Winged 'Carbon Emission Allowance ETF'

Carbon Emission Allowance ETF Rises for 10 Trading Days
Highest Monthly Gain Among All ETFs
Outlook Uncertain Amid European Recession Concerns

[Asia Economy Reporter Hwang Junho] As winter approaches, concerns over the European energy crisis have intensified, sparking a surge in carbon emission allowance prices. This reflects expectations that investment demand will flow into eco-friendly energy due to fears of an economic recession triggered by the recent sharp rise in European energy prices, which also stimulated the 'strong dollar.'

According to the Korea Exchange on the 23rd, among all listed exchange-traded funds (ETFs) this month, the carbon emission allowance ETFs showed the highest gains. KODEX Europe Carbon Emission Allowance Futures ICE rose 24.01%, SOL Europe Carbon Emission Allowance Futures S&P increased 23.73%, HANARO Global Carbon Emission Allowance Futures ICE went up 21.02%, and SOL Global Carbon Emission Allowance Futures IHS climbed 20.49%, all showing gains exceeding 20%. Unlike the KOSPI, which ended its upward trend and entered a downward phase over the past month, the prices of carbon emission allowance ETFs have continued to rise. In particular, SOL Europe Carbon Emission Allowance Futures S&P has surged for 10 trading days since the 6th.

Kim Hakyeong, head of the ETF Consulting Team at Samsung Asset Management, explained, "As Russia continues to reduce and halt gas supplies to Europe, natural gas prices are soaring due to climate change causing heatwaves and droughts, which disrupt hydropower generation." He added, "As demand for coal and oil, which can replace natural gas, increases, carbon emission allowance prices are rising." In Germany, where concerns over reduced Russian natural gas supplies and increased heating energy demand in autumn are growing, rail operations have prioritized coal transport over passengers, reflecting heightened fears of an energy crisis. Consequently, the price of European carbon emission allowance futures for December delivery (CFI2Z2) surged from 75.75 euros on July 27 to 99.22 euros on the 19th, and related domestic ETFs have also recorded soaring prices.

However, the outlook is somewhat bleak. The sharp rise in natural gas prices is expanding fears of an economic recession. The Dutch TTF futures price, a benchmark for European gas prices, closed at 291.5 euros per megawatt-hour (MWh) on the day, up 19% from the previous trading day. It even surged to 295 euros intraday, marking the highest level since early March, shortly after Russia's invasion of Ukraine. Typically, rising natural gas prices lead to increased demand and price hikes for substitutes like coal, as well as higher carbon emission allowance prices. But if natural gas prices skyrocket excessively, overall energy demand contracts, causing carbon emission allowance prices to fall.

Cheon Kihoon, head of the ETF Consulting Team at Shinhan Asset Management, stated, "The European carbon emission allowance (CFI2Z2), which recently hit an all-time high, fell more than 5% to 93.04 euros the previous day amid heightened concerns over a Eurozone economic recession and rising natural gas (TTF) prices." He added, "The growing fears of a Eurozone economic slowdown are linked to a decline in carbon emission allowance demand." He further predicted, "Various factors surrounding the Eurozone will likely increase short-term volatility in European carbon emission allowances, making it difficult to shift to an upward trend. Related ETFs are also expected to remain range-bound for the time being."

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