Due to the fact that on 1 July 2015 the Australian carbon pricing mechanism will move to a flexible phase Australian forward auctions are likely to start in the first half of 2014 (2013-14 financial year).
Ascending clock auction
Australia auctions will be conducted by the Australian Clean Energy Regulator.
Pursuant to data published at http://www.cleanenergyfuture.gov.au/auctions-for-carbon-units/ Australia carbon units will be auctioned through an electronic auction platform using a sequential ascending clock auction format that sets a uniform price.
In an ascending clock auction the Clean Energy Regulator announces the current price. Bidders then nominate the number of carbon units they are prepared to purchase at that price. If demand exceeds supply, the Regulator raises the price in the next round and bidders resubmit their bids. Bidders may decrease, but not increase, their bid quantities in each successive bidding round. This process continues until the number of carbon units offered is equal to or greater than demand.
Bidders then pay the price from the previous round. The price paid per carbon unit will be uniform for all successful bidders under an ascending clock auction system. As there will be multiple vintages available for auction, vintages will be sold sequentially, that is, in separate auctions one after another.
The minimum bid size in the auction will be one carbon unit.
Prior to the first auction, the Regulator will publish an auction calendar that provides details on the date on which auctions will be scheduled and will provide information to prospective participants to facilitate bidding at auctions. The auction calendar will include the number of units available for auction.
Pursuant to the information revealed by the Australian Regulator the number of carbon units available at each auction will be based on an auction schedule that apportions the total number of units available into advance auctions, compliance year auctions and one post-vintage or true-up auction.
Three-eighths of available carbon units will be auctioned in advance auctions, half will be auctioned in the compliance year and one-eighth will be auctioned in the true-up auction.
Advance auctions of future vintage carbon units will be held no more than three years before the compliance year. Unsold units will be made available at a subsequent auction.
The total number of carbon units available for auction for any one particular year will be dictated by the pollution cap and the allocation of carbon units under the Jobs and Competitiveness Program and Energy Security Fund Coal-Fired Generators Free Carbon Units.
The auctions will be open to anyone (individuals and businesses) who has an account in the Australian National Registry of Emission Units, complies with certain auction competency criteria, and provides acceptable collateral to the Regulator. Participants must also agree to the auction rules and procedures.
Pursuant to information from the Regulator, bidders can choose to participate in the live auction or to submit a proxy bid before the auction begins. To make a proxy bid, participants will provide the Regulator with a sealed-bid (i.e. a demand schedule) for carbon units prior to the auction. This will then be used to automatically bid during the auction without the need for the bidder to participate in the live auction.
Payment timing and method
The settlement day will be three business days after the end of the auction, except where settlement is cancelled. This period is consistent with standard market settlement arrangements.
As is the common practice for auctions, also under the Australia model participants will be required to provide the Clean Energy Regulator, prior to each auction, with an acceptable form of collateral. The collateral must cover 10 per cent of the starting bid price multiplied by the maximum number of units that a participant proposes to bid for. Acceptable forms of collateral include cash, a bank guarantee or irrevocable letter of credit from an authorised Australian Deposit Taking institution.