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Financial Indicators

Financial Indicators

European Union Allowances (EUAs) have steadily increased since the inception of the European Union Emissions Trading Scheme (EU ETS). Over the past decade, their annualized Return on Investment is over 25%, outperforming most traditional assets. 

The trend in EUA prices has not been linear, but the scheme’s structure is intended to drive long-term price growth, after all. In the initial phases of the scheme were a “test period” for regulators to determine the optimal design for the system. During this time, prices remained low due to a structural oversupply, a situation that has been progressively addressed since then. 

The uneven path of the good EUA price performance can also be explained by temporary events such as the crisis in Ukraine and disruptions in the gas markets. 

What makes EUAs unique is their steady decreasing supply. The scheme is designed with an objective: progressively increase the cost of carbon emissions. Policy makers are making it more and more expensive for industries to pollute. As a result, carbon allowances are anticipated to continue their strong financial performance in the future.

EUA prices have shown good historical performance despite some fluctuations due to temporary factors. They are set to keep rising as they fulfill the regulators' goal of making carbon a commodity that the economy cannot afford.

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An introduction to the correlation of EUAs with other assets

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.
Is the EU ETS a volatile market?

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.
How big is the EU ETS as a financial market?

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.
Who participates in the EU ETS financial market?

Who participates in the EU ETS financial market?

The EU Emissions Trading Scheme (EU ETS) market, primarily the secondary market, has expanded over time to include various participants. Initially restricted to industries with compliance obligations, it now includes investment firms, institutions, and, as of 2024, individual investors via platforms like Homaio, increasing market liquidity and investment strategies for carbon allowances. This allows investing in the stock market and green finance through carbon allowances.
What are the historical EUA financial returns?

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.
When can we expect the end of EUA supply and will happen after?

When can we expect the end of EUA supply and will happen after?

The EU's carbon market (EU ETS) will end new allowance auctions by 2039 under the Fit for 55 reform, but the market will continue using existing carbon allowances to drive Europe towards climate neutrality by 2050. A 2026 revision will be crucial in determining the market's long-term future, potentially linking with other carbon markets and including carbon removal credits to promote green finance and responsible investment. Investing in carbon allowances impacts carbon neutrality and the European carbon market.