CantorCO2e says the internet-based auction, for 260,000 CERs generated from three biomass projects owned by Chilean forestry company Arauco, has drawn interest from 120 participants from banks, utilities, and hedge funds from Europe, the US and Japan. A binding contract for the sale of the CERs will be complete following the close of the auction.
“While other companies have offered to sell CERs by auction in the past, these previous offerings involved bidding for the right to enter into negotiations with the seller of the CERs, resulting in only a potential to transact at some time in the future,” says a CantorCO2e statement. “These previous offerings therefore have offered no guarantee of a consummated transaction.”
James Emanuel, commercial director at CantorCO2e, says their auction differs from existing CER trading platforms because it allows both large and small players to participate. On other CER markets buyers must buy the entire volume of CERs on offer, while CantorCO2e’s auction allows different amounts to be bought, giving smaller players access to the market. “Additionally, many of the barriers that currently exist in the market, such as the requirement for buyers to become project participants in order to take delivery of the CERs, are eliminated when using the CantorCO2e auction,” says Emanuel.
On the day, sellers will set a floor price for the CERs they wish to sell and they will not be sold below that price. CantorCO2e will take an average of these floor prices to create a reserve price for buyers – a fixed clearing price that all the CERs will be sold at. Participants with floor prices below the reserved price will automatically be dropped out of the auction.
A binding contract will be automatically created once a purchase is made and the CERs will be delivered to buyers within 10 days of the auction via the Swiss national emission registry. Prices will immediately be available to the public and successful participants will be charged a transaction cost by CantorCO2e.
Arauco previously sold its CERs to one buyer but says this restricted demand to only buyers with the appetite for large volumes of CERs. “The auction will allow Arauco to be matched with as many buyers as is necessary to achieve the best price,” says Gianfranco Truffello, chief financial officer of Arauco, “and without any additional work and no further transaction costs for the company”.
CERs are created by clean development mechanism (CDM) projects, which mostly take place in India, China and Latin America. The CDM was designed as part of the Kyoto Protocol to help developing countries produce energy in a more environmentally friendly manner.
CantorCO2e is looking into plans to provide similar auctions for Verified Emission Reductions (VERs) and EU emission allowances (EUAs) in the future.
The week on Risk.net, September 8-14, 2018Receive this by email