United Airlines launched a first-of-its-kind investment vehicle with over $100 million to support startups focusing on cutting air travel’s carbon footprint by ramping up the research, production, and technologies of sustainable aviation fuel (SAF).

The airlines called the fund the United Airlines Ventures (UAV) Sustainable Flight Fund. Its initial investments of $100+ million came from JPMorgan Chase, GE Aerospace, Honeywell, Air Canada, and Boeing.

According to United CEO Scott Kirby:

“This fund is unique… we’re creating a system that drives investment to build a new industry around sustainable aviation fuel, essentially from scratch. That’s the only way we can actually decarbonize aviation.” 

The International Air Transport Association (IATA) projected the following scenario by 2050 for global aviation emissions.

What is SAF?

SAF is an alternative to conventional jet fuel that reduces carbon emissions associated with air travel. It’s from used cooking oil and agricultural waste, but can also be made from other materials such as forest waste and household trash. 

Implementing SAF can provide a beneficial strategy to process waste, while also reducing CO2 emissions in aviation.

Right now, SAF is blended with conventional fuel to comply with regulatory requirements for use within the aircraft. And to date, United Airlines has invested in the future production of more than 3 billion gallons of SAF. That’s the most among any airlines in the world. 

Source: IATA

Other airlines like EasyJet and JetBlue also see SAF as one way to achieving their climate goals. The IATA estimates show that SAF will account for around 65% of mitigation in the aviation industry.

To date, about 500,000 commercial flights were powered by SAF. 

Alongside SAF, most airlines consider carbon offset credits for their net zero strategies. And as per S&P estimates, airlines will rely on offsets to decarbonize about 97% of their operations by 2025. But as the industry strives to lower emissions internally, that reliance will be down to 8% by 2050.

The UAV Sustainable Flight Fund 

Via the UAV Sustainable Flight Fund, large companies can invest in SAF technology and production startups that United identifies. UAV has invested in these low carbon tech companies such as ZeroAvia, Dimensional Energy, Heart Aerospace, and NEXT Renewable Fuels. 

The Fund makes it possible for the first time for travelers to buy a ticket on the United website or app and supplement the airlines’ investment. 

The first 10,000 people who choose to contribute to the fund will each receive 500 MileagePlus Miles as a thank-you. 

The Fund is also open to corporate investors across industries. It will prioritize investments in new tech, proven producers, and advanced fuel sources to scale the supply of SAF. 

United has already made investments in or inked agreements with companies using various ingredients and tech to make SAF. These include inputs such as ethanol, animal byproducts, forestry and crop waste, and municipal waste. Novel technologies like synthetic biology and power to liquids are also being considered. 

These existing SAF investments will form part of the UAV Sustainable Flight Fund portfolio. Fund partners will also get preferential access to environmental attributes associated with United’s supply of SAF. 

Increasing Consumer Awareness and Action 

By some estimates, air travel accounts for 3% to 4% of all carbon emissions in the US. The industry has its own carbon credit scheme CORSIA to spur carbon reductions.

So, United is raising passengers’ awareness about their flight’s carbon footprint while giving them the option to take action. As they search for their flights, United is also showing them an estimate of their air travel’s emissions.  

A green shading in the traveler’s itinerary tells that they chose a lower-carbon option on a per economy seat basis. 

A flight’s carbon footprint is measured in kg CO2e (kilograms of CO2 equivalent) 

The flyer’s emissions estimates may vary from their flight footprint. Several factors determine the estimation including:

aircraft type, 
flying time, 
seat capacity, and 
number of people and cargo on a given flight. 

Those who book a United flight travel within or from the US will see an option to contribute to supplement the airline’s investment in the UAV Sustainable Flight Fund before check-out. They can decide to contribute in various amounts – $1, $3.50 or $7.00. The default contribution option is set at $3.50.

