Does my investment have a climate impact even if I sell my EUAs?
Summary
Holding European Union Allowances (EUAs) longer delays carbon emissions, tightens the EU ETS market to encourage sustainable investments, and allows for selling into a more effective market driving decarbonization, creating a positive climate impact even after the sale and contributing to green finance. This impacts investing in renewable energy and promotes responsible investment.
Your positive climate impact is not erased once you sell your European Union Allowances (EUAs). Actually, keeping them for as long as possible and then selling isn't just about maximizing financial returns—it is a climate conscious action that improves your impact on reducing carbon emissions.
Delaying carbon emissions
Holding EUAs is equivalent to delaying carbon emissions. When you purchase EUAs, you effectively remove them from the overall carbon budget, preventing installations from accessing those volumes until you decide to sell them. This act of temporarily "confiscating" carbon emissions is impactful—it directly affects the amount of carbon that can be emitted later. By keeping EUAs for a longer period, you contribute to reducing the immediate availability of allowances, which has a tangible effect on emissions temporarity.
Prolonging the EU ETS market tightness
By holding on to your EUAs, you extend the period during which the EU ETS market remains tight. This prolonged market tightness puts additional pressure on industries to seek more sustainable options. Currently, some environmentally friendly technologies are financially viable and technologically possible, but industries may not be sufficiently incentivized to actually adopt them. The longer you keep your EUAs, the longer you maintain the market's fundamental demand-supply conditions tight, encouraging industries to invest in and implement these sustainable solutions.
Waiting for more price appreciation
EUAs are designed to appreciate in value over time. The longer you hold your allowances, the higher their prices will become. According to the marginal abatement cost curve, higher carbon prices lead to increased adoption of decarbonization technologies. By waiting to resell your EUAs, you not only benefit from higher prices but also contribute to a broader adoption of emission-reducing technologies. You can also time how long you keep your EUAs to align with the adoption of the sustainable technologies as it becomes economically viable thanks to the higher carbon prices.
Selling in a more effective market
When you eventually sell your EUAs, the market dynamics will have shifted - with increased EU climate ambitions and accelerated supply reduction, the number of available allowances in circulation will have drastically decreased. By this time, industries will have already tackled easier-to-abate emissions, leaving only the most challenging ones. Selling your EUAs in this context ensures that they are used for those last hard-to-abate emissions.
You now have the power to delay CO2 emission and this has a strong climate impact. On top of contributing to keeping the EU ETS tighter for longer, bringing about a stronger price appreciation, you can be part of a market that brings about material decarbonization changes through technological investments. All of this - even after you sell your carbon allowances.
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