Can anyone buy carbon allowances from the EU ETS?

Anyone can invest in assets backed by carbon allowances from the EU ETS market in 2024. 

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The EU ETS market was initially limited to compliance actors. They were the only ones enabled to buy and trade EU carbon allowances. With MiFID II in 2018, the EU Emissions Trading Scheme was opened to a broader range of participants, including investment firms, credit institutions, and commercial undertakings. From 2024, individual investors can also participate in the CO2 allowance market. To open an account and invest in EU ETS allowances through Homaio, individuals can sign up, complete the KYC compliance process, commit an investment amour, and then sign the relevant documents to finalize their investment. This process allows anyone to become a carbon investor, combining financial returns with positive climate impact effortlessly.

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• Who can participate in the EU ETS financial market? 
• Who can participate in the EU ETS auctions? 
• What are the rules for EU ETS trading?
• How to open an account to buy EU ETS allowances? 

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Who can participate in the EU ETS market? 

Who can buy carbon allowances from the EU ETS before 2018? 

In the first years of operation of the EU ETS, the system functioned as a cap and trade mechanism, but the free market exchange of carbon allowances was restricted to actors with compliance obligations. This meant that only industries and power producers were allowed to buy and trade EUAs within the EU ETS from 2005 to 2018.

The participation reform for the EU ETS market

From 2018 onwards, carbon allowances (EUAs) from the EU ETS became accessible to a broader range of participants. The MiFID II regulation classified CO2 allowances as financial instruments under European law. The regulation is a EU legislative framework to regulate financial markets and improve protections for investors. It came into effect on January 3, 2018, replacing the original MiFID which was introduced in 2007. MiFID II aims to increase transparency, improve the functioning of financial markets, and enhance investor protection. This had a positive impact on increasing the EU ETS market robustness and sophistication, as there were more market participants and more liquidity. 

Who can buy carbon allowances from the EU ETS market after 2018? 

Carbon allowances coming under the scope of Mifid 2 opened the EU ETS market to all the parties listed on the Commitment of Traders report

• Investment firms or credit institutions
• Investment funds
• Other financial institutions
• Commercial undertakings
• Operators with compliance obligations. 

As we will discuss further, in 2024, individual investors can also participate in the EU ETS market through Homaio’s investing platform. 

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Who can participate in the EU ETS market auctions? 

What are the carbon allowance EU ETS auctions? 

In the EU ETS primary market, carbon allowances are either allocated for free by regulators or sold through auctions. These auctions are held daily, with a common auction for all member states participating in the EU ETS market, except for Poland and Germany, which have opted to organize their own auctions. The auction volumes are predetermined for each day of the year, based on the pre-established EU ETS cap.

Can anyone participate in the EU ETS carbon allowance auctions?

The individuals and entities eligible to bid at EU ETS auctions include:

• ETS operators (including aviation operators)
• Business groupings of ETS operators acting as their agent
• Public bodies or state-owned entities that control ETS operators
• Investment firms and credit institutions authorized and regulated under EU law, which can bid on their own account or on behalf of clients, provided they have the necessary authorization from the national competent authority

In practice, the most significant activity takes place in the EU ETS secondary market for carbon allowances. In 2023, there were on average 20 bidders at each EU ETS carbon allowance auction, with approximately 15 successful bidders per auction. 

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Can anyone buy carbon allowances from the EU ETS in 2024?

Who was able to participate in the EU ETS before 2024?

Before 2024, compliance actors and large financial entities could participate in the EU ETS. Individual investors could also engage indirectly, primarily through purchasing carbon EU ETS market price trackers, such as ETFs. While they could not buy physical spot EUAs, they could still participate through financial exposure to futures in the EU ETS. This activity had no tangible climate impact and could be made solely for portfolio optimization objectives. 

Who is able to participate in the EU ETS market in 2024 and beyond?

Through Homaio's platform for financial instruments linking financial performance and environmental impact, anyone can now purchase carbon allowances from the EU ETS market in 2024. This accessibility allows individuals to buy EUAs and hold them for as long as they would like in order to align their investments with both financial returns and environmental impact goals.

How to open an account to buy EU ETS allowances? 

To open an account and buy EU ETS allowances, you can simply: 

• Sign up to the Homaio investing platform;
• Build your EU ETS carbon investment project; 
• Go through the KYC process for compliance reasons;
• Sign the relevant documents.

Once you’ve been through those simple steps, you will become a carbon investor through Homaio. You now own an asset combining both financial returns and a positive climate impact. 

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Key takeaways 

• Anyone can buy carbon allowances from the EU ETS market in 2024.
• Before 2018, the EU ETS market participation was limited to compliance actors.
• MiFID II in 2018 expanded EU ETS participation to investment firms, credit institutions, and commercial undertakings.
• From 2024, individual investors can also participate and purchase CO2 allowances.
• To open an account and buy EU ETS allowances through Homaio, individuals can sign up, complete KYC compliance, and sign relevant documents.

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