Does the EU ETS harm industrial competitiveness?

The EU ETS uses policy tools like the Carbon Border Adjustment Mechanism (CBAM) and targeted proceeds redistribution to drive decarbonization while protecting EU industry competitiveness. These mechanisms address carbon leakage and support the transition to sustainable practices, ensuring industries remain competitive internationally amid carbon costs and the move towards green finance.

What is the marginal abatement cost curve?

The Marginal Abatement Cost Curve (MACC) compares the cost-effectiveness of different carbon emission reduction strategies, ranking them by profitability to help prioritize climate actions and inform carbon market targets for investing in green technologies, though results depend on assumptions and technological advancements. It helps policymakers and businesses decide which measures to implement to achieve environmental goals efficiently and cost-effectively for investing in sustainable development.

What explains the correlation between gas prices and EUAs?

While gas and EUA (European Union Allowance) prices correlated in late 2023/early 2024 due to fuel switching, this link is now decoupling as EU ETS market participants focus on long-term decarbonization fundamentals and policy changes that drive EUA prices independently of energy market dynamics, viewing EUAs as investments in sustainable development. The EU ETS is evolving into an effective decarbonization tool.

Are EUA prices correlated to other asset prices?

Investing in carbon allowances (EUAs) offers diversification benefits due to their low correlation with traditional assets like stocks and bonds, acting as a potential hedge against inflation. The EUAs' prices are driven by unique factors tied to the carbon market, making them a distinct component for a responsible investment portfolio with long term price appreciation.

An introduction to the correlation of EUAs with other assets

Investing in carbon allowances (EUAs) offers portfolio diversification and protection against market swings due to their low correlation with other assets. EUAs can act as an inflation hedge and are engineered for long-term price appreciation, making them a valuable addition to a well-diversified green portfolio.

How big is the EU ETS as a financial market?

The European Union Emissions Trading Scheme (EU ETS) is a booming carbon market with massive trading volumes, particularly in European Union Allowances (EUAs), attracting more participants and supporting public investment in climate policies, making carbon allowances a major commodity.

Is the EU ETS a volatile market?

EU carbon allowances (EUAs) exhibit moderate short-term volatility due to demand-side factors, but their declining supply supports long-term price appreciation, making them potentially suitable for long-term sustainable investment strategies. Increased market participation can further stabilize the EUA market.

What are the historical EUA financial returns?

EUAs (European Union Allowances) offer opportunities for responsible investing in the carbon market. Investing in EUAs can yield financial returns, support carbon reduction, and promote green finance. The EU ETS market is designed to gradually reduce carbon emissions and achieve carbon neutrality.

What are the EUA price forecasts for 2030?

All EUA price forecasts point in the same direction: significantly higher by 2030, conditional on the outcome of the regulatory review expected in Q3 2026. Industrial activity, gas markets and regulatory supply tightening are the three structural forces at play. Here is a scenario-by-scenario breakdown of what to watch, and what it means for long-term investors.