S&P Dow Jones Indices has unveiled the S&P GSCI Carbon Emission Allowances (EUA) EUR Index, an index providing exposure to the price of carbon credits within the European Union’s Emission Trading System (EU ETS).
The index provides exposure to the price of carbon credits within the European Union’s Emission Trading System.
Carbon credits are permits or allowances issued by governments that enable the holder to discharge a specific quantity of carbon over a specific time period.
Polluters that want to increase their emissions must buy permits from others willing to sell them, thereby creating a market-based approach to controlling pollution.
The EU ETS is the world’s first international emissions trading system based on the ‘cap and trade’ principle.
The index is based on the ICE EUA Futures Contract and represents the first carbon emissions single-commodity index for the S&P GSCI index series.
Fiona Boal, Head of Commodities and Real Assets at S&P Dow Jones Indices, commented, “Broadening the financial instruments available to traders and investors in the global carbon market is an important goal of the S&P GSCI Carbon Emission Allowances (EUA) EUR Index. Investors utilize this market to express a specific view on the price of carbon, to hedge risks or offset more carbon-heavy investments in their portfolios, or combine carbon emissions with other assets to create energy-transition or low-carbon strategies while promoting the transition to a lower carbon economy.”
As of 9 March 2020, the price of carbon credits based on the ICE EUA Futures Contract was €23.25 per metric tonne, representing an increase of 108% over the past two years, although prices have dropped nearly 30% since their recent high of €29.94 per metric tonne in July 2019.
ETF investors looking to gain exposure to carbon credits may wish to consider the WisdomTree Carbon (CARB LN / CARP LN). The London-listed ETP uses swaps to provide a total return exposure to movements in the price of ICE European Carbon emissions allowance futures contracts plus a collateral yield. The exposure is obtained through fully funded swaps with Shell Trading Switzerland AG, a member of the Royal Dutch Shell Group. It comes with a management expense ratio of 0.49% and has assets of €18 million.
S&P Dow Jones Indices is one of a number of index providers to introduce a carbon credits index. In September 2019, IHS Markit launched the IHS Markit Global Carbon Index, the first index to track the weighted average price of carbon credits globally. This index follows the performance of the largest, most liquid, and most accessible carbon markets. This currently includes the EU ETS as well as two US-based markets, the California Cap-and-Trade Program and the Regional Greenhouse Gas Initiative.