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. Last Updated: 07/27/2016

Banks Start Trading in Carbon Emissions

bloombergGas being flared at a Gazprom refinery in its Urengoi field in western Siberia.
Gazprombank launched a carbon-trading venture with Dresdner Kleinwort, the investment banking arm of Germany's Dresdner Bank, the companies said in a joint statement Tuesday.

Gazprombank, owned by the world's largest gas company, Gazprom, and Dresdner Kleinwort, owned by German insurer Allianz, plan to invest in projects generating "carbon credits" under the Kyoto Protocol.

"There is huge potential in Russia for realizing opportunities under the Kyoto Protocol," Gazprombank deputy CEO Alexei Obozintsev said in the statement.

Europe's carbon dioxide trading scheme allows companies to earn credits by investing in projects to reduce industrial emissions of carbon dioxide, the main greenhouse gas blamed for global warming, in line with Europe's goals under the Kyoto Protocol.

The Luxembourg-based joint venture, Carbon Trade & Finance SICAR, will not at first be open to third-party investors.

"The demand for new and liquid derivative products on the European emissions trading market is constantly growing, and this market has reached a record size," said Ingo Ramming, emissions trading chief at Dresdner Kleinwort.

The joint venture proposal was unveiled last year after Gazprombank ditched a plan to sell one-third of its equity to Dresdner Bank for $800 million. That deal fell apart as two key Dresdner executives, who had been closely involved in Gazprom deals, quit the bank.

A spokesman for Dresdner Bank in Frankfurt said several projects were already being prepared by the 50-50 joint venture.

"The focus would be in Russia and Eastern Europe, using the Kyoto Protocol's Joint Implementation [JI] directive," he said.

Outside JI schemes, which allow investors to book foreign emission savings as their own, experts say Russia may have as many as 3 billion tons of spare quotas to sell under Kyoto's terms if it passes the required laws.