Forget $BTC …buy Carbon instead

I’ve been having a number of conversations with colleagues and peers in the last few weeks about carbon offsets and mandatory vs voluntary markets.

It all started with a philosophical discussion about the time value of Carbon. If we need to remove as many tonnes as possible as quickly as possible shouldn’t a tonne of carbon be worth more today than by 2030?

And the response, from an impact perspective is “yes” the value of a ton mitigated today that gets us closer to the 25Gt we need to reduce by 2030 has a greater sustainability impact value. The financial markets, however, do not price that in. Or as the always-brilliant Ramez Naam put it:

The scarcity of high quality offsets combined with the increasing demand for them as regulation + corporate net-zero pledges accelerate will indeed make the price of offsets increase over the next few years.

That led me to look at the biggest mandatory carbon market today, the European Emissions Trading System (ETS). Here’s the price of a tonne in the ETS year to date. Started 2021 at €34. Today (3 Dec 2021) it crossed €80

A very timely article from Bloomberg helped explain some of the momentum, especially the ±40% uptick since mid-October:

“As the year comes to a close, a handful of other technical factors are also pushing permits higher. A large amount of options for carbon at 80 euros by the end of the year are set to expire on Dec. 15. That’s likely driving investors who sold the out-of-the-money options to manage their risk by buying futures. The final auction of the year is also set for Dec. 20, kicking off a period when the market will have no new supply until governments start selling permits again in January.”

Which made me wonder… if only there were an ETF that tracked the price of Carbon. Turns out there are a few.

There’s KRNB which has an index of the North American and European cap-and-trade programs: European Union Allowances (EUA), California Carbon Allowances (CCA) and the Regional Greenhouse Gas Initiative (RGGI). China recently announced their carbon market as well.

And there’s Wisdom Tree Carbon which only tracks the European ETS.

Which leads me to the cheeky title of this blog post… “It’s not $BTC…” I tweeted

To which my (very crypto savvy) colleague Nayreen responded

What? Really? Apparently so…. and in a much more stable manner.

So you red laser eyed folks, keep on going crazy with volcano-powered mining cities in my home country, I’m going to HODL Carbon.

*This is the part where I am sure some lawyer would advise me to tell you that this is not meant to be investing advice, that I really have no idea what I am talking about, that my stock picks in the dot-com era all went to zero and that your money is your money….

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Christian Hernandez

Partner at @2150-vc backing technologies that make our world more resilient and sustainable. Salvadoran-born Londoner. YGL of the @wef Father ^3