What is Homaio’s mission ?

Homaio wants to massively steer capital towards assets that effectively reduce emissions. It does so by unlocking compliance carbon markets for individual investors. Starting with European Union Allowances and gradually expanding to other emissions trading schemes around the world, it opens an entire new asset class designed for impact and returns to climate-conscious investors globally.

What is carbon pricing ?

Carbon pricing is generally considered to be the fairest and most effective way of curbing greenhouse gas emissions. It seeks to put a price on carbon emissions. Carbon emissions are a cost to society in the form of global warming, and carbon pricing aims at shifting that cost back to emitters. Emitters therefore face a trade-off between reducing their emissions or paying for their costs. As carbon prices increase, so do incentives to reduce emissions. This fuels systemic changes in production, consumption, and investment patterns at scale.

What is the difference between carbon offsets, allowances, and credits ?

These terms refer to entirely different markets. Carbon credits and carbon offsets refer to the removal or avoidance of greenhouse gas emissions in the voluntary carbon market. For example, by planting a tree (removal) or by switching from a woodfire cookstove to a cleaner cookstove (avoidance). Carbon credits are sold by the project developer to an individual or a corporation that wishes to offset their emissions. It’s an unregulated market which has witnessed its fair share of controversies. Carbon allowances are standardized trading units in regulated carbon markets. They represent the right to emit one ton of greenhouse gas by an industrial polluter within the issuing market. They have a capped supply, equivalent to the market’s carbon budget. That supply is gradually reduced, which progressively increases the value of each allowance and reduces emissions.

How do I invest in carbon allowances ?

Homaio unlocks the carbon allowance market for individual investors. We're currently invite-only, accepting European investors looking to invest in assets designed for both impact and returns on an ongoing basis. If this sounds like you, you can register on the site or email carbon@homaio.com and we'll be in touch very soon.

How do European Union Allowances (EUAs) reduce emissions ?

There are multiple ways in which buying and holding EUAs has a direct impact on carbon emissions. When you hold EUAs, you withhold allowances for a finite supply, preventing industrial polluters from accessing these emissions right. By tightening supply, you're also marginally increasing price, encouraging investment in decarbonation solutions. Finally, as you hold EUAs, you allow the permanent removal of allowances from the supply budget through something called the cancellation mechanism. This ensures that your impact is net-positive even after you've divested your portfolio.

What are the price drivers of EUAs ?

EUAs have a high price volatility, meaning their value fluctuates greatly over short time periods. While the long-term price behavior is tied to the deflationary nature of the market (the fact that supply reduces), the short term price behaviors depend on a number of factors, such as macro-economic activity, weather patterns, cost of carbon abatement technologies, or energy prices.

Returns have been particularly strong the past 4 years. Is there still upside potential ?

The EU ETS was created in 2005, and has evolved a lot since then. There has been 4 different phases (we’re currently in the 4th phase) which have helped the market evolve and mature. A key evolution was the creation of the Market Stability Reserve or MSR in 2014 and its reform in 2018. The MSR tackled the problem of supply surplus in the market, which historically kept prices very low. The excess supply was linked to the 2007-2008 financial and economic crisis: the actual economic output (and therefore EUA demand) was much lower during the crisis than initially planned when the first carbon budget was set up. That created a lasting supply surplus on the market which depressed prices. When the MSR kicked in in 2018, prices started to surge as excess supply was gradually absorbed from the market. The latest rally has also partly been linked to the war in Ukraine and the ensuing energy crisis. Yet a regularly appreciating EUA price is the objective of the market and the way it is designed: it is a deflationary asset whose progressively rising price creates progressively greater economic incentive on industrials to decarbonize their activities. We don’t expect the average annual growth rates of 50% we’ve witnessed between 2018-2022 to continue, but we do expect sustained price growth, as per the market’s design.

How can we be sure that observed reductions in emissions are caused by the EU ETS ?

When we talk of emissions reduction, we look at emissions reduction of covered installations under the EU ETS. Emissions reduction rate have followed the supply reduction rate. We also observe that industries which were fully covered by the EU ETS decreased their emissions faster than those that had buffer systems. The EU ETS doesn’t exist in a bubbled, closed environment, so stating both a direct and singular causation is impossible. However, it is widely observed, studied, and agreed in academic, political, environmental, and scientific circles that is the fairest and most efficient way of reducing emissions, and empirical evidence as well as historical examples such as the US Acid Rain Program in the 1990s backs it up. Compared to 2005, emissions of installations covered by the ETS have dropped 40%. And since the EU ETS was created in 2005, 33 other jurisdictions have implemented or are implementing ETS in their geographies to replicate its success.

Everything can’t be perfect: What are the weak spots ?

It is undeniable that market-based carbon pricing is the fairest and most effective way of solving climate change, and that the EU ETS is its most successful implementation. Yet it is also undeniable that there are weaknesses in the market design leading to inefficiencies and grey areas. It’s not perfect, it’s just the best we have so far, and we can make it better by actively engaging with it. One notable inefficiency is what we call the free allocations, meaning allowances that are given for free to industrials so that they can transition slowly without loosing competitivity and to avoid carbon leakage. Free allocations are being gradually phased out, but still account for over 40% of the annual budget. Some industrials were given so many free allowances that they have absolutely no incentive to decarbonize their activities, and actually have a sort of massive subsidy to their activities as they can sell these allowances for a profit or pass on their theoretical cost to end consumers. The latest reform of the EU ETS has addressed many of these shortcomings. And by opening the market to individual investors, we can contribute to making it both more ambitious and more efficient