Australia’s first ERF auction tipped to yield 9 mt emission cuts

Published 11:50 on February 18, 2015  /  Last updated at 15:29 on May 11, 2016  /  Asia Pacific, Australia  /  No Comments

The Australian government is likely to contract emission cuts of around 9 million tonnes of CO2 equivalent in its first Emissions Reduction Fund auction scheduled in mid-April, market analysts said on Wednesday.

The Australian government is likely to contract emission cuts of around 9 million tonnes of CO2 equivalent in its first Emissions Reduction Fund auction scheduled in mid-April, market analysts Reputex said Wednesday.

The company said it expected around 40 million tonnes of reduction to be bid into the auction at prices ranging from A$5 to A$40 ($3.90-$31.30) per tonne, with a little less than a quarter of the bids to be successful.

“In light of the Regulator’s decision not to disclose a benchmark price – which will operate as a price ceiling – companies will initially be in the dark on the price the Regulator will pay for emissions reductions,” Reputex said in a note to clients.

The A$2.55 billion fund is Australia’s key tool to meet its target of cutting emissions to 5 percent below 2000 levels by 2020.

The aim is to buy emission cuts as cheaply as possible, but the Clean Energy Regulator has given project owners little indication of how much it will be willing to pay. After the auction, the regulator will only publish a weighted average price of successful bids across all project types.

“The benchmark price will be a major factor for the market, with the potential to either lift or deflate supply after the first auction, depending on whether the market views the price cap bullishly or is disappointed by the Regulator’s ambition,” Hugh Grossman, Reputex general manager, said.

Waste and forestry projects from the Carbon Farming Initiative are expected to secure most contracts in the first auctions, but are to eventually set to be overtaken by large, cheap volumes from energy efficiency projects in the energy and industry sectors.

By Stian Reklev – stian@carbon-pulse.com