Bank of Ireland has become the first banking organization in its domestic market to offer emissions trading for Irish companies. The new service will be run by Bank of Ireland's Global Markets division.
Through the EU Emissions Trading Scheme (EUETS) the Bank of Ireland Global Markets Energy & Emissions Desk will provide transaction and hedging services to Irish companies that have to comply with the National Allocation.
The trading scheme, which allows companies to trade portions of their allocated emissions quota, has been developed to provide flexibility to businesses as they adapt to the new limitations enforced by the activation of the Kyoto Protocol. The Kyoto Protocol is an international agreement to limit the amount of carbon dioxide that is emitted by nations and companies.
In launching this service, Bank of Ireland Global Markets becomes the first domestic bank to offer Irish firms access to what is believed will become a market of increasing importance. 106 Irish companies will be under the scheme and the Irish Registry governed by the EPA is expected to be in operation by mid-June.
According to Philip Lenehan, Bank of Ireland Global Markets, Around 11,000 companies across the EU have to ensure that they have sufficient emission allowances to meet their obligations under the Scheme. In the first three months of 2005, approximately 60 million tons of carbon dioxide have been traded. When one considers that it is estimated that only 10 million tons of carbon dioxide changed hands in the two years prior to the official EUETS launch in January, the explosive growth of the market is self-evident.
With this trading, price volatility is also rising and since the launch of the scheme, prices have increased from E6 to around E17 per allowance. This is likely to rise further as companies seek to cover any allowance shortfall ahead of the April 2006 surrender deadline. With penalties of E40 for every ton of carbon dioxide produced over a company’s allocation it would be prudent management for companies to hedge against emissions trading price risk.