SETTLEMENT OF CO 2 EMISSION UNIT TRANSACTIONS - information for investment firms

1. SETTLEMENT OF CO2 EMISSION UNIT TRANSACTIONS - information for investment firms 2005. október 15.

2. What is a CO2 emission unit? • The marketable valuable rights and interests defined* in the CO2 emission trading system operated in the European Union between 2005 and 2007 that entitles its holder for the emission of 1 ton of CO2. • Since 1 July 2005 transactions on emission units of greenhouse gases are defined as investment instrument in the Tpt. * In Hungary governed by Act XV of 2005 on the trading of emission units of greenhouse gases

3. What can you do with CO2 emission units? „Operators”: operators are given CO2 emission units as free allowance by the State, then the quantity of emission unit representing their actual CO2 output is to be returned annually; they can sell the surplus and has to buy the shortage. Any other person, that is any private individual, legal person and organizations without legal person with registered office in the EEA: CO2 emission units can be freely assigned among them, thus can be traded and can also freely cancel them.

4. Emission unit trading schedule • CO2 emission units are registered as an electronic sign in the authentic and public emission unit trading schedule. • The CO2 leg of the transaction is settled in the schedule, the counterparties involved in the settlement must have an account in the schedule.

5. Trading opportunities Present • OTC transactions (related DVP settlement creates the infrastructure for later stock exchange and auction trading settlement). Future • Stock exchange trading (spot, derivative), • State auction (annually). Settlement will be available in HUF and EUR also.

6. Target market • Operators, • Other companies (to be regulated later, e.g. chemical industry, transport), • Institutional investors (for investment purposes), • Environment protection organizations and private individuals (e.g. for cancellation), • Foreign customers.

7. The market • 5 industrial sectors of 25 EU member states, within this about 12,000 factories participate in the trading system. • In Hungary about 250 operators (150 companies) involved, total annual output about 30 million tons. • CO2 price within the EUR 7-29 band in the last 10 months.

8. Price and turnover(12.01.2004. - 09.28.2005.) Source: www.pointcarbon.com

9. Steps in the settlement process 1/2 • Sales contract concluded by seller and buyer (pieces, price, settlement date, settlement method, etc.). • Seller and buyer give settlement order to their investment firms. • Two investment firms submit Settlement Notes to KELER. • KELERmatches Settlement Notes. • Seller (or based on its order the investment firm) transfers CO2 emission units to the account of KELER kept in the emission unit trading schedule.

10. Steps in the settlement process 2/2 • KELER verifies cover on CO2 and cash account. • KELER transfers emission units to the account of the investment firm of the buyer kept in the emission unit trading schedule. • KELER transfers purchase price to the cash account of the investment firm of the seller (this can be done only if the final and irrevocable emission unit transfer is made). • After failed matching / verification of cover funds / emission units are „realigned”. • Seller and buyer receives continuous information from the investment firm on the settlement status of the transaction.

11. Conditions and timing of service launch As expected at the end of 2006, early 2006: • Launch of Hungarian emission unit trading schedule. • Operators get their CO2 emission units from the State. • KELER, investment companies and other stakeholders open accounts in the emission unit trading schedule. • Investment companies get involved in settlement (concluding agreement with KELER, etc.).

12. For more information Központi Elszámolóház és Értéktár (Budapest) Zrt. 1075 Budapest, Asbóth u. 9-11. www.keler.hu keler@keler.hu