Carbon Emission Allowance ETF Drops 8% on a Single Word from Putin

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Junho] At the end of last month, individual investors in South Korea were given the opportunity to invest in carbon emission permits through exchange-traded funds (ETFs), but the high volatility is making investors uneasy.

According to the Korea Exchange on the 8th, the KODEX Europe Carbon Emission Permits Futures ICE ETF fell 8.10% on the 7th. It was the lowest return among all ETFs that day. Following this ETF, three other carbon emission permit ETFs also ranked among the top four largest declines, with drops ranging from 8.10% to 6.47%.

Domestically, there are products investing in the European market, which accounts for 88% of the carbon emission permit market, and products funding the global market. Among these, the European market returns dropped significantly. Although the carbon emission permit ETFs had raised expectations by closing higher on three out of five trading days since their launch, the decline on this day wiped out all previous gains.

This decline is largely attributed to remarks by Russian President Vladimir Putin. In response to Europe's energy crisis, he stated that "Russia is ready to work towards stabilizing the global energy market," which caused natural gas prices to fall sharply, leading to a drop in carbon emission permit prices.

Kim Jeong-hyun, head of the ETF Management Center at Shinhan Asset Management, explained, "It is difficult to say that carbon emission permit prices and natural gas prices move in a precisely defined relationship, but they tend to move similarly. An increase in natural gas prices leads to increased demand for coal as a substitute, which in turn increases demand for emission permits due to higher carbon emissions."

However, this decline is expected to be temporary. Researcher Ham Hyung-do at Shinhan Investment Corp. said, "With the implementation of the carbon border adjustment tax applying emission permit systems to export companies to Europe, countries are strengthening investments related to emission permits along with declarations of carbon neutrality," and forecasted, "Emission permit prices will continue an upward trend in the long term."

Center head Kim emphasized, "Considering the relatively high volatility of carbon emission permit ETFs, it is beneficial to invest with a long-term perspective through retirement pension accounts rather than engaging in short-term trading."

This content was produced with the assistance of AI translation services.