under four-eyes approval.
Allowances of different vintages are different instruments with their own books. Whether a 2027 allowance can discharge a 2026 obligation is a scheme rule; expressing it as instrument definitions and eligibility rather than as a footnote is what makes the market's prices mean something.
Concentration caps are a standard remedy in a small allowance market. As pre-trade position limits per participant they are enforced structurally — an order that would breach one is refused with the limit named, rather than discovered in a monthly report.
Every order, amendment, cancellation and operator action is journaled in one gap-free sequence before it executes. When the question arrives — in a committee room, eighteen months later — the answer is a replay that reproduces the same auction exactly, not a reconstruction.
The auction mechanics, the operator controls a regulator can defend, and the evidence. In a scheme this politically exposed, the journal is not a technical feature — it is the deliverable.
| Setting | Typical starting point |
|---|---|
| Instrument | Scheme × vintage; separate books per compliance period |
| Lot size | One allowance — typically one tonne CO₂e |
| Primary | Scheduled uniform-price auction with a reserve price |
| Secondary | Continuous trading between auctions |
| Price controls | Reserve floor, and a band that halts rather than prints through |
| Limits | Holding caps per participant, enforced pre-trade |
| Settlement | Netted cash; allowance transfer effected in the registry |
Scheduled auction sessions with a continuously disseminated Indicative Equilibrium Price, an Auction order type that outranks other priced orders in the call, and continuous trading for the secondary book.
Read more →02 · channelThe auction calendar, vintages, eligibility, reserve prices and price bands administered in a browser under maker–checker approval — with a record of who requested each change and who approved it.
Read more →04 · coreHolding and position limits per participant, evaluated before an order reaches the book, so concentration caps are structural rather than retrospective.
Read more →05 · post-tradeTrades stamped with matching type so an auction uncrossing is distinguishable from continuous trading, netted per participant and settlement date, with enriched records for the registry integration.
Read more →Mehrex can run the allocation auction and the secondary book. It cannot write the scheme, measure a tonne, hold the allowances or punish an emitter that ignores the whole thing — and those are what determine whether the market is worth anything.
The cap and its trajectory, sectoral coverage, the allocation method, free-allocation benchmarks, banking and borrowing rules, and the treatment of new entrants and closures. Each is contested, each takes years, and none of them is a software decision. A venue built before these are settled will be rebuilt.
Every allowance is a claim about a tonne that was or was not emitted. Accredited verifiers, monitoring plans, reporting templates and the audit behind them are the substance of the scheme. A liquid market on top of weak MRV is a faster way to trade a fiction, and it will be the first thing an opponent attacks.
Holdings, transfers, surrender and retirement live in a registry, not in the engine. Mehrex emits enriched trade-capture records naming the parties, the vintage and the quantity; turning those into registry instructions, confirming settlement and reconciling against the engine's positions is an integration you build and operate.
Working out each participant's obligation, tracking surrender, and imposing a penalty on an emitter that falls short. If the penalty is weaker than the allowance price, the market clears at the penalty and the cap is decorative. That is policy design with a compliance system behind it.
The journal is a complete record of what happened, which is the raw material for surveillance rather than surveillance itself. Detecting collusion, layering or wash trades among a few dozen participants who all know each other needs analysis on top of it, and a published policy for what happens when something is found.
Carbon markets have a well-documented history of VAT carousel fraud, which is why several jurisdictions apply a reverse charge to allowance trading. That shapes your participant terms, your onboarding and your settlement design, and it is worth resolving with a tax authority before launch rather than after.
Yes — both are auction sessions on the same engine, with the same journal. The primary allocation runs as a scheduled uniform-price call that uncrosses at the price clearing the offered volume, and the secondary book trades continuously between auctions. Using one venue for both means one audit trail rather than two systems to reconcile.
Yes, as configuration rather than code. A reserve is a floor below which orders do not execute; a containment threshold is a price band that suspends automatic execution rather than printing outside it. Both are set in the Control Panel under four-eyes approval, and the change itself is journaled.
Structurally, with pre-trade holding limits and price bands, and evidentially, with a gap-free journal that reproduces any period exactly. Neither is a substitute for a surveillance function and a rulebook with consequences — the engine gives you enforceable limits and complete evidence, not judgement.
No. Allowances are held, transferred and retired in the scheme's registry. Mehrex maintains positions for risk and clearing purposes and emits trade-capture records describing what was traded; making the registry reflect that, and staying reconciled with it, is part of the implementation.
Energy-saving certificates, RECs, guarantees of origin and carbon credits — instruments defined by paper, priced today by survey.
Read the page →Energy & environmentalCorporate power purchase agreements — bespoke, lawyer-heavy, and out of reach for any buyer below a certain size.
Read the page →Precious metalsAn app that sells sub-gram quantities of gold to retail buyers, run as a real order book instead of a dealer’s quote.
Read the page →A live demonstration runs about an hour: the order book, the Control Panel, an auction uncrossing, and a replay of the journal that produced it.