WisdomTree launches Europe’s only fully collateralised carbon ETP

WisdomTree, the ETF and ETP sponsor, has announced the launch of an ETP that aims to allow investors to gain exposure to the performance of carbon emission allowances. The fully collateralised WisdomTree Carbon ETP (CARB), has been listed on the London Stock Exchange with a management expense ratio of 0.35 per cent.   

CARB seeks to reflect the movement in the price of the ICE Carbon Emission Allowances (EUA) futures contract through the Solactive Carbon Emission Allowances Rolling Futures TR Index. The EUA futures contract is currently the most liquid exchange-traded carbon futures contract globally.

The European Union Emissions Trading Scheme (EU ETS) is the world’s biggest carbon market and the foundation of the EU’s policy to mitigate climate change and reduce greenhouse gas emissions. The scheme is intended to support the EU in achieving carbon neutrality in the region by 2050. The EU, a signatory of the Paris Accord, is moving forward in the fight against climate change, having approved a law to make its greenhouse gas emissions targets legally binding. The agreement targets a reduction in net EU emissions by 55 per cent by 2030, from 1990 levels, and eliminate them by 2050.

Under the EU ETS, a cap exists which limits the amount of greenhouse gases that can be emitted by companies each year. A fixed number of carbon emission allowances are issued each year, with companies required to hold enough allowances to cover their emissions and ensure they fall under the cap. Price increases in carbon emission allowances mean it gets more expensive for companies to cover their carbon footprint with the allowances and incentivises them to invest in pollution abatement technology which could help drive change faster.

Greater investor involvement in EUA futures market could boost liquidity of the futures and the underlying EUAs, which can assist in the ‘price-discovery’ process. An under-priced carbon market could slow the progress of decarbonising. Higher investor involvement could therefore be seen as a positive market outcome.

Alexis Marinof, Head of Europe, WisdomTree adds: “Climate change mitigation is front of mind for investors, corporates and policymakers alike, with many seeking to reduce their carbon footprint and align with the Paris Agreement. The importance of these initiatives cannot be understated and has driven demand for a vehicle that provides exposure to carbon emission allowances futures. CARB builds on our differentiated product range and our deep knowledge of commodities, providing investors with thoughtful exposure to a corner of the ESG market investors have found difficult to access.”

Total EU carbon emission allowances trading activities were valued at over EUR201 billion in 2020, equivalent to 8,096 million tonnes of carbon dioxide, an increase of 19 per cent from a year earlier. 

Nitesh Shah, Director of Research, Europe, WisdomTree said: “The EU ETS has firmly established itself as the pre-eminent model for a cap-and-trade carbon abatement system. Its success is seeing a material reduction in greenhouse gas emissions from the sectors and countries covered by the scheme. Futures based on the European carbon market are the most liquid in the world and present an investment opportunity for investors looking to contribute to price discovery in this vital market. Further investor involvement could boost the futures liquidity, continue to improve this market and further this cause.”

WisdomTree aims to offer the most comprehensive range of commodity ETPs in Europe, with circa USD24.9 billion in assets under management across its platform.

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