Organisations that have exceeded their safeguard limits have until the 28th of February to obtain, and then surrender, enough Australian Carbon Credit Units (ACCUs) to meet their obligations. In addition to this, the next Emissions Reduction Fund (ERF) Auction, ‘Auction 12’ begins on the 12th of April. Considering this, it is important that your organisation increases its knowledge of how these auctions, and the broader Australian Carbon Credit Units (ACCUs) market, work.

ERF auctions are run as reverse auctions where the CER acts as the buyer. At these ERF reverse auctions sellers of ACCUs bid to enter contracts with the CER to hand over ACCUs as they will be generated. The timings of deliveries of the last auction, Auction 11, can be seen below. As can be seen the schedule of ACCU contract deliveries extends out over 10 years into the future.

 

 

At these auctions, sellers of ACCUs each submit a price they are willing to sell ACCUs at to the CER (and when they will be available). The CER then chooses the lowest cost offered ACCUs to offer contracts to in turn. The highest offered price offered to the CER which is accepted is reported as the auction price of that auction.

Auction 11’s price was $15.74, and this has set a floor in the spot price of ACCU since September 2020. The CERs price at auction becomes the floor as they are the largest buyer of ACCUs and private sales of ACCUs through an intermediatory trader or platform incur further transaction costs pushing the spot price (to buy) upward. The price set at the 11 historical ERF auctions can be seen in the figure below.

 

 

It is important to note that the ERF auctions are not an opportunity to purchase ACCUs for anyone aside from the CER on behalf of the Commonwealth. They are for registered projects to enter into contractual agreements to generate and sell ACCUs to the CER in the future.

So, what do these auctions mean for your organisation if you are looking to purchase ACCUs? These auctions make up a large volume on the ACCU trading market meaning they set a strong price signal to the market. According to the CER/ANREU, the volume of ACCUs that trade hands tapers off in the months before an auction as the open market waits for this price signal. This may be relevant to you if need a larger number of ACCUs, due to the spread of buy and sell orders on the spot market, a better price may be achieved sooner rather than later.

 

What is the place of the ERF auctions in the broader ACCU market?

Once generated ACCUs can be ‘surrendered’ or consumed in 3 general ways:

  • Fulfilment of Contracts Awarded at ERF Auctions. Over 90% of ACCUs each year are bought by the Clean Energy Regulator (CER) on behalf of the Commonwealth. The quantity and price of ACCUs each abatement project achieves at any given time is set at past ERF auctions where price and timelines of delivery are agreed upon.
  • Safeguard Mechanism. Organisations that emit a larger CO2-e amount than their Safeguard limit have the opportunity to purchase ACCUs to offset their emissions and effectively reduce their reported safeguard emissions. In the case of FY2020 reporting organisations have until the 28th of February to (first obtain and then) surrender ACCUs for this purpose.
  • Voluntary Surrender. States, territories, and private organisations may voluntarily obtain and then surrender ACCUs as part of their own climate change or sustainability program. This is what many organisations do to achieve carbon neutral operations.

The figure below shows the motivating factors and the various paths an ACCU can take in its lifecycle. The motivating factors are important to consider as the ERF auctions are where the price is set for over 90% of ACCUs issued. The remaining portion which are used for the safeguard mechanism or voluntarily surrendered take price signals from these auctions.

 

 

Data Sources:

http://www.cleanenergyregulator.gov.au/DocumentAssets/Documents/Quarterly%20Carbon%20Market%20Report%20-%20September%20Quarter%202020.pdf

http://www.cleanenergyregulator.gov.au/DocumentAssets/Documents/Quarterly%20Carbon%20Market%20Report%20workbook%20-%20September%20Quarter%202020.xlsx