S&P Dow Jones Indices (SPDJI) has launched a first-of-its-kind carbon emissions single-commodity index.

The S&P GSCI Carbon Emission Allowances index (EUA) EUR provides investors with a performance benchmark for European Carbon Emission Allowances.

The EU emissions trading system (EU ETS) is a method developed to reduce global greenhouse gas emissions by companies.

It looks to determine the price for CO2 emissions and creates incentives for businesses to reduce emissions and become more energy efficient.

It is the first trading system based on the ‘cap and trade’ principle. Within the cap, companies buy or receive emission allowances which they can trade with one another.

S&P Dow Jones Indices launches climate change index concept amid new EU standards

Fiona Boal (pictured), head of commodities and real assets at SPDJI, commented: “Broadening the financial instruments available to traders and investors in the global carbon market is an important goal of the index.

“Investors utilise this market to express a specific view on the price of carbon, to hedge risks or offset more carbon-heavy investments in their portfolios or combine carbon emissions with other assets to create energy-transition or low-carbon strategies while promoting the transition to a lower carbon economy.”

The index is based on the ICE EUA Futures Contract.