Australia’s Afma to support OTC carbon credit trading

Australia's banking and broking industry group the Australian Financial Markets Association (Afma) has partnered with the Carbon Market Institute (CMI) to develop standard documentation to support over-the-counter (OTC) trading of Australian Carbon Credit Units (ACCUs).

AFMA released on 5 March a draft template documentation for spot and forward transactions of ACCUs in the secondary market, saying it has "identified a need" for the development of standard OTC documentation following the recent expansion of the ACCU market. Afma is seeking industry feedback until 12 April.

The lack of agreed industry standard documentation has been a barrier to the development of the ACCU market, with several competing documents currently in use, many of them developed by major participants, Afma said. Several participants in the ACCU market are also not traditional financial market participants and have limited familiarity with documentation from the International Swaps and Derivatives Association, Afma noted.

It said the draft contracts are designed for one-off spot and forward buy and sell ACCU transactions. Spot transactions are for physical delivery only, with the seller required to transfer the ACCUs to the buyer's registry account within a short period of time — typically within three business days of entering into the contract. Forward transactions allow for either physical delivery or retirement — whereby the seller makes delivery by surrendering the ACCUs.

The draft contracts also include comparable carbon credits that parties can stipulate in case the seller fails to deliver ACCUs.

AFMA has over 125 members, including many companies in the ACCU market, as well as in markets such as power and renewable energy certificates. Afma's members include companies such as Shell and Macquarie; utilities AGL, Origin Energy, EnergyAustralia, Stanwell and Engie; exchanges ASX and CME; brokers ICAP, Jarden and Tullet Prebon; and banks such as Commonwealth Bank of Australia, Westpac and NAB. It also has affiliate members such as CMI, the Australian Energy Market Operator (Aemo) and the Clean Energy Regulator (CER).

By Juan Weik