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Anyone can “delete” carbon allowances. Canceling CO2 allowances is a powerful tool to fight climate change. It permanently reduces the overall carbon budget available to industries and power producers. Indeed, the carbon emissions budget, or cap, of an Emissions Trading Scheme is capped - it cannot be increased, but you have the power to decrease it by canceling European Union allowances (EUAs).
Anyone can “delete” carbon allowances. Canceling CO2 allowances is a powerful tool to fight climate change. It permanently reduces the overall carbon budget available to industries and power producers. Indeed, the carbon emissions budget, or cap, of an Emissions Trading Scheme is capped - it cannot be increased, but you have the power to decrease it by canceling European Union allowances (EUAs). Authorized individuals and entities to delete carbon allowances are those with compliance obligations, but also climate-conscious carbon allowance buyers. The latter buy carbon allowances and then maximize their positive climate impact. Deleting allowances reduces the actual volume of CO2 that can be emitted, hence combating global warming. To fully optimize the climate impact, it is recommended to buy and hold carbon allowances for a period before canceling them, as delaying emissions by itself has a positive impact for sustainability. Hence, combining the two (holding and canceling carbon allowances) is the most effective way to fight climate change by investing in carbon.
Cap-and-trade schemes function by setting a cap on the total amount of emissions that can be released into the atmosphere over a specified period, in a certain region. This total emission cap is then divided into smaller intervals, typically on an annual basis. Each interval receives a portion of the total carbon budget. Like this, regulators can decide on the total amount of carbon for the whole period, but also control the pace of emissions reductions. The allowed emissions for each interval decrease over time - we will reach carbon neutrality by 2050. But most important, the total carbon budget for the entire period remains capped and cannot be increased.
If carbon allowances are deleted or canceled, they are permanently removed from the overall carbon budget for the entire period. Since each carbon allowance corresponds to a real amount of carbon, canceling these allowances directly reduces the actual volume of CO2 that industries and power producers can release into the atmosphere.
You are authorized to delete carbon allowances. As explained in the academic article "Climate-conscious consumers and the buy, bank, burn program" by Gerlagh and Heijmans, there are two ways to reduce the total carbon allowance budget available in Europe. One method is to surrender carbon allowances for compliance purposes, and the other is to "burn," or cancel, them.
The first method for permanently reducing the overall carbon budget is straightforward. Installations with compliance obligations must account for, verify, and match EU Allowances (EUAs) to their CO2 emissions. At the end of each compliance period, they surrender a corresponding amount of carbon allowances to EU regulators to match their emissions. These surrendered allowances are permanently removed from the overall carbon budget and are not reintroduced, effectively canceling them.
Individuals can now purchase European Union spot allowances through Homaio’s investing platform. They have the option to hold these allowances until they achieve their portfolio and climate objectives and then sell them. Alternatively, they can choose to never sell these carbon allowances. By buying and burning carbon allowances, individuals can effectively reduce the carbon budget available to industries.
Carbon allowances are more than just financial instruments; they represent real CO2 molecules and have a tangible impact on global warming. By limiting the emissions allowed for industries and manufacturers before the EU achieves climate neutrality, these deleted allowances contribute to combating climate change. The academic researchers from the article mentioned above emphasize that it is "climate-conscious consumers" who decide to “buy, bank, and burn” carbon allowances.
Buying and holding carbon allowances has its own climate impact. Removing allowances from the overall carbon budget for some time delays the release of carbon emissions, which benefits the environment:
As discussed above, canceling carbon allowances effectively reduces the overall carbon budget. As a result, to maximize the climate impact, according to Reyer Gerlagh and J. R. K. Heijmans, it is best to buy and hold the carbon allowances for a period before canceling them.
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