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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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Are EUAs official financial instruments?

Are EUAs official financial instruments?

Under EU law, European Union Allowances (EUAs) are classified as official financial instruments. Traded on exchanges within the European Union Emissions Trading Scheme (EU ETS) marketplace, EUAs have quantifiable financial characteristics just like other financial assets.
How are the EUA auctions organized?

How are the EUA auctions organized?

The main method for issuing European Union Allowances (EUAs) is through daily EU-wide auctions. The proceeds from these auctions are redistributed to individual member states, which then channel the funds into environmental initiatives.
An introduction to the correlation of EUAs with other assets

An introduction to the correlation of EUAs with other assets

European Union Allowances (EUAs) are an excellent option for portfolio diversification. Historically, they have had a low correlation with other asset classes, offering effective protection against unfavorable portofolio swings coming from the broad financial markets.
Is the EU ETS a volatile market?

Is the EU ETS a volatile market?

European Union Allowances (EUAs) are a moderately volatile investment asset. In the short term, their prices can experience fluctuations due to the various demand-side factors. However, over the long term, the trend becomes clearer: carbon allowances are designed for price appreciation.
How big is the EU ETS as a financial market?

How big is the EU ETS as a financial market?

Carbon is becoming a major commodity and European Union Allowances (EUAs) are the financial assets in a booming market. The European Union Emissions Trading Scheme (EU ETS) is rapidly expanding in scale and gaining crucial importance across major financial exchanges and the wider macroeconomy.
Who participates in the EU ETS financial market?

Who participates in the EU ETS financial market?

The EU emissions trading scheme (EU ETS) has evolved to be a massive liquid trading marketplace. It welcomes a variety of participants with different investment horizons and strategies.
What are the historical EUA financial returns?

What are the historical EUA financial returns?

The European Union Emissions Trading Scheme (EU ETS) is designed to drive price appreciation; European Union Allowance (EUA) prices have been rising since the inception of the scheme (+25% per annum over the past decade). As both a policy tool and a marketplace, its singular goal is massive decarbonization - those who emit carbon dioxide pay an accurate price for their emissions.
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?

There will be no further carbon emissions forever - nor will there be issuance of new EUAs indefinitely. Under current legislation, the European Union Emissions Trading Scheme’s (EU ETS) auctions will come to an end by 2039. However, there’s no need to worry—the carbon market is here to stay until it achieves its long-term mission to bring Europe to climate neutrality by 2050.