Carbon emissions

Description

Carbon emissions

Carbon emissions are tools certifying the right of production of a unit volume (one ton) greenhouse gases. In the basis of the current regulatory framework governing the existence and trading in carbon emissions is the Kyoto Protocol of 1997. It sets out specific obligations for the member - countries (the so called countries of Annex I) to reduce the greenhouse gas emissions compared to their individual actual levels of 1990, which is defined as base. The Protocol defines three mechanisms designed to optimize the cost of achieving the commitments by the countries of Annex I.

The mechanisms are as follows:

  1. European Union Emissions Trading Scheme (EU ETS) is the main mechanism in the EU in combating climate changes. It is a key tool for effective reduction of greenhouse gases generated by the industry. The EU ETS has been launched in 2005 and works on the principle of cap and trade of greenhouse gases. This means that there is a limit on the total volume of emissions produced by all facilities (plants, thermal power plants, etc.) in the countries from Annex I of Kyoto Protocol. Within this limited total volume, the market participants (EU ETS) can buy and / or sell emissions. The universal negotiable instrument of EU ETS is the EUA (European Union Allowance). The EUA is traded on several European stock exchanges and on the OTC market. They can be traded both on the spot market and on the fixed market.
  2. Clean Development Mechanism. This mechanism is defined in Art. 12 of the Kyoto Protocol and aims to assist developing countries in achieving sustainable development by permitting industrialized countries to finance projects for reducing greenhouse gas emissions in developing countries and consequently to obtain certified emission reductions. The CDM defines the different stages that each project must pass in order to receive Certified Emission Reductions. The main principle of the mechanism is the certification and validation that as a result of investments in the project a reduction in greenhouse gas emissions was actually achieved.
    Certified Emission Reduction units are issued under the Clean Development mechanism of the Kyoto Protocol. They are measured in one ton of carbon dioxide equivalent. Certified emission reductions can be traded and used by industrialized countries to meet their obligations to reduce greenhouse gas emissions under the Kyoto Protocol. Thanks to the so called EU Linking Directive, these credits can be also used in certain quantities by the installations participating in the European Union Emissions Trading Scheme (EU ETS).
  3. Joint Implementation is a project mechanism between the two countries of Annex I. Each actually saved ton of carbon dioxide due to the implementation of a joint project between the two countries generates the so-called ERU (Emission reduction Unit).

First Investment Bank offers:

  • Trade in all instruments on the mechanisms for reduction of greenhouse gas emissions - EUA, CER, ERU  on the Bulgarian and foreign markets;
  • Management / optimization of exposures with the above listed instruments.



General Information

Documents:

  • Brokerage contract for financial instruments transactions;
  • Financial instrument transaction order;
  • Customer categorization document;
  • Notification of appropriate service;
  • Other documents (you may receive them at the Bank);
  • General Terms applicable to contracts with clients of First Investment Bank AD for investment services and activities with financial instruments.

Fees and commissions according to the current Tariff of the Bank are applied.

Signing contracts, giving instructions, orders or requests, and any other legal actions for and on behalf of the client by proxy are allowed only if a notarized power of attorney is presented containing representative powers for carrying out management and/or disposal actions with financial instruments, and a declaration by the proxy that he does not carry out by occupation business transactions with financial instruments.

First Investment Bank AD in pursuance of Art. 10 of the Ordinance on the requirements related to the activities of investment intermediaries and with the objective so the customers, respectively the potential customers can make information-based investment decision, provides a description of the nature and characteristics of the offered and traded by the Bank as an investment intermediary financial instruments and the risks associated with them.

It should be taken into consideration that investment in financial instruments can bring additional risks to investors from unexpected changes in economic and market environment and the investor to take financial and other additional obligations as a result of transactions with financial instruments, including unexpected liabilities, additional to the cost of acquisition of the specific financial instruments.

Investing in financial instruments also bears the risk of losing the entire investment.



Risks

Trading with quotas on greenhouse gas emissions is characterized by a number of risks such as liquidity, currency, credit and settlement risk.

Liquidity risk is limited to the probability that the investor can not buy or sell the desired volume of quotas on greenhouse gas emissions due to insufficient amount of counter supply, respectively demand.

Currency risk is characterized by the possibility of adverse effects caused by the movement of currency exchange rate in which are traded the financial instruments and the currency which is local for the investor. In quotas on greenhouse gas emissions trading takes place mainly in Euro. Due to the fixed exchange rate between the Euro and the Bulgarian Lev, trading in quotas bears a negligible currency risk.

Credit risk is the possibility of failure or delay of already concluded transaction for quotas on greenhouse gas emissions attributable to the counterparty under the transaction. Since the principle “delivery versus payment” is not applied in such trading, there is a risk.

Settlement risk represents the uncertainty regarding completion of already negotiated and concluded transaction with quotas on greenhouse gas emissions due to problem with the quota registry. This registry is a centralized national body that keeps (mostly electronic) systematic information on the availability of quotas on greenhouse gas emissions, carries out their transfer and performs other administrative activities.