Horizons ETFs has launched the first ETF in Canada providing exposure to cap-and-trade carbon allowances.
Carbon credits represent a market-based approach to controlling pollution.
The Horizons Carbon Credits ETF (CARB CN) has been listed on the Toronto Stock Exchange with a management fee of 0.75%.
In a typical cap-and-trade regime, a limit (or cap) is set by a regulator, such as a government entity or supranational organization, on the total amount of specific greenhouse gases, such as CO2, that can be emitted by regulated entities, such as manufacturers or energy producers.
The regulator may then issue or sell individual emission allowances to regulated entities. Polluters that want to increase their emissions must buy allowances from others willing to sell them, thereby representing a market-based approach to controlling pollution.
By incrementally scaling back the number of allowances over time, cap-and-trade regimes represent a powerful policy tool for achieving ambitious climate targets such as those set out by the Paris Agreement.
The new ETF is linked to the proprietary Horizons Carbon Credits Rolling Futures Index which consists of a long-only basket of commodity futures contracts linked to the value of emission allowances under the European Union Allowances (EUA) cap-and-trade program, the world’s oldest and most liquid carbon allowance market.
The EUA program, which covers approximately 40% of the EU’s total emissions, aims to reduce carbon levels to 45% of 1990 levels by 2030 and achieve carbon neutrality by 2050.
The index regularly hedges foreign currency exposure relative to the Canadian dollar.
Steve Hawkins, President and CEO of Horizons ETFs, said: “With the launch of CARB, another Canadian first for ETF benchmarking, we continue to demonstrate why Horizons ETFs is an industry leader in bringing new, exciting, and innovative asset classes to market for all Canadians. CARB’s transparent strategy offers the ability to participate in the carbon credit market and provides a simple way for Canadian investors to access what was globally one of 2021’s best-performing asset classes.”