Homaio enables private investors to invest in the EU carbon market, benefiting from the increasing price of carbon allowances and supporting decarbonization. The EU Emissions Trading System (EU ETS) uses carbon allowances to drive down greenhouse gas emissions, and Homaio's platform offers access to financial products backed by these allowances. Investing in carbon allowances allows private investors to contribute to responsible investing and benefit from a market with significant growth potential.
The European Union Emissions Trading System (EU ETS) - commonly referred to as the “carbon market”, “compliance carbon market” or “carbon allowance market” - has been the cornerstone of the EU’s climate and energy strategy since 2005.
Carbon allowances are financial instruments issued in limited supply by the European Commission. At the end of each year, compliance entities are required to surrender a number of allowances equal to their greenhouse gas emissions. To obtain them, they can either buy allowances directly from the Commission or purchase them on an organized market in which they participate. Once surrendered, the allowances are cancelled, and the cycle starts over the following year.
Year after year, the total number of available allowances decreases, gradually driving up their value.
While the technical term is “European Union Allowances” (or EUA), the market is more commonly referred to using “carbon allowances.” We’ll use both terms interchangeably.
Originally, access to this market was restricted to compliance entities - companies legally bound to hold and surrender allowances. It was later opened to financial actors, in order to bring greater liquidity and sophistication to the market. But to this day, private investors - people like you and me - have been excluded.
And yet, this is a rare asset: one that increases in value by design, while driving real, measurable, and verifiable decarbonization.
And that’s where Homaio comes in.
Carbon allowances are financial instruments. Like any financial instrument, they are first issued by a central authority and then traded between market participants. This is the classic distinction between the primary market and the secondary market.
For example, when Apple issues new shares, that’s a primary issuance. You probably won’t take part in it - those transactions are typically reserved for large investment banks. But when you buy Apple shares on platforms like Robinhood or Trade Republic, you are trading on the secondary market. You’re not buying shares directly from Apple, but from another investor who’s selling them.
It works exactly the same way with carbon allowances.
The primary market for carbon allowances is organized through an auction system. Here’s how it works:
First, the European Commission sets an annual emissions cap. This cap is determined by several factors - most notably, it builds on the previous year’s cap and applies a Linear Reduction Factor (LRF), defined by EU regulation. Currently, the LRF is set at 4.3% per year until 2027, and will increase to 4.4% starting in 2028.
Next, the total annual cap is broken down into daily auction volumes and spread out across the year. In other words, the annual cap is subdivided into daily tranches. The full calendar is available on the website of he European Energy Exchange (EEX), which operates these auctions on behalf of the Commission. As a rule of thumb, auctions are held on every business day between the second week of January and the second week of December. Each day, a portion of the annual cap is brought to market. You can think of EEX as the “Nasdaq” or “NYSE” of carbon auctions.
The auction format itself is strictly defined by EU regulation. It’s a single-round, sealed-bid auction, and all winning participants receive allowances at the same clearing price. While thousands of companies are subject to EU ETS compliance and hundreds of financial institutions are active in the market, only about 30 entities take part in the auctions—and typically fewer than 15 bidders are successful on any given day.
This is because the vast majority of trading takes place on the secondary market.
The secondary market is where carbon allowances are traded continuously. Again, the comparison with stock exchanges like Euronext, Nasdaq, or the NYSE is relevant. In the case of carbon allowances, however, trading takes place primarily on the European Energy Exchange (EEX) and the Intercontinental Exchange (ICE). EEX is a subsidiary of Deutsche Börse, while ICE is part of the New York Stock Exchange group (NYSE).
Although the primary market auctions are held exclusively on EEX, most of the actual trading volume happens on ICE, which accounts for around 80% of total transactions. In 2024, daily trading volumes averaged nearly €4 billion, across both spot contracts (for immediate delivery) and derivatives - including futures, options, and swaps. Over the course of a year, this adds up to nearly €800 billion in traded volume.
Carbon allowances are continuously traded on these markets. That means that during market opening hours, they can be bought and sold at any time, with prices constantly adjusting based on the balance between supply (sell orders) and demand (buy orders). This ensures a high level of liquidity, but also introduces volatility, making EUAs behave somewhat like energy commodities.
And that’s actually quite consistent with their underlying nature: carbon allowances are needed to produce goods (electricity, steel, cement, paper, sugar…) or to operate (maritime transport, aviation). In that sense, carbon allowances are functionally similar to raw materials.
