(2016-05-13)Sellers achieved an effective price of $2.09 (€1.84) per carbon credit at the second auction of the World Bank’s Pilot Auction Facility (PAF) held on Thursday, almost in line with the $2.10 achieved in the previous sale last July.
The winning nine sellers agreed to pay a $1.41 premium for tradable put options that allow them to sell 5.7 million carbon credits for a fixed price of $3.50 each to buyers through the PAF, the World Bank said in a statement on Friday.
Both PAF auctions have targeted methane emissions from landfills, agriculture and wastewater sites, with organisers expecting the units to come from projects already up-and-running rather than incentivising new schemes.
The second auction, with a budget of $20 million, tested a ‘forward auction’ format where the value of the contract was fixed at the $3.50 per-credit strike price and participants bid the premium they were willing to pay.
The price is well above European market rates for CERs, which currently change hands for around $0.45 each, but below the $2.48/t average Norway paid for CERs over 2015.
Some 21 companies from 12 countries made initial bids for a total of 25.6 million credits for an starting premium set at $0.06, and were gradually whittled away during the 5.5 hour online auction process.
The winners were:
--Trading units of multinational energy firms: Shell, Statkraft.
--Carbon-focused developer/intermediaries: Swiss-based Allcot and South Pole, Slovenia’s Belektron and WeAct of Australia.
--Local developers: KUB-Berjaya Enviro of Malaysia and Mexico’s Gases de Metano and Sistemas Electricos Metropolitanos.
None of the winning companies was awarded options in the first PAF sale.
The winners have four years to sell the credits to the facility at the agreed price, with the purchased credits then cancelled and not put towards any international emission targets.
All emission reductions must be either UN-issued CERs, or VERs certified by the Verified Carbon Standard (VCS) or Gold Standard.
The first PAF auction sold 8.7 million options for $2.40 each using a ‘reverse auction’ method whereby participants bid the lowest price for which they were willing sell the credits. They were required to pay a premium of $0.30 per CER as a form of collateral, giving a net price of $2.10.
Only CERs were eligible for that sale.
GOING FORWARD
The facility plans to hold a third auction by the end of the year, which, with no additional donor pledges on the horizon, is likely to be PAF’s final sale.
“At this point, our sense is that the third auction my well be the last,” said Vikram Widge, the World Bank’s head of carbon finance, in a conference call with journalists on Friday.
“Though we are very keen on exploring and extending this format into other types of assets in future,” he said, giving energy efficiency, oil & gas, and forestry as potential areas the bank could target in future.
Details of the third PAF auction are yet to be finalised, but the bank is considering whether to solicit bids for different project types such as N2O destruction, according to Widge.
He said the third sale could be either of the auction formats so far used, or a different format.
The forward auction method means bidders face a higher upfront cost than under a reverse auction but this gives a greater assurance to the host that the options will be exercised.
With around $42 million of PAF funds committed to buy credits from the first two auctions, the third could be smaller as the facility’s capitalisation of a little over $50 million is almost exhausted.
Yet, PAF officials said the $8 million of revenue raised from the premiums of the second auction winners would all be recycled into the third auction.
FACTFILE
--PAF uses competitive auctions to maximise the use of limited government climate funding and to leverage private sector financing in cutting GHGs, while attempting to prevent the closure of projects hit by low carbon credit prices.
--It has a targeted capitalisation of $100 million, with the US, Germany, Switzerland and Sweden so far pledging more than $50 million between them.
--The list of PAF-eligible host countries includes all LDCs and most developing countries and emerging economies including India and Brazil, but not China or Turkey.