Carbon ETFs rebound after initial war shock

After crashing to EUR 58 per ton of CO2 on March 7th, 2022, European Union Allowance (EUA) Futures (May'22) trading on the ICE exchange rebounded to EUR 78 on Wednesday, March 30 (+34%) while flirting with EUR 80 plateau a few days ago.

What are EU Carbon allowances?

The European Union Emissions Trading System (EU ETS) is a part of the EU's policy to fight climate change and its key tool for reducing greenhouse gas emissions cost-effectively. Companies are allowed to emit a single EU-wide cap on certain greenhouse gases. Within that limit, companies receive or buy allowances or credits (EUA) that they can trade with each other according to their needs. Each allowance is equivalent to one tonne of carbon dioxide (CO2), the most common greenhouse gas.

Carbon futures tend to follow oil futures

Today, prices of EUA Futures and oil seem to harmonize after traders absorbed the first shock. The prices are usually (not always) correlated since increased crude oil consumption causes an increase in carbon emissions, hence futures prices of both commodities tend to move up together, and vice-versa.

The recent surge in EUA futures lifted Carbon ETFs with exposure to carbon credits (physical or futures). For instance, the KraneShares European Carbon Allowance ETF (KEUA) gained +39% since March 7.

Learn more about Investing in Carbon Credits and find more Carbon ETFs here.

First EU Carbon futures ETF in Asia launches in China

Meanwhile, in Asia, The Hong Kong asset management arm of China International Capital Corporation, one of the nation’s largest investment banks, has launched the first carbon credit exchange-traded fund (ETF) in China.

The CICC Carbon Futures ETF, launched by CICC HKAM, debuted on Hong Kong’s stock exchange on Wednesday, March 23rd, 2022. It invests in the futures contracts of carbon emission permits traded in the European Union.

NASDAQ launches the World’s First Carbon Removal Indexes

Nasdaq announced on Thursday, March 24th, the launch of the World’s First Carbon Removal Indexes. The indexes are the first in the world to track the price of removing carbon dioxide from the atmosphere and will follow the price of Carbon Removal Certificates (CORCs) issued by Puro.earth.

Fredrik Ekström, Head of European Fixed Income and ESG at Nasdaq said. “The indexes will create a price benchmark to help our clients better understand the true cost of neutralizing their emissions. They will also serve to stimulate the growth of the carbon removal ecosystems by supporting the business case for new carbon removal projects and help potential investors make better-informed decisions.”

The headline index, CORC Carbon Removal Price Index (CORCX), will reflect the cost of sequestering one ton of carbon dioxide-based on CORC transactions from all engineered carbon removal methods supported by the Puro Standard.

The CORC Biochar Price Index (CORCCHAR) and the CORC Bio-based Construction Materials Price Index (CORCWOOD) reflect the price of carbon removal in the form of biochar, and bio-based construction materials such as wooden building elements, respectively.

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