To show the potential impact of customer action at scale, here’s an example:

If 152 million travelers flying on United last year each contributed $3.50 to the Fund, the total amount will be enough to design and build a SAF refinery that can produce up to 40 million gallons each year.

SAF in United Airline’s Net Zero Goal

Like most major airlines racing toward net zero, United also targets to reduce its emissions 100% by 2050, and an important part of that is SAF. So, the company had also launched a SAF purchasing program called the Eco-Skies Alliance alongside establishing UAV.  

The goal is to identify and invest in companies and technologies that decarbonize the aviation sector. These investments particularly include carbon capture, electric regional aircraft and air taxis, and hydrogen electric engines. 

Fortunately, the government is also showing strong support to SAF.

The 2022 Inflation Reduction Act provides the largest climate change investments in U.S. history. It offers tax credits specifically for carbon capture and clean energy like SAF. It can help boost SAF supply while cutting costs for SAF consumers. 

For instance, the US military is using about 5 billion gallons of jet fuel each year. In an effort to slash the military’s footprint, the Department of Defense plans to use a jet fuel blend containing at least 10% SAF by 2028. And that’s mandatory under the 2023 National Defense Authorization Act. 

Ultimately, the US Department of Energy said that the nation’s huge resources are enough to meet the estimated SAF demand of the entire aviation sector in the country.

The post United Airlines Launches $100 Million Investment Vehicle for SAF appeared first on Carbon Credits.

The buying and selling of credits that allow an entity to emit a certain amount of carbon dioxide or other greenhouse gasses is otherwise known as… carbon trading. 

The credits are intended to reduce the overall carbon emissions, helping to mitigate climate change. 

Carbon trading is based on the concept of cap-and-trade scheme that emerged back in the 1990s. This scheme introduces the market-based incentive to slash pollution.

But instead of mandating certain measures, the policy rewards firms that reduce their carbon footprint while imposing costs on those that cannot.

At that time, the scheme was meant to specifically cut emissions down to just 5% below 1990 levels by 2012. This later became the historic Kyoto Protocol, wherein industrialized nations have to lower the amount of their carbon emissions. 

The idea is to incentivize every nation to cut back on their footprint. But as the carbon market continues to grow in size, trading of carbon credits goes beyond just that…

…it produces a market-based financial instrument known as carbon credit futures. 

So, if you’re also one of those interested in joining this rapidly growing market, you came to the right place. It pays to know what carbon credit futures are, how to trade them, and what specific instruments are available to bet your money on.

What are Carbon Credit Futures?

Carbon credit futures are an expansion of the carbon market. A carbon credit is a certificate or permit that represents a reduction in carbon emissions, with one credit representing one metric ton of CO2.

Carbon credits are also known in the voluntary market as carbon offsets. 

By definition, carbon offsetting is a “scheme that allows entities, be it a company or an individual, to invest in environmental projects to balance out their own carbon emissions.”

In other words, if you can’t reduce your carbon footprint directly, then you can pay others to do it somewhere else through those projects. They are the way for the carbon credit mechanism to work by reducing carbon emissions.  

Carbon credit futures is a credit instrument where the buyer seeks to slash emissions through carbon offset projects, but without directly investing in any projects at the exact time of investment. Common examples of these projects are reducing or avoiding deforestation, providing fuel efficient household devices, and investing into renewables. 

Carbon credit futures contract physically delivers carbon credits. Each futures contract is equal to 1,000 carbon credits generated from projects that protect natural ecosystems. 

A futures contract is a kind of derivative wherein two parties agree to trade an underlying asset at a specific date for a specific price. In such a case, the underlying assets are the carbon credits. 

With carbon prices fluctuating, the carbon credit futures can serve as mitigating risk when you add it to your investment portfolio. They’re not just a simple positive socio-environmental asset but they bring real benefits to the investors. 

In fact, by introducing carbon credit futures into your portfolio, you can reduce the value at risk of investment. But you should be concerned on how to balance what’s the optimal amount of futures contracts to invest in so as not to take positions that will make your entire portfolio less efficient.

