UPDATE: Riding the ACCU Wave at ERF Auction II

The Clean Energy Regulator recently announced that the second Emissions Reduction Fund auction (ERF II) will take place on November 4 and 5, in approximately 10 weeks. The ‘cut-off’ date for new projects to become registered is Friday, 18 September 2015, in around four weeks.

Applicants have registered 126 projects since the first ERF auction – with 87 projects registered in July alone – as land sector proponents sought to mitigate the risk of a possible ‘early’ auction (in line with the quarterly schedule initially proposed by the government). Including the overhang of projects that failed to win contracts at the first ERF auction, approximately 236 projects are currently registered for ERF II. RepuTex estimates 75 per cent of available Australian Carbon Credit Unit (ACCU) supply to be registered from the land-use sector, notably regeneration, savanna burning, and grazing systems projects.

While just seven projects are currently registered to industrial sector proponents, analysis indicates these projects are likely to supply considerable volumes of ACCUs into the market, with potential for this supply to grow substantially over the next four weeks should existing low-cost industry abatement projects be advanced by the Property, Materials, Metals & Mining, Oil & Gas, Power and Transport sectors.

These volumes stand to impact the shape of the next auction bid-stack and influence ACCU pricing at ERF II. Even if total registrations from industry remain moderate, analysis indicates that large volumes of short-term abatement derived from industry projects may still place competitive pressure on the land-use sector, with cost constrained projects at the high end of the bid stack likely to be displaced by low-cost projects upon the formation of the CER’s 80 per cent clearing threshold.

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