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VanEck

  •   24 May 2022
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VanEck to launch Australia’s first global carbon credits ETF

Sydney, 24 May 2022 – Subject to ASX and final regulatory approval VanEck will launch Australia’s first carbon credits ETF, the VanEck Global Carbon Credits ETF (Synthetic) (ASX: XCO2). An investment in carbon markets is viewed as a vital tool to help in the fight against climate change and as carbon credit prices potentially increase.

XCO2 will track the ICE Global Carbon Futures Index, which sources carbon credit futures prices from the four most actively traded and largest carbon markets and emission trading schemes (ETS) in the world. These are the European Union Emissions Trading Scheme, the Western Climate Initiative (California Cap and Trade Program), the Regional Greenhouse Gas Initiative (RGGI) and the UK Emissions Trading Scheme.

A carbon credit is a permit that allows a company that holds it to emit up to a certain amount of carbon dioxide or other greenhouse gases. The purpose is to limit the extent of pollution caused by emission of carbon dioxide or other greenhouse gases by taxing companies that pollute in excess of the emissions cap.

According to Arian Neiron, VanEck's CEO and Managing Director - Asia Pacific, the benefit of global carbon credit futures is that they can be freely traded on global exchanges with attractive market size and liquidity, both of which are expected to increase in the countdown to net zero, along with prices.

“Australia currently does not have a carbon credit ‘cap and trading’ scheme. With the new Labor government now in power and climate change front and centre, time will tell if climate policy will be more ambitious in mitigating greenhouse gas emissions and align to the likes of the European Union.

“This opportunity is important because it gives investors access to a global marketplace for carbon credits. Importantly, carbon credit prices are expected to increase significantly as the fight against climate change gains momentum. This will raise the value of carbon credits futures and this asset class will likely benefit significantly over the longer term, making it attractive for investors to get exposure.

“Carbon credits have historically been lowly correlated to mainstream asset classes and can be potentially used as a hedge against the impact of carbon emissions risks on investor portfolios. The VanEck Global Carbon Credits ETF (Synthetic) will allow investors to take advantage of the potential rise of carbon credit prices by giving investors access to the biggest global emissions trading schemes.

“Any rise in carbon prices would also support responsible investing and incentivise pollution reduction schemes and policies as governments work harder to meet global climate agreements. Companies too are better aligning their production with environmental, social, and governance (ESG) investment goals, and many are using carbon credits to do this,” said Neiron.

According to forecasts, carbon credit prices are expected to reach over US$100 per ton of CO2. The price of EUA futures December 2022 contracts is €83 per ton of CO2. It has been estimated that carbon credit prices “would need to reach US$147 per ton of CO2 to meet a 1.5°C global warming limit by 2050”.

The drivers of carbon prices over the short and long term include carbon trading systems rules and climate and energy policies, as well as changes in current and expected future scarcity of carbon credit allowances and the overall level of global economic activity and carbon emissions.

A secondary market deals with trading of carbon credits. Together, the four futures markets tracked by the ICE Global Carbon Futures Index make up the majority of the volume of all trading in carbon-credit futures contracts. As of December 2021, the four largest global carbon credit futures markets tracked by ICE Global Carbon Index had a combined annual trading volume of US$683.9 billion.

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