EUA Futures Trading and Clearing EUA Futures are traded on Nasdaq Commodities, which is a transparent and regulated market. You can make orders as a member using the Genium INET Workstation, our user-friendly and dependable trading system.
Can I invest in EUA futures?
Unlike your plant, which you need for power, heat, paper, cement, glass, and other operations, trading in European emission allowances (EUA in EU ETS) is not part of your core business.
Since the introduction of the Market Stability Reserve in summer 2018, the EUA allowances required for your production can no longer be obtained for 5-7 euros, but cost well over 20 euros per tonne of CO2, in contrast to the first years of the 2nd and 3rd trading periods, with a simultaneous – more or less – decreasing free allocation.
With a few exceptions on the auction market, operators in the 4th trading period no longer have the dilemma of trying to achieve good prices when selling surplus allowances, but instead are on the buyer’s side and want to receive favorable prices on the secondary market.
Because big energy suppliers and extremely large industrial groups with several plants also participate in auctions and buy EUA Futures on the secondary market, medium-sized and small industrial enterprises are limited to bilateral spot market trading. The grounds for this are the ease and speed with which these allowances can be obtained.
What do EUA futures entail?
Allowance from the European Union (EUA) In line with the Rules, an EUA Futures contract for the purpose of trading and delivering EUAs within the meaning of Chapter III of the Directive. 1000 EUAs in a single lot. Each EUA entitles the holder to emit one tonne of CO2 equivalent gas.
What is the procedure for EUA trading?
The European Union has built a market system that assigns a price to CO2 and provides incentives to reduce emissions in the most cost-effective manner through the EU ETS. In the last 16 years, it has reduced emissions from power generation and energy-intensive businesses by 42.8 percent. Companies must hold allowances proportional to their CO2 emissions under the regime, making power generation from coal and other fossil fuels more expensive and sustainable energy alternatives more appealing. Simultaneously, businesses are encouraged to become more energy efficient because they may then sell their emission permits on the open market.
The EU ETS uses a “cap-and-trade” model, in which the EU sets a limit on how much greenhouse gas pollution can be produced each year, and businesses must hold European Emission Allowance (EUA) for each tonne of CO2 they emit in a calendar year. These permits are given to them or purchased by them, and they can trade them.
The EU ETS regulates CO2 emissions from power plants, energy-intensive businesses (such as oil refineries, steel mills, and iron, aluminum, cement, paper, and glass makers), and civil aviation. Extra-EU flights are not covered by the system; only flights between and within the EU and the European Economic Area must adhere to the rules.
If a company emits more CO2 than their emission allowances cover, they will be fined. The penalty is 100 euros per tonne of excess weight. For perspective, in 2017, BASF, the world’s largest chemical business, produced 23 million tonnes of CO2 equivalents. Companies have an incentive to minimize emissions by investing in energy efficiency because they can sell any surplus credits. Companies can acquire credits from emission-reduction projects in underdeveloped countries under the Kyoto Protocol’s Clean Development Mechanism (CDM) instead of EU ETS allowances.
What exactly is an EUA commodity?
EUAs are carbon allowances that serve as the unit of compliance under the European Union Emission Trading Scheme (EU ETS), with each EUA allowing organizations in EU ETS-affected industries (e.g. power production market businesses, oil refiners) to emit one tonne of CO2 (CO2).
What does the EUA market entail?
The S&P GSCI Carbon Emission Allowances (EUA) is a benchmark for the European Union Carbon Emission Allowances (EUA) market.
In trade, what are futures?
Futures are a sort of derivative contract in which the buyer and seller agree to buy or sell a specified commodity asset or security at a predetermined price at a future date. Futures contracts, or simply “futures,” are traded on futures exchanges such as the CME Group and require a futures-approved brokerage account.
A futures contract, like an options contract, involves both a buyer and a seller. When a futures contract expires, the buyer is bound to acquire and receive the underlying asset, and the seller of the futures contract is obligated to provide and deliver the underlying item, unlike options, which can become worthless upon expiration.
What exactly does EUA carbon imply?
Climate credits (or carbon credits) used in the European Union Emissions Trading Scheme are known as EU Allowances (EUA) (EU ETS). EU Allowances are deposited into Member State Registry accounts by EU Member States. Operators of EU ETS-covered facilities must surrender an EU Allowance for each ton of CO2 emitted in the preceding year by April 30 of each year. “An allowance to emit one tonne of carbon dioxide equivalent during a specified period, which shall be valid only for the purposes of meeting the requirements of this Directive and shall be transferable in accordance with the provisions of this Directive,” according to Article 3(a) of the EU ETS Directive.
How do I purchase carbon futures?
- The opportunity to make a cash return is a significant benefit of investing in carbon credits, as it is with any other investment. As previously stated, the KraneShares Global Carbon Strategy ETF has more than doubled in value since its inception in mid-2020, resulting in a NAV return of more than 154 percent as of Dec. 31, 2021.
- Carbon credits are designed to limit companies to a particular amount of carbon emissions each year, which benefits the environment. Carbon credits may appeal to environmentally conscientious investors looking for a method to invest in line with their ideals.