Deutsche Bank has initiated a custody, clearing and settlement service for carbon credits, facilitating the exchange of carbon credits among carbon investors and other participants in the carbon trading market and providing an integrated custody and safekeeping service.
The service will cover carbon credit instruments issued under both the European Union Emissions Trading Scheme and the Clean Development Mechanism set up under the Kyoto Protocol.
Deutsche Bank’s service has significant advantages for energy and industrial firms, financial institutions and others active in the carbon trading market, including reducing the settlement risk associated with current carbon trading practices by settling carbon credits simultaneously against cash and relieving investors and traders of operational responsibility for the settlement process.
Deutsche Bank will leverage the infrastructure of its Depositary and Clearing Centre in London for this service. The Depositary and Clearing Centre currently provides a range of custody, clearing and settlement services for London Money Market instruments and provides safekeeping services for Europe’s largest International Central Securities Depository, the largest depository in the US and the London Metal Exchange.
The new carbon credit clearing and custody service will therefore be provided in a proven control environment with well-established systems and processes and experienced staff.
“We are providing a streamlined, risk-free way of holding and trading carbon credits and associated instruments. We believe the provision of a single professionally managed platform will significantly increase activity in this market and provide additional capacity for the expected growth in the trading and banking of carbon credit instruments,” says Dinkar Jetley, global head of Trust & Securities Services/Cash Management Financial Institutions, Deutsche Bank.
The global carbon trading market was created as a result of the passage of the Kyoto Protocol whose aim is to reduce greenhouse gases worldwide by setting emission reduction targets for the countries that ratified it.
The European Union has its own regional Emissions Trading Scheme consistent with the principles of the Kyoto Protocol for the reduction of CO2.