Carbon Markets Emissions Reduction Fund

Beware the “bid plateau” at ERF III – The risk of ‘bidding the average price’

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While on the surface, the first two ERF auctions appeared to be similar – contracting a comparable amount of ACCUs for a similar amount of money – analysis indicates that the second ERF auction was more competitive than its predecessor, with a higher number of projects participating, but a lower number of bidders (one in three) signing contracts.

Notably, small projects disproportionately lost out on contracts at ERF II, with modelling indicating that many participants bid in narrow band – in line with the “average price” announced following the first ERF auction ($13.95). Subsequently, while many proponents sought to “play it safe” and bid the average price of the previous auction, this was ultimately a high risk strategy, which failed to translate into contracts given the highly competitive auction.

With ERF III also expected to also be highly competitive – with around 290 projects currently registered to participate – below, we take a closer look at the dynamic of ‘bidding the average price’ at the next ERF auction, and the potential implications of the new variable volume threshold (the “threshold”) to determine successful auction bids.

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