WisdomTree has re-introduced Europe’s only carbon exchange-traded product (ETP) to the market a year after it was forced to close the same strategy.
The WisdomTree Carbon (CARB) is listed on the London Stock Exchange with a total expense ratio (TER) of 0.35%.
CARB tracks the newly created Solactive Carbon Emission Allowances Rolling Futures index which offers exposure to the ICE Carbon Emission Allowances (EUA) futures contract.
Initially launched by ETF Securities in 2008, CARB was forced to close in June 2020 after its swap counterparty, Shell Trading Switzerland, terminated the purchase agreement along with eight oil ETPs.
This decision came following extreme volatility in oil markets with WTI trading below $0 a barrel for the first time in history in April 2020.
There are some differences between the old and new strategy. CARB now has two counterparties instead of one previously while the old ETP did not track an index and was not fully collateralised.
The European Union Emissions Trading Scheme (EU ETS) is the world’s largest carbon market and is intended to support the EU in achieving carbon neutrality 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 should incentivise them to invest in pollution abatement technology which could help drive change faster.
Alexis Marinof (pictured), head of Europe at WisdomTree, said: “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.”
Nitesh Shah, director of research, Europe, at WisdomTree, added: “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.”