The article in the Washington Post on the House’s recent purchase of VERs illustrates a key issue in the emerging VER market – and omits others.

The article clearly identifies the additionality issue. Did our taxpayer dollars actually change anything? Or did we pay for something that already happened or would have happened anyway?

This, of course, begs the question as to why the market structure causes such ambiguity in the first place. Clearly regulations and the establishment of a single verification standard would go a long way to help here.

And further, we might ask about the implementation of the transaction itself. Was sufficient product information disclosed to the buyer? Was there sufficient liquidity in the market to create a robust pricing event? Was the bid-ask price discovery method the most efficient?

Clearly bid-ask exchanges have been an extremely successful form of price discovery, as the worldwide financial markets use bid-ask exchanges to conduct the vast majority of today’s equity transactions, but we submit that they might not be the most efficient means of transacting in today’s emerging environmental markets.

We believe that because of the significant information component associated with these transactions (project type, verification standards, additionality, etc), lack of liquidity and lack of price transparency, structured auction events make much more sense in leveling the playing field for both buyers and sellers, enabling the true forces of market competition to deliver the efficient pricing result. Our recent transaction in Alberta is a good example of where a structured auction event yielded an optimal outcome for both buyers and sellers.

-Phil