At this point, it’s important to note that futures contracts are a more advanced trading strategy.

And to be brutally honest, carbon credit futures are a more complicated way of investing in the assets that underlie an exchange-traded fund, a.k.a. ETF, as it tracks the performance of the futures. 

So, how does trading carbon credit futures work? Is it worth betting?

How Carbon Credit Futures Trading Works?

Carbon emissions continue to rise, leading to humanity’s greatest crisis of all time – climate change. The atmospheric concentration of CO2 jumped 48.0% since the pre-industrial era. 

Not only is air quality getting poorer, but the higher temperatures are undeniable. We’ve seen the hottest years since 2005. 

So what is the world doing to solve this? The birth of the Paris Agreement – and carbon credits – in 2015. 

The Paris accord aims to reduce global warming to pre-industrial levels, meaning the world has to emit 8% less CO2 each year. But that’s no easy task. 

This is where carbon credit futures trading fills in the gap… by incentivizing emissions reductions. It’s a new trading horizon.

Governments and companies incentivize carbon reductions, mandatorily and voluntarily. How carbon trading works under each of these carbon markets differ. Here are their major differences:

In the mandatory or compliance reductions world, there’s a more established and government-driven market with ETFs. 

In the voluntary reductions world, it remains a free-for-all, for now, and we’ll see how it develops with more market options and regulation. 

The main idea with trading carbon credit futures is that you’ll make money if the credits you buy are worth more than their current price. In other words, that’s what a future was contracted for.

But then again, it’s all speculation as nobody knows what the return would be. 

Fortunately, recent developments in this space point to a brighter future for carbon credits… carbon prices continue to surge and break records. 

For the most direct exposure to the voluntary carbon markets, trading carbon credit futures, such as the EU allowance futures, is a good option as a retail investor. 

EU Carbon Credit Futures (What You Need To Know)

The first ETS grew out of the European Union’s need to address the bloc’s pollution. Their target is to slash GHG emissions to at least 55% below the 1990 levels by 2030 – a lofty goal. 

The EU ETS, created in 2005, is the largest carbon market in the world. It inspires other countries and regions to establish similar systems such as California and New England. 

EU ETS follows the cap-and-trade principles of carbon trading. The bloc sets a “cap” on the amount of emissions that the industrial sector is allowed to emit. Whoever goes above their allowance will be subject to fines. 

Companies can then decide what to choose: reduce their emissions internally or buy allowances or carbon credits.

This makes for an interesting investment market. Why is that so? Because the supply of carbon credits is controlled by the EU ETS. 

That means the system influences the price. Too low a carbon price? The ETS will just cut the number of credits in circulation. Problem fixed.

The interesting part?

Anybody can invest in this carbon credit futures market by investing in ETFs that buy the futures contracts, also known as the EU Allowances or EUA. 

How about the profit part?

Futures contracts only produce a profit if the price at the time the futures contract matures is more than the futures price when they were bought.

Just recently, the EUA price went beyond 100 euros for the first time. 

Investors who have futures contracts matured at that time were celebrating for sure. But speculators who entered into a contract need to see higher EUA prices. 

But it’s a speculation. No one doesn’t know whether the carbon price will go up or down. 

After all, they’re called futures…and these futures contracts are what ETFs trade. 

Now let’s introduce to you what instruments are currently available and trading as carbon credit ETF.

What Carbon Credit ETF Instruments Are Available?

There are several instruments available right now for you to assess, but here are some of them that you can start considering.

KRBN: KraneShares Global Carbon ETF

The largest product available, KraneShares Global Carbon ETF a.k.a. KRBN provides exposure to mostly the EU ETS carbon credits or EUA, California’s CCA carbon credits, and the RGGI carbon credits of the northeastern United States. Together, EUA and CCA account for over 80% of its holdings, reflecting the IHS Markit’s Global Carbon Index weights.

