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Alternative Market Briefing

Carbon markets provide opportunity despite volatility

Friday, July 01, 2022

Bailey McCann, Opalesque New York for New Managers:

Despite ongoing volatility, world carbon markets are still performing relatively well and one fund is taking advantage of the volatility to find new opportunities. The World Carbon Fund, the flagship strategy of London-based Carbon Capital Management was up +0.56% in May and is up +4.59% year to date. The strategy was launched in February of 2020.

The fund invests in multiple liquid and regulated carbon markets on an absolute return basis. Alongside the absolute return strategy, the fund seeks a positive environmental impact by tying a percentage of fund investment to carbon sequestration. The fund invests in and trades liquid carbon allowance certificates, carbon futures, and carbon options.

Cap and Trade Emissions Trading Systems (ETS) are regarded as being successful at reducing carbon dioxide emissions and, reflecting this, are now spreading to multiple countries around the world. These markets place a cap on total emissions and lower the cap each year while allowing market participants to trade carbon thereby setting a market price. Global carbon markets expanded by 164% in 2021 to $851 billion, according to data from Refinitiv.

Trading activity has been mixed in 2022, as a result of ongoing volatility. California's compliance carbon market was up +7.3% in May, which offset some losses from earlier in the year. The EU an......................

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