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Clearstream, the international central securities depository (ICSD) within Deutsche Börse Group, has launched today its Global Emissions Market Access (GEMA) service. GEMA is a custody and settlement service for carbon emission rights created under the United Nations Kyoto Protocol and the European Emission Trading Scheme directive – specifically European Union Allowances (EUAs) and Certified Emission Reduction rights (CERs). GEMA acts as a single point of entry, allowing carbon emission rights to be held and settled in the settlement systems of Clearstream Banking Luxembourg.
Marc Robert-Nicoud, Vice President – International Markets, said: “The service is designed for financial institutions seeking a simple and secure way to enter the carbon market. GEMA allows Clearstream customers to focus their resources on developing a carbon strategy without the need to invest in dedicated back-office functions. GEMA offers a single point of entry to multiple carbon registries and gives access to the carbon holdings of many of the financial institutions most active in the carbon market.”
The service is available from existing Clearstream accounts and is supported by existing connectivity solutions. Clearstream customers can hold the carbon emission rights in their existing accounts. Identification codes for carbon rights follow formats recognized by the financial industry. By treating carbon emission rights as securities, GEMA applies to carbon rights the same operational sophistication as is usually applied to securities. GEMA provides delivery versus payment (DVP) settlement, with the consequent reduction in counterparty risk. More than a new market, carbon emission rights constitute a new asset class.
One carbon emission right allows the holder to produce one ton of greenhouse gas emissions. EUAs and CERs represent more than 90 percent of the worldwide spot carbon trading volumes. The Emission Trading Scheme of the European Union (EU ETS) is the key policy introduced by the European Union to meet its Greenhouse Gas emissions reduction targets under the Kyoto Protocol. It is a “Cap and Trade” system: “Cap” is the EU commitment vis-à-vis other Kyoto Protocol Signatories; “Trade” is the mechanism to allocate the reductions within the EU while mitigating the overall cost of compliance. The EU ETS provides for the emission compliance rules, infrastructure as well as national allocation plans. The EU ETS allows financial institutions to trade and hold carbon emission rights but does not provide specific rules for such trades.