This carbon credit futures ETF provides great exposure to the growth of the carbon markets with less risk and volatility than others. That risk is due to the fact that more than half of the fund is invested in the EUA, meaning it’s largely exposed to the euro which has been experiencing some significant depreciation in the past year. 

Fortunately, the dollar has been appreciating relative to other currencies. This means you might have some hedge. Some key info to know about KRBN include:

created on the 30th July 2020,
expense ratio of 0.78%, and
total net assets as of 31/10/2022: $766,916,721

KSET: KraneShares Global Carbon Offset ETF 

KraneShares’ latest addition to its suite of carbon market ETFs is the Global Carbon Offset or KSET. For the record, it’s the first in the U.S. to offer exposure to carbon offset futures, which marks a departure from the existing carbon credit funds. 

KSET deducted on the NYSE with an expense ratio of 0.79%. It will allow you to track carbon offset futures contracts while also giving you the access to futures that weren’t available through an ETF before. That being said, this ETF offers broader coverage of the VCM, particularly the largest financial derivatives exchange – the CME Group. 

Specifically, KSET will trade these carbon offset futures contracts:

CBL Nature-Based Global Emissions Offset (N-GEOs)
CBL Global Emissions Offset (GEO)

Investors can be confident that credits behind KraneShares KSET are reliable. They’re from emission reduction activities verified by renowned carbon offset registries.

KCCA: KraneShares California Carbon Allowance ETF 

Created in 2021, KCCA or KraneShares California Carbon Allowance ETF provides direct exposure to the California Carbon Allowances (CCA) that trade under California’s cap-and-trade program. It tracks most traded CCA futures contracts, closely following the price performance of California’s carbon credits. 

As a part of the KraneShares suite of carbon ETFs, KCCA offers investors a new vehicle for participating in the price of carbon and hedging risk. Just like other ETFs of KraneShares, KCCA supports responsible investing and impact investment goals.

KCCA is one of the largest instruments with an expense ratio of 0.78% and net asset $218,944,249. By pairing it with other KraneShares carbon ETFs, you can customize your portfolio allocation to the global carbon credit market:

KEUA: KraneShares European Carbon Allowance ETF 

The KraneShares European Carbon Allowance ETF is meant to provide direct exposure to a portfolio of carbon credit futures contracts that trade under the world’s largest carbon market, the EU ETS. Hence, KEUA will track EU carbon credits price performance.

KEUA will invest at least 80% of its net assets, which is $18.98 million, in instruments that offer exposure to EUA. Unlike other KraneShares carbon ETFs, KEUA is non-diversified. 

CARB: Horizons Carbon Credits ETF

Breaking the KraneShares craze is the Horizon’s Carbon Credits ETF or CARB, which trades on the Toronto Stock Exchange. It is Canada’s first ETF that gives exposure to carbon credits through futures contracts or derivative instruments. 

CARB is quite recent, created in February 2022 with a net asset of $7,804,530 to date. Remarkably, it has an expense ratio of a whopping 0.92%.

A passive fund based on the Horizons Carbon Credits Rolling Futures Index, CARB is composed solely of EUA futures, with contracts rolled forward as they expire. But this ETS is flexible with the possibility to expand its exposure to other developed market futures as they mature. 

GRN: iPath Series B Carbon ETN

The iPath Series B Carbon ETN tracks the Barclays Global Carbon II TR USD Index, which is almost entirely composed of EU ETS carbon credit futures. It means GRN will closely follow the price performance of EU ETS carbon credits, same as KRBN but with greater risk and volatility.

This instrument’s inception was in 2019, with 0.75% expense ratio and .

GRN has the goal of giving exposure to carbon price as measured by the return of futures contracts on carbon credits from two of the world’s major emissions-related mechanisms. They’re the EU ETS and the Clean Development Mechanism (CDM).

The instrument gives exposure to carbon credit futures contracts that trade on the ICE Futures Europe exchange.

