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Anyone can invest in assets backed by 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.
Anyone can invest in assets backed by carbon allowances from the EU ETS market in 2024.
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.
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.
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.
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
As we will discuss further, in 2024, individual investors can also participate in the EU ETS market through Homaio’s investing platform.
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.
The individuals and entities eligible to bid at EU ETS auctions include:
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.
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.
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.
To open an account and buy EU ETS allowances, you can simply:
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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