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Emissions Trading NewCo

Business Model. Intermediation between entities engaging in EUAs trading (

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Emissions Trading NewCo

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    1. Emissions Trading NewCo

    2. Business Model Intermediation between entities engaging in EUAs trading (“Traders”) and ETS compliant entities with no direct access to the market (“Customers”) Entering into spot and forward transactions as principal with both Traders and Customers Customers are charged a “fee” in form of a price differential Entering into bespoke structured transactions with Customers (e.g. CER/EUAs swaps)

    3. Customer Base Italian companies which take part to the EU Emissions Trading Scheme but do not access directly the EUAs trading market Such companies have been allocated about 35% of the EUAs for the compliance period 2005-2007, which equals to 80 million allowances

    4. The Italian EUAs market In Italy about 58% of EUAs is allocated to power generators which have access to the international EUAs trading market The reminder is distributed amongst cement, paper, glass producers, metals smelters, refineries etc. About 90% of the latter players have not been trading EUAs on the open market Such players are extremely heterogeneous. They range from the small paper factory with a yearly allocation of 5,000 EUAs to a major independent refinery with a 3,650,000 EUAs allocation.

    5. Why have Customers not been accessing directly the EUAs Market No existing relationship with entities that engage in EUAs trading (international investment banks, utilities and trading companies) Difficulty in establishing such relationship just for the purpose of trading EUAs (issues relating to credit worthiness, KYC etc) Lack of in-house expertise and access to market data

    6. continued Existence of many different contractual standards governed by foreign law “Generous” allocation for compliance period 2005-2007 Comparatively low Excess Emission Penalty (40 Euros per tonne)

    7. Advantage for Customers in trading via NewCo Once it has received the buy/sell instruction by a Customer NewCo finds the best price in the market effectively acting as a broker Possibility to access the market with larger volumes thanks to the aggregation of demand/offer of other Customers One bespoke contract, governed by Italian law Single counterparty, virtually no need to set up back office operations Provision by NewCo of market data (forward curves etc)

    8. NewCo’s Set Up Currently EUAs trading is an unregulated business. UK Limited Company holding a UK EUAs trading account When trading as principal with market makers NewCo will need to be supported by a parent company guarantee under English law

    9. continued Staff: - 1 front office (liaising with clients, executing trades etc.) - 1 back office (trade confirmations, general support etc.) - 1 risk management (this role could be filled by an existing financial officer of the credit support provider) Other functions such as Legal and Compliance will be outsourced

    10. NewCo’s Modus Operandi NewCo will operate on a “zero settlement risk” basis NewCo will target different categories of Customers (cement, paper etc.) on aggregated basis by approaching relevant consortia/associations. NewCo will aggregate the demand/offer of various Customers whenever it is advantageous to do so

    11. Ancillary and Prospective Businesses Act as intermediary in relation to CER projects Outsourcing of back office services for emissions trading EUAs risk/portfolio management Expansion to other “non-mature” emissions trading markets (e.g. Spain, Greece and new EU Member States)

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