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The fundamentals of carbon pricing

Carbon emissions are a threat to our health, infrastructure, and economy - but who pays for the damages? CO2 volumes released by companies into the atmosphere create effects that are detrimental to us all. The issue is that those responsible for these emissions do not pay for the damage they cause. This is what we call a "negative externality."

To fix this problem and generate the funds needed to address the negative effects of carbon emissions, we need regulatory measures like putting a price on CO2. Carbon pricing makes sure that those who release emissions pay the costs of their impact on society. This can be done by governments through a regulated carbon market, or via voluntary carbon credit markets.

When it comes to regulated markets, on the one hand, there are carbon taxes - directly charging companies or individuals a set fee for each ton of CO2 they emit. The higher the emissions, the higher the tax. On the other hand, there are emissions Trading Schemes (ETS) - setting a limit on the total amount of CO2 that can be released. Companies acquire emission allowances, and they can trade these with other market participants.

There are also voluntary carbon markets where businesses or individuals choose to buy carbon credits to offset their emissions. These markets are very different in their structure, scale and effectiveness government-regulated schemes.

Once you understand the specific characteristics of different carbon pricing approaches, it’s clear that emissions trading schemes are the most effective way to tackle climate change at scale.

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What is the social cost of carbon?

What is the social cost of carbon?

The social cost of carbon (SCC) estimates the monetary damages caused by CO2 emissions, influenced by human activity and political considerations. Diverse estimates exist, but current carbon prices may not reflect the high end of SCC estimates. Investing in sustainable development and responsible investing is therefore essential to mitigate environmental damage and promote ethical investments.
Why do we need to put a price on carbon emissions?

Why do we need to put a price on carbon emissions?

To address climate change and its associated costs, governments must implement carbon pricing mechanisms like carbon taxes and emissions trading schemes to hold polluters accountable for their emissions and fund future climate solutions; this promotes responsible investing and incentivizes a transition to green finance and renewable energy. Without carbon pricing, society bears the burden of pollution's heavy price tag.
How can EUAs improve your socially responsible investment portfolio?

How can EUAs improve your socially responsible investment portfolio?

Socially Responsible Investing (SRI) combines financial returns with positive social and environmental impacts, offering diversification and risk mitigation. Investing in EU Allowances (EUAs) through the EU Emissions Trading Scheme (EU ETS) supports environmental goals and provides financial returns, with strong historical performance and promising future forecasts. EU labels like France's SRI and Green Fin guide investors in building sustainable and ethical portfolios.
Can carbon offsets be used in the EU ETS?

Can carbon offsets be used in the EU ETS?

Carbon offsetting involves compensating for greenhouse gas emissions by reducing them elsewhere, with carbon offset credits representing certified emission reductions. While previously used in the EU ETS, they were removed due to ineffectiveness, but future integration is being discussed, with the ETS market being significantly larger. Carbon offset projects include renewable energy and avoided deforestation, and discussions are underway on how to invest in green finance.
Are politicans commited to the EU ETS?

Are politicans commited to the EU ETS?

The EU ETS is considered a successful and resilient tool for reducing emissions, backed by political commitment and sophisticated mechanisms, and is being promoted as a global model for carbon pricing and green finance. Politicians see the EU ETS as a crucial economic instrument driving climate action and long-term sustainable investment.
Can I permanently delete carbon allowances?

Can I permanently delete carbon allowances?

Deleting carbon allowances permanently reduces the carbon budget, combating climate change. Anyone can cancel allowances, and holding them before canceling maximizes impact on responsible investing and green finance. This is a form of impact investment in the European carbon market.
Carbon Allowances: Who Can Buy Them, and How Do They Work?

Carbon Allowances: Who Can Buy Them, and How Do They Work?

Homaio enables private investors to invest in the EU carbon market, benefiting from the increasing price of carbon allowances and supporting decarbonization. The EU Emissions Trading System (EU ETS) uses carbon allowances to drive down greenhouse gas emissions, and Homaio's platform offers access to financial products backed by these allowances. Investing in carbon allowances allows private investors to contribute to responsible investing and benefit from a market with significant growth potential.
Can EUAs protect your portfolio against inflation?

Can EUAs protect your portfolio against inflation?

Inflation erodes investment value; hedging mitigates this risk. European Union Allowances (EUAs) offer diversification and act as an effective hedge against unanticipated inflation due to their unique market dynamics and lack of correlation with traditional financial assets. EUAs can be part of a responsible investment strategy.
Chronicles from the EU ETS battlefield:  How does carbon pricing accelerate decarbonization in the cement industry?

Chronicles from the EU ETS battlefield:  How does carbon pricing accelerate decarbonization in the cement industry?

This article discusses how the EU ETS and Carbon Border Adjustment Mechanism (CBAM) incentivize the cement industry, including companies like Cem' In' Eu', to adopt sustainable practices and invest in green investment and green finance due to increasing carbon costs and regulations. Cem' In' Eu' anticipates rising EUA prices and incorporates carbon costs into financial planning, viewing CBAM as beneficial for creating a level playing field that promotes responsible investing and ecological investment.
Are free allowances bad for the efficacy of the EU ETS?

Are free allowances bad for the efficacy of the EU ETS?

The EU ETS is phasing out free carbon allowances after 2024, which may increase EUA demand and prices, incentivizing investments in emission reduction and decarbonization efforts. While the Carbon Border Adjustment Mechanism (CBAM) protects against carbon leakage, some advocate for a faster phase-out to maximize incentives for green investment and responsible investing. This shift aims to align with the "polluter pays" principle and encourage a green portfolio.