World Bank to hold second PAF auction on May 12

Published 14:30 on February 29, 2016  /  Last updated at 23:09 on February 29, 2016  /  Africa, Americas, Asia Pacific, EMEA, International, Kyoto Mechanisms, New Market Mechanisms, Other APAC, South & Central, US, Voluntary Market  /  No Comments

The World Bank will hold its second auction under its Pilot Auction Facility (PAF) on May 12, expanding eligibility beyond the CDM to methane-cutting projects under the voluntary market.

The World Bank will hold its second auction under its Pilot Auction Facility (PAF) on May 12, expanding eligibility beyond the CDM to methane-cutting projects under the voluntary market.

The sale will have a maximum budget of $20 million to spend on the units, down from the $25 million earmarked for the first PAF auction last June, the World Bank said on Monday.

And in contrast to last year’s reverse auction, the upcoming sale, which was first announced during COP-21 in Paris, will be a forward auction with a $3.50/tonne strike, or purchase price.

Participants then bid the premium they are willing to pay.  For example, if a company successfully bids $0.75 at the auction, the bank would effectively be buying the firm’s credits for $2.75 each.

The bank said, based on the budget and strike price, that the auction is theoretically capable of buying a total 5.7 million tonnes.

The starting premium bid will be $0.06/tonne with a $0.06/tonne refundable deposit.

The minimum bid is for 200,000 tonnes, and the maximum at 2.5 million.

The PAF has a targeted capitalisation of $100 million, with the US, Germany, Switzerland and Sweden already pledging more than $50 million between them.

As was the case in the first auction, it will be open to projects in more than 130 developing countries but not China, due to its CER floor price.

The second auction will target methane emissions from the same sectors, namely landfills, agriculture and wastewater sites.

All emission reductions must be either CERs, or VERs certified by the Verified Carbon Standard (VCS) or Gold Standard.

The winning bidders will have four years to sell their credits to the bank at the agreed price. The purchased credits will be cancelled and not put towards any international emission targets.

In its inaugural auction, the bank agreed to buy, in the form of tradable put options, 8.7 million CERs for $2.40 each from 12 projects and companies across eight countries. If fully exercised, the puts would cost just under $21 million.

The PAF has published further details for potential bidders to the second auction on its website and is holding a series of in-person and online events for interested parties over the coming weeks.

THIRD AUCTION

The US, Germany, Switzerland and Sweden collectively have pledged more than $50 million to PAF, falling short of the fund’s $100 million targeted capitalisation and meaning it would be unable to cover a third auction on a similar scale without additional contributions.

“We are preparing for the third auction, which is going to be smaller, in the range of $7-10 million,” World Bank official Tanguy de Bienassis told journalists in a conference call on Monday.

“The idea is to explore new sectors that might have lower total demand, that might be interested in an auction with less volume … The aim is to have the third auction during 2016,” he said, adding that details of the third sale had yet to be finalised.

One possibility could be for the fund to buy emission reductions from nitric acid destruction projects, aligning itself to the Nitric Acid Action Group initiative launched by Germany in Dec. last year.

“In line with the priorities of the Nitric Acid Action Group, the PAF is exploring the possibility of conducting a third auction targeting this greenhouse gas. The PAF would also provide technical assistance to any other group that wishes to conduct a similar auction,” said de Bienassis.

Key dates for second PAF auction:

Release of Bidder Application Package Mar. 1
Bidder Application Deadline Apr. 8
Bid Deposits Due Apr. 29
Auction Date May 12

 

By Ben Garside – ben@carbon-pulse.com

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