Originally, participation in the carbon market was restricted to compliance entities. In other words, only companies required by law to surrender allowances at the end of the year were authorized to trade them. It was a closed loop of energy producers, heavy industry (energy, steel, cement), or manufacturing companies (petrochemicals, paper, glass, or ceramics).
But a market limited to such a narrow set of participants is structurally fragile and prone to dysfunction. If a crisis hits that entire population, everyone ends up on the same side of the trade: either selling or buying. Prices then crash or spike uncontrollably. That’s exactly what happened during the 2007–2008 financial crisis, which hit European industry hard: all participants became sellers as their production fell, and so their need for allowances. The result was a collapse in prices.
In response, the European Commission gradually opened the market to new players, especially financial institutions. This brought in liquidity, which is essential for a healthy market. Compliance entities looking to hedge price risk need access to more sophisticated transactions than just simple buy-sell operations. They also need counterparties willing to take on that risk.
That’s why, starting in 2018, EU carbon allowances were classified as financial instruments under MiFID II, the EU’s regulatory framework for financial markets. This allowed banks and investment funds to trade EUAs, either on their own behalf or for clients. Many brokers entered the market, making it easier for smaller compliance entities to access the system. These smaller firms often lacked the internal infrastructure or sufficient volume to participate directly.
At the same time, this move improved market transparency and placed carbon markets under the supervision of ESMA, the European Securities and Markets Authority.
In parallel, the European Commission also expanded the scope of the EU ETS to cover new sectors. When it launched in 2005, the system applied to around 11,000 industrial sites across Europe. In 2012, it was extended to cover intra-European flights. In 2024, the system expanded again to include maritime transport (for all routes departing from or arriving at an EU port) as well as municipal waste incineration.
One important point: the EU ETS is not an open market. The list of participants is exclusive—only those explicitly included in the regulation are allowed to access it. And unsurprisingly, private investors are not on that list.
Carbon allowances are liquid, tradable, and transferable financial instruments issued by the European Commission. They’re the unit of exchange in the EU Emissions Trading System: the largest carbon market in the world, and arguably the fairest and most efficient mechanism for reducing greenhouse gas emissions in line with the Paris Agreement.
The price of allowances has grown by an average of 25% per year over the past decade. In April 2014, an EUA traded at €7.10. Today, the price is around €70. That’s a tenfold increase. This appreciation is due to the declining supply: fewer allowances are issued each year, making each one more valuable. It is baked into the market mechanism.
As a private investor, buying allowances means gaining exposure to this price growth. It’s an attractive financial asset.
But there's more. Because the number of allowances is capped, every allowance bought and held is one less available to industrial emitters. That has an immediate withholding effect. Since companies must surrender one allowance per tonne of CO2 emitted, reducing the supply means fewer emissions are possible.
In addition, as the price of allowances rises, so does the cost of emitting greenhouse gases. The entire idea of this market is “pricing emissions”. By increasing the price of allowances, it further strengthens the incentive for companies to reduce emissions. In fact, the EU ETS has already driven a nearly 50% cut in emissions across the sectors it covers, equal to around 1 gigatonne of CO2. By owning allowances, private investors can actively and measurably contribute to the decarbonization of the European economy.
For the first time, Homaio makes it possible for private investors—directly or through legal entities—to invest in carbon allowances. Our platform is intuitive, secure, and easy to use. It gives you access to financial products backed by physical EU carbon allowances, which replicate both their financial and environmental performance.
To invest in carbon allowances with Homaio, simply follow these steps:
The full onboarding process takes just a few minutes.
To make this mechanism effective, physical ("spot") allowances must be removed from the market. Exposure to futures contracts alone has no impact on the actual supply of allowances. And this is where Homaio comes in.
We have created a financial instrument that is fully backed by carbon allowances. These are corporate bonds backed by spot EUAs. When you subscribe, Homaio uses your investment to purchase and retire physical allowances, holding them in the EU ETS registry account. In return, you receive a bond issued by Homaio. As long as you hold the bond, the allowances are removed from circulation.
You can redeem your investment at any time, and Homaio will sell the allowances and return the proceeds (minus any applicable fees).
For example:
Homaio allows any private investor to access the EU carbon market, benefit from its price appreciation, and actively support Europe's decarbonization pathway. You can invest as an individual or through a legal entity.
Here are some key numbers to understand the scale, recent developments, and outlook for the EU ETS:
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