First Investment Bank

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.