Shortages in natural gas supplies have driven up carbon allowance prices as more companies are forced to turn to heavy coal emissions as a source of energy, reports the Financial Times.
Carbon allowances in the EU last week exceeded 65 euros per tonne, a record high, and in the UK, the carbon allowance market was a record high of £ 76 per tonne. The region’s current cap-and-trade systems mean that companies are only allowed a certain allowance of emissions per year, with a cap set on targets that align with the goals of the Accord. Paris. Any emissions exceeding the allocation and the company must purchase a carbon allowance equivalent to one tonne of emissions.
At the start of September, it made up over 5% of the UK’s power supply, the highest level since March and occurs when levels are expected to be at their lowest. This is a trend that is expected to continue through the winter months and could see natural gas prices skyrocket.
“There will be this shift from gas to coal and therefore higher emissions from the electricity sector,” said Sebastian Rilling, European electricity and carbon markets analyst at ICIS.
KraneShares offers targeted exposure at EUA
The ETF KraneShares European Carbon Allowance (KEUA) offers targeted exposure to the EU carbon allowance market only, capturing rising prices in the world’s most expensive carbon allowance market.
KEUA provides exposure to the European Union’s cap-and-trade allowance carbon allowance program only and is actively managed.
The fund’s benchmark is the IHS Markit Carbon EUA Index, an index that tracks the most widely traded EUA futures, a market that is the oldest and most liquid for carbon allowances. The market currently provides coverage for around 40% of all EU emissions, including 27 Member States as well as Norway, Iceland and Liechtenstein. The annual reduction in the cap was recently increased from 2.2% to 4.2% to meet long-term carbon emissions targets.
Since the fund is actively managed, it may invest in carbon credit futures contracts with different maturity dates or differently weighted futures contracts than the index. The fund potentially trades CTFC regulated futures and swaps above the CFTC 4.5 limit and is therefore considered a “commodity pool”.
KEUA has an expense ratio of 0.79%.
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