Auction no 2: savanna in the money

The second ERF auction was held on 4-5 November 2015 and contracted a similar amount of abatement at a similar price to the first auction. But not quite as many adjectives from the Minister. How did indigenous projects go this time?

The overall results were similar to last time: 45m tonnes of abatement promised for $557m at an average price of $12.25 per tonne. Altogether 275 projects have contracts, which is about half the total number of projects registered. This might suggest enough project pressure to have a third auction in the first half of 2016.

Total auction results to date from April and November 2015. Source: Clean Energy Regulator

There are 17 savanna projects with significant involvement of local traditional owners through control, ownership or participation. 9 won contracts in the November auction, making a total of 11 contracted indigenous projects altogether. A notable absence are the projects from the Kimberley. The other uncontracted projects are Old Mapoon in Cape York and Jawoyn Fire 2 in the Top End. It is not known whether these uncontracted projects bid in the auction or have other buyers.

Different strategies are evident with the bids. 4 projects opted for the full 10 years, with the balance sitting in the range of 4 to 7 years. Will flexibility or certainty prove to be better? Some projects appear to have bid closer to the top of their expected potential, while others have been more conservative. As savanna burning can be fluky year to year, how will this go when it comes to delivery? 2 projects without any track record of credit issue also won contracts. How will their projections work out?

The total contracted savanna abatement comes to 3.1m tonnes over the next 10 years. This is about $40m flowing into projects in fairly remote locations over the next decade.

Overall this appears to be success for the indigenous savanna projects. But will it be sustainable? The average abatement buy is around $13 and this price is pretty tight for a savanna project utilising rangers on the ground and perhaps funding some fire fighting capacity as well. $13 today might not look the same in 10 years time. It underlines that savanna projects need to be aligned with other land management goals which come with additional sources of co-funding. Just looking at savanna burning from a carbon point of view is risky. And probably won’t deliver the best land management outcomes either.

It will be interesting to see how all of this unfolds. This will take some time. I will be thinking about questions such as:

How much abatement has actually been delivered?

How low can we go?

What happens to the projects which don’t have contracts?

In the mean time stay tuned for auction no 3 in 2016.

Disclosure: Aboriginal Carbon Fund has supported the Oriners & Sefton and Southern Aurukun projects which won contracts in the November auction.