Email of the day on carbon emission trading
Comment of the Day

March 07 2023

Commentary by Eoin Treacy

Email of the day on carbon emission trading

you are showing charts and talking a lot about carbon emission certificates in the EU. (MO2 generic future on Bloomberg). is there any tradeable or investable instrument out there? tkx a lot!

Eoin Treacy's view

Thank you for this question which may be of interest to other subscribers. Carbon emissions are a new asset class with strong political backing. The prices series is increasingly being used as a benchmark to support investment in fossil fuel alternatives. As long as that remains the case, governments will restrict supply when prices fall to ensure a viable market.
There is still risk of considerable volatility but the stated aim of European governments is for the future to trade up to €130. The EU contracts are the most liquid and firmed today. I think of carbon credits like a zero coupon bond because they are government supported and supply is managed to support prices.

The KraneShares Global Carbon Emissions ETF (KRBN) holds EU, UK, California and Regional Green House Gas Initiative futures contracts. It will only perform when prices are rising sharply because the cost of rolling the contracts is included in the price. 

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