CO2.L: SparkChange Physical Carbon EUA ETC

Making it to the last example of an ETF instrument is the SparkChange Physical Carbon EUA ETC or CO2.L. It was launched in 2021. 

Again, just like most of the carbon credit ETFs above, it provides direct exposure to the EUA trading under the EU ETS. 

However, unlike most of the other EUA exchange-traded products, CO2.L directly buys and holds EUAs instead of the futures. It means that this ETF tracks the price performance of EUAs even more closely than its peers before it takes expense ratios into account.

You can find some more information about those carbon ETFs with their price performance here.

Carbon Credit Futures Market 

If there’s one thing we can say about exploring the carbon credit futures market, it’s exciting. Speculating what the future holds spurs excitement, but also some risks. You can’t really tell what will happen and whether the price will be up or down.

Yet, it is one way to get your feet wet in the carbon markets if you’re an individual investor. Let alone the potential profits you can earn if things go your way.

Data shows that most carbon ETFs have an upward trend in their price performances. That alone is a good point of reference to test the waters of carbon trading.

The post Carbon Credit Futures (How Does It Work) appeared first on Carbon Credits.

Washington State’s Department of Natural Resources has proposed using carbon credits to support local projects with the HB 1789 (Carbon Bill). This will allow the Department of Natural Resources (DNR) to generate and sell carbon credits from forest land in Washington. 

Main Objectives of the Bill

The main objective is for Washington state to attain the same benefits from the carbon credit market as private businesses. The DNR could use various ecosystem services to produce carbon credits. The contract terms could cover a period of 125 years for these projects. 

The carbon credits generated in Washington could be used for Washington’s cap-and-invest program. The cap-and-invest program is part of Washington’s Climate Commitment Act (CCA). 

The CCA will use the program to target the state’s biggest emitters of greenhouse gasses (GHGs). The goal is for Washington to reduce GHGs by 95% by 2050. 

It sets an emissions cap, which is then continuously reduced with time. A similar market-based program exists in California.

The sale of these carbon credits would allow the state to support trust beneficiaries such as public schools and counties. They could also fund projects like restoring damaged forests and protecting salmon habitats. These activities would boost the local economy and protect the environment.

How Washington’s Carbon Bill Would Work

The DNR will restore land that has been damaged by wildfires by replanting trees. These areas will generate carbon credits as the trees grow and sequester carbon. Some of the trees will be used for timber, serving the local wood products industry. 

Washington state will receive revenue for both the carbon credits and the sale of timber. However, the DNR will replant the trees that were harvested for timber. On average, they will plant three seedlings for every tree that is felled. 

The ultimate objective is to increase working forestland in Washington. The sale of the carbon credits would provide extra funding to restore damaged forests that would otherwise not be restored. It would also support the local timber industry since the amount of working forestland would expand due to forest restoration. 

Washington state has already seen a loss of 400,000 acres of working forestland in recent decades. In the next 20 years, it is expected to see another loss of 600,000 acres of forestland. Currently, the DNR has to apply for grants and limited external funding to support these restoration projects. 

The bill also highlights that the projects would have 125-year contract durations. This is to adhere to the compliance requirements in the Washington carbon market. It states that projects monitor, report, and verify carbon stocks for at least 100 years following the last credit issuance.

This means that the DNR can maintain the forests and carry out harvesting and replanting for 100 years. However, the carbon storage in that time period should exceed the level it would have been without the project. 

The bill also allows the DNR to use the sale of carbon credits to fund non-forestry related projects.

Some proposals include restoring eelgrass meadows, kelp forests, and investing in biochar. 

Similar projects have already been carried out by the DNR in other states. For example, in Michigan, The Big Wild Forest Carbon Project started in 2020 and was completed in 2022. It covers over 100,000 acres of the Pigeon River Country State Forest known as “The Big Wild.” 

