World Bank sets criteria for first CER auction under PAF

Published 15:17 on March 30, 2015  /  Last updated at 11:20 on May 12, 2016  /  International, Kyoto Mechanisms, New Market Mechanisms  /  No Comments

The World Bank on Monday published the criteria for companies looking to tender in its inaugural methane-cutting CER auction to be held in Q2 2015, confirming that Chinese CDM projects would be barred from joining in this time around.

The World Bank on Monday published the criteria for companies looking to tender in its inaugural methane-cutting CER auction to be held in Q2 2015, confirming that Chinese CDM projects would be barred from joining in this time around.

The Pilot Auction Facility (PAF) is a World Bank initiative that uses competitive auctions aiming to maximise the use of limited government climate funding to leverage private sector financing in carbon-cutting projects.

It aims to overcome the lack of CDM investment due to rock-bottom CER prices as countries dither over agreeing on a global climate pact. Credits will be retired and not counted towards any country’s compliance with emission targets.

Under the PAF, firms that own or have invested in methane-reduction projects registered under the CDM involving landfills, animal waste or waste water sources in more than 130 developing countries can bid on put options giving them the right to sell their CERs to the bank at a fixed price.

The first competitive auction, which will offer $25 million in tradable puts, will be held before the end of June.

The PAF has a target capitalisation of $100 million, with the US, Germany, Switzerland and Sweden having already collectively pledged more than $50 million.

The list of PAF-eligible host countries includes all LDCs and most developing countries and emerging economies including India and Brazil.

However, China, which is home to the lion’s share of the world’s CDM projects, was notably absent.

The bank last year said the China’s government-imposed minimum CER price made offsets from the country’s CDM projects incompatible with the facility.

CRITERIA

For the inaugural auction, any CERs to be offered must meet the following criteria:

– They must not be subject to a purchase agreement contract (ERPA) with a third-party

– They must originate from a project or PoA that uses at least one of the CDM methodologies listed in the table below

– They must originate from a project or PoA that is located in one of the countries listed on the World Bank’s website

– They must have a monitoring period that starts no earlier than Sept. 15, 2014, and have an issuance date no earlier than the auction date (see the redemption table below for more details)

– They must be accompanied by a passing Environmental, Heath & Safety (EHS), and Integrity report from the project or PoA from which it originated.

Companies seeking to participate must undergo an “integrity due diligence” screening and pay a yet-to-be-announced refundable deposit, the World Bank said.

Each put sold will require the buyer to have 2,000 eligible CERs on offer. The winners must pay an upfront premium of $600 per put (or 30 cents per CER), and they will then receive a series of five puts with different maturity dates. These puts can be redeemed with the bank or sold to another company.

To redeem the puts, the CERs must have been generated and issued within the following timeframes:

Redemption # R1  R2 R3 R4 R5
Date of Redemption Sept. 30, 2016 or 365 days from Auction Date (whichever comes later) 365 days from R1 365 days from R2 365 days from R3 365 days from R4
Eligible Issuance Date Any date between and including Auction Date & R1 Not more than 547 days before Redemption Date
Eligible Monitoring Period start date Any date on or after Sept. 15, 2014 Any date on or after Sept. 15, 2014 Any date on or after Auction Date

 

Below is a list of eligible CDM methodologies for the first auction:

AM0002 AM0003 AM0006 AM0010 AM0011 AM0013 AM0016
AM0022 AM0025 AM0057 AM0069 AM0073 AM0080 AM0083
AM0093 AM0112 ACM0001 ACM0010 ACM0014 ACM0022 ACM0024
AMS-III.D. AMS-III.E AMS-III.F. AMS-III.G AMS-III.H AMS-III.I. AMS-III.L
AMS-III.O AMS-III.R AMS-III.Y. AMS-III.AF. AMS-III.AO AMS III.AU AMS III.AX.

For more information on the CDM’s methodologies, click here

The World Bank added that future PAF auctions could be opened up to involve CERs from other methane sources, for example natural gas wells and coal mines.

It is expected to announce further details in the coming weeks, including the platform on which the inaugural auction will be held.

By Mike Szabo – mike@carbon-pulse.com