Confidential

EU-ETS Carbon Compliance Services
October 2023
CF Partners
ITOCHU Corporation1【1】Introduction of ITOCHU•Under eight Division Companies, ITOCHU develops its business in diverse fields through trade andbusiness investment.

•Carbon credits businesses including Voluntary carbon market and Compliance carbon market like
EU-ETS are managed by Metal & Minerals Company.

2【2】Business Partnership between ITOCHU and CFP
Company nameCountry (HQ)

UK, London

Founded2006

FounderJonathan Navon, Thomas Rassmuson

Business• Leading provider of carbon, energy and environmental solutions, specializing
in working with large industrial and complex energy users.
• CFP Assists clients to navigate the transition to a low carbon future, byproviding expertise in physical and financial risk management solutions
across carbon markets, energy procurement and environmental products.
• CFP have traded in total more than 2.5 billion tons of carbon credits in boththe EU-ETS and on voluntary carbon markets since its foundation in 2006.
(Website： https://www.cf-partners.com/）
Global network

FinanceLong termbusiness relationship

Access to Europe

Trade know-how3

【3】Introduction of CF Partners
Full spectrum of carbon, energy and environmental solutions to help clients through the energy
transition.

Fuels

Carbon & Environmental
 compliance carbon

 biofuels

 voluntary carbon

 biogas carbon project development

 feedstocks

 green certificates storage and distribution

 structured solutions

 transition fuels - oil & gas capital & financing

 green hydrogen specialist markets – shippingPower energy supply UK power trading & management
 PPAs flexibility management EV charging
 renewable assets optimization
 battery storage4

【4】Introduction of CFP’s EUA business•

CFP is one of the largest traders in the carbon markets, specialising in ETS compliance.

•CFP can develop bespoke solutions and innovative risk management strategies that meetcustomer’s needs by utilising its long-term experience.

Solution

Market Insights

Compliance Strategy• More than 70 experts
for EU-ETS market.

• Unique market insights
and policy understanding.

• Provide access to fullsuite of market
solutions andcompetitive pricing forspot and forward.

• Detailed market updates
for some specific market
including shipping sector.

• 15 years working withindustrial operators tomanage ETS
compliance needs.
• Help clients develop
strategy that takes into
account the customer’s
needs.
5【5】Carbon Compliance Services
Business partnership between ITOCHU and CFP can make it possible to develop tailored solutions tocustomers.

UpdateTrialPlan

 Detailed Policy
insight and market
updates

 Trial Trade Developing
compliance strategy

PriceTrade Spot Trade
 Forward Contract Structure Products

SellFollow
 Updating compliancestrategy6【6-1】Market Updates①
EU Emission Allowance Nearest-December

EUA Price (EUR/t)

110②100③908070④①60
01/04/22

10/07/22

18/10/22

26/01/23

06/05/23

14/08/23

MonthChangeBackground①May 22

Down

European commission announced EUAs equivalent of up to EUR 20B will be supplied tomarket as REPowerEU.

②Aug 22

Up

Increased buying activities due to the increase of coal power generation caused by thehigher gas price.

③Dec 22

Up

Increased power demand due to the colder weather in EU than expected.

④May 23

Down

Increase of the renewable power generation and increase the conversion from coal to gas.

EUA price is influenced by many factors like policy, energy price, economy and so on as above.

7【6-2】Market Updates②
We can provide policy insights and informative market updates for shipping sector.

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【7】Shipping - Compliance Challenge
It is important to be proactive and take ownership for shipping sector.
The Shipping sector has a unique set of operationaland contractual complexities that present a challenge
to manage carbon compliance and purchase therequired allowances at the right time.
Voyages from 1 Jan 2024 will incur carbon price

1st compliance deadline is not until 30th Sept
2025…but unless a voyage's EU ETS cost is hedged
the price exposure could be significant.

exposure for the first time and the cost will eventually
be added to a charterer's freight rate.

Ship Manager

Ship Owner

Ship Operator& Charterer

Cargo Owner

 It will be important to identify who is responsible to hedge EUAs per voyage.
 Operators and Charters commercially and contractually responsible but do they have the ability to buy and deliver
EUAs to the owner? Better for the owner/manager to buy EUAs and pass through the cost?

9【8】EUA Trade by OTC•

There are 2 ways to buy EUA : OTC (Over The Counter) and Exchange (including auctions).

•For smaller bespoke volumes OTC transactions have more flexibility than an Exchange.
OTCExchangeAccess

Bilateral between 2 parties

Member of exchange/clearing house

Trade volume

Bespoke/Flexible

Minimum trade volume

Clearing Costs

Not applicableYes

EUA Trade by OTC
EUA Delivery

OTC Trade
PaymentCustomer

Hedging/Trading
Agree an EU Allowance (EUA) price now
for settlement (payment and delivery)
within 5 business days (spot) or longer
dated (forward).
10【9】EUA Trading – Contract Types
It is important to hedge the EUA price for any voyages given the volatile EU-ETS market.

Spot TradeForward Contract• Agree an allowance price now for settlement• Agree price now for future dated settlement

typically within 5 business days
• Simplest Approach and best price• Limited credit exposure - prompt payment• Allowance delivery via Registry• Short-form contract(e.g., Dec-23, Mar-24)• Future prices typically trade above spot totake in funding charge• Longer-form contract (Framework
Agreement, ISDA)• Extended payment and delivery terms means
credit checks and margining requirements11【10】Develop a Compliance Strategy
01

02
EU ETS Shipping companies face aDefine Responsibility
The shipping sector has a unique set of operational and contractual
complexities that present a challenge to managing EU ETS

Understand Future Requirements
Forecasting future emissions (by voyage) and having up-to-date monitoring isvital to calculate costs and exposure

challenging requirement to define
responsibility, deal with EU ETS compliance,
budget for EU carbon costs and execute
trades in an increasingly volatile carbon

Market Updates

03

The maritime sector is entering the EU ETS at a time of record carbon pricesand significant volatility in the EU carbon marketmarket.
Compliance Strategy

04

Given the increased carbon cost, there should be a clear strategy to manage
EUA purchases and reconcile costs against voyages

Trade Exection

05

Accessing the carbon market requires a number of steps to be completed prior to
trading which should be started as soon as possible12【11】ContactPlace

CompanyPIC

ContactTokyo

ITOCHU Corporation

Keita Miura

toklw@itochu.co.jp

London

CF Partners

Sumit Sharma
Miles Tanaka

s.sharma@cf-partners.com
m.tanaka@cf-partners.com

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