Trading Carbon Credits to Secure Uncorrelated Returns

Investing in sustainable future with carbon credit trading

A carbon credit is a certificate that allows its holder permission to emit one ton of carbon dioxide. Polluting companies are awarded these permits by the government, the sum of which determines the company’s total emissions limit. Once that limit is reached, the company must buy extra carbon credits if it wishes to emit more carbon dioxide. The overall number of carbon credits is periodically reduced by the government in an effort to decrease the total amount of domestic greenhouse gas emissions.

If a company does not use all its carbon credits, it is allowed to sell its excess credits to other companies, thereby positively incentivizing the private sector to reduce emissions. The buying and selling of these government-issued carbon credits takes place in the compliance carbon market. A unique feature of this market is that it is not simply limited to polluting companies – anyone can invest in carbon credits! The e360 power hedge fund is involved in carbon markets around the globe. We also analyze carbon credit prices to give insights on the price action for electricity. Overall, the value of the compliance carbon credit market has topped $850 billion, and increased 164% in 2020 alone. The market for carbon credit investment is rapidly expanding and presents many notable opportunities.