Clearing house members in the European Union have been tackling elevated margin requirements, but they’re finally getting some assistance from Ice Clear Europe with the acceptance of European Union emissions allowances (EUAs).
Ice Clear Europe offers secure, capital-efficient clearing, risk management, and physical delivery services. The acceptance of EUAs could hopefully provide a pathway to more investor interest in carbon credit futures.
“Ice Clear Europe is preparing to accept European Union emissions allowances (EUAs) as collateral to help offset large margin calls, as the energy crisis continues to squeeze market participants. In a circular released on Monday, September 26, the clearing house said it would accept emissions certificates, each of which permits a company to emit one tonne of carbon dioxide, to offset any short EUA futures positions,” a Risk.net article reported.
According to Ice Clear Europe, this will give clearing house members some flexibility in meeting margin requirements, especially after a roller coaster ride in the energy markets. Russia’s invasion of Ukraine, in particular, sent gas futures soaring and added liquidity issues for the energy markets.
2 Options for Targeted Exposure to Carbon Futures
Exchange traded fund (ETF) provider KraneShares offers a pair of funds that offer investors targeted exposures to global cap-and-trade carbon allowance markets that invest in carbon credit futures. These funds include the KraneShares Global Carbon Strategy ETF (KRBN) and the KraneShares European Carbon Allowance Strategy ETF (KEUA).
KRBN is benchmarked to IHS Markit’s Global Carbon Index, which offers broad coverage of cap-and-trade carbon allowances by tracking the most traded carbon credit futures contracts. The index introduces a new measure for hedging risk and going long on the price of carbon while supporting responsible investing.
Currently, the index covers the major European and North American cap-and-trade programs: European Union Allowances (EUA), California Carbon Allowances (CCA), the Regional Greenhouse Gas Initiative (RGGI), and United Kingdom Allowances (UKA). This offers the investors broader exposure than KEUA.
KEUA provides targeted exposure to the European Union Allowances (EUA) cap-and-trade carbon allowance program. KEUA is benchmarked to the IHS Markit Carbon EUA Index, which tracks the most traded EUA futures contracts. As a part of the KraneShares suite of carbon ETFs, KEUA provides a new vehicle for participating in the price of carbon and hedging risk while supporting responsible investing and ESG goals.
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