by Monna Dimitrova, Homaio Head of Research and Analaysis – Carbon Markets
The European Union Emissions Trading Scheme (EU ETS) is a policy tool that limits and reduces the amounts of CO2 released. It does so by putting a price on carbon by issuing mandatory carbon allowances by the European Union (EUAs). All EUAs are released by the commission, either sold through auction or distributed for free to installations. Initially, these allowances were solely accessible to compliance institutions. However, after 2018, in a bid to enhance market sophistication, EUAs were designated as financial assets, allowing large financial institutions to also take part in the game. But the door remained closed to private investors.
However, participating in the EUA spot market offers both financial returns and a positive environmental impact. Homaio, a direct investment platform for carbon allowances, sees the mature market of compliance allowances as the holy grail of impact investing.
It is important to distinguish spot EUA transactions from futures contracts or other derivative products. Taking physical EUAs directly from the overall “carbon budget of the economy” reduces the amounts of carbon that can be released by industries. EUAs are the normative representation of actual CO2, they have an inherently physical reality. Futures contracts, on the contrary, merely provide financial exposure to carbon markets without directly affecting actual emissions volumes.
Homaio unlocks carbon markets for individual investors by providing a platform where people can purchase EUAs – financial assets with a decreasing supply engineered for price appreciation. Investing in EU allowances automatically reduces available carbon emissions to industries which in turn accelerates decarbonation trajectories and has a proven impact on sustainability.
While crucial, the market is seldom talked about, and private investors don’t consider it as an investment opportunity simply by lack of knowledge. Fostering awareness, initiating discussions, and educating individuals about carbon markets comes first. This foundational step precedes any investment decision-making process. Individuals can make informed financial decisions only after understanding the intricacies of the EU ETS.
We can all contribute to the backbone of the EU’s strategy by investing in carbon. The EU ETS now covers 38% of European emissions and has achieved a total reduction of 47% since its inception. The EU ETS works, and with platforms like Homaio, they can now have access to this market.
Read more: EU Publishes Proposals For 2040 Emission Reduction Targets And Industrial Carbon Management
