Carbon Markets Emissions Reduction Fund

INSIGHTS: ACCUs rise to $14 at ERF III, bullish outlook for Auction IV

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  • Modelling indicates the ‘highest clearing price’ for ACCUs grew to around $14 at the third ERF auction – a 40 per cent premium on the average price of abatement ($10.23) published by the Clean Energy Regulator (Regulator).
  • This reaffirms that the weighted average price ($10.23) is not representative of broader abatement value being contracted, with informed bidders continuing to extract full value by balancing risk/returns in line with ACCU supply expectations.
  • We estimate ACCU prices may push higher at ERF auction IV, with potential for lower participation and reduced competition to enable marginal participants to exert greater influence at the top end of the supply curve, pushing prices higher.
  • Higher prices are likely to be supported by secondary market activity, which may again act as a de facto floor price at ERF IV.

RepuTex today released its statistical review of the third Emissions Reduction Fund (ERF) auction, including our simulated back casting of proponent bids, our auction supply curve, and our estimated highest clearing prices, i.e. the last (or highest) point at which contracts were cut-off in line with the Regulator’s benchmark price and variable volume threshold.

The third ERF auction was held on the 27th-28th of April 2016, with 73 contracts entered into by the Regulator  for the delivery of 50,471,310 ACCUs. Approximately $516 million (M) in funding was committed (20 per cent of all ERF funding), at an average price per tonne of $10.23.

While the average price of abatement disclosed by the Regulator ($10.23) is a market reference point, in practice, it is of little help as a robust price signal in that it does not reflect the wider value of contracted emissions reductions. Nor does the average contract price reflect the current value of ACCUs – and in this way, should not be mistaken for a market-derived “carbon price”.

As shown in Figure 1, RepuTex modelling indicates the ‘highest clearing price’ for ACCUs grew to

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