Carbon funds eye further growth as EU and UK beef up net-zero policies

carbon emissions

Carbon funds have been rising as the cost of emitting greenhouse gases reached a new all-time high in Europe in December. 

The funds trade in company credits for releasing a tonne of carbon, which hit a record EUR31 per tonne on the EU Emissions Trading System (ETS). 

The market has been buoyed by the highly-anticipated agreement of a new EU-wide target to cut carbon emissions by “at least 55 per cent” from 1990 levels, by 2030.

In the most recent monthly data from November, Carbon Cap’s World Carbon Fund rose 2.7 per cent over the month.

Its fund managers noted in a monthly commentary that the European Carbon market experienced large gains with prices rising more than 20 per cent after having declined by 17 per cent in the prior two months.

The World Carbon Fund says it is “following policy developments closely with both the Biden presidency and the EU Council approval of the 55 per cent reduction target, as important themes”. 

“We continue to believe that the next few years will provide significant opportunities in the carbon markets with the potential launch of multiple new markets on the horizon,” say the fund managers.

These new markets will likely include the British government’s recently-announced domestic emissions trading scheme (UK ETS) to be established from 1 January 2021, replacing the current EU regime at the end of the Brexit transition period.

ETS systems force polluting businesses such as power plants and airlines to purchase permits to emit greenhouse gases. 

“It will be the world’s first net-zero carbon cap and trade market, and a crucial step towards achieving the UK’s target for net-zero carbon emissions by 2050,” the government said.

Higher carbon prices could give a competitive advantage to renewable energy sources, driving coal power out of the market. 

Prices may rise as high as EUR 89 per tonne over the next ten years, according to forecasts from analysts at a webinar organised by Vivid Economics at the request of the European Commission. 

The analysts’ low-end estimate still anticipated the cost of emissions will near-double to EUR56 per tonne over the same period.