The project creates a variety of revenue streams through carbon credits from its forest management activities. With a total project term of 40 years, energy company DTE Energy purchased the first decade of carbon credits. 

Although carbon projects can provide extra income for states to fund social and environmental welfare projects, there are some risks involved.

For example, the projects would need to account for sudden events such as wildfires, droughts, and diseases that can damage trees. 

These things will reduce carbon sequestration, and hence generate fewer carbon credits.

California, for example, has set up a carbon buffer pool to deal with these risks. These are a pool of carbon credits that cannot be sold or traded and set aside for sudden events.

Revisions to the Carbon Bill

The House Agriculture and Natural Resources Committee endorsed the idea of the DNR selling carbon offsets in a bipartisan 7-4 vote. This means the DNR could contract ecosystem services for a duration of 125 years. 

However, there were some objections by the wood products industry to parts of the bill. Hence, the committee had to make some revisions.

The changes would prevent the DNR from reducing planned timber harvests. It also cannot lease less land for agriculture. 

According to its president, The American Forest Resource Council still does not support the bill. Wood industry representatives also find the bill’s language too broad. They want to be more specific about which activities will fall under ‘ecosystem services’.

The opposition from the timber industry could stem from developments from last year. The DNR revealed plans to reduce logging activities and generate carbon offsets. The plans were to lease 10,000 acres of timberland in Western Washington to a private business.

The post Washington’s Dept of Natural Resources Urges Carbon Credit Generation from Forestland appeared first on Carbon Credits.

The European Union’s Emissions Trading System (EU ETS) has experienced significant fluctuations in the carbon prices over the years.

As of February 2023, the price of carbon in the EU ETS has exceeded 100 euros per metric ton of CO2. That’s a significant increase from just a few years ago when the price was around only 10 euros per ton. 

The EU carbon price has experienced these fluctuations due to a variety of factors. These include policy changes, market forces, and global trends. 

The EU ETS is a cap-and-trade system that aims to reduce greenhouse gas emissions by putting a price on carbon. The system covers emissions from power plants, energy-intensive industries, and commercial aviation. It is one of the largest and most established carbon markets in the world.

Note: Click here to view all carbon prices in the voluntary and compliance markets.

The Drivers Behind the High EU Carbon Price

One of the main drivers of the high carbon price in the EU ETS is the region’s commitment to cut GHG emissions by at least 55% by 2030 compared to 1990 levels. This ambitious goal requires a significant emissions reduction from the energy sector, which is responsible for a large share of the EU’s emissions.

In addition, market forces have also contributed to the price increase. 

Operating on a cap-and-trade system, there’s a limited number of EU allowances available for companies to emit carbon. As the cap decreases over time, the price of allowances increases as companies are willing to pay more to meet their emissions targets.

Global trends have also played a role in the increase in EU carbon prices. There has been a growing awareness of the urgent need to address climate change.

The Future of the EU Carbon Prices

Looking ahead, the future of the EU ETS will depend on a variety of factors, including political will, technological innovation, and global trends. 

The high EU ETS carbon prices provides a powerful incentive for businesses and investors to transition to a sustainable future. However, concerns have been raised about the impact of this on consumers and businesses.

To address these concerns, the EU has implemented measures to protect vulnerable industries and consumers. These include exemptions for certain industries and measures to protect low-income households from energy poverty.

Who Buys EU ETS Offsets?

The primary buyers of EU ETS offsets are companies that have emissions reduction obligations to comply with. These companies may choose to buy offsets to meet a portion of their emissions compliance, as offsets can be less expensive than reducing emissions within their own operations.

EU ETS offsets are from projects that reduce carbon emissions in developing countries, such as renewable energy projects, energy efficiency improvements, and reforestation efforts. These projects generate carbon credits, which can be purchased and used by companies to offset a part of their footprint.

The demand for EU ETS offsets has been driven in part by the increasing ambition of the bloc’s climate targets. This has created a greater need for emissions reductions across the economy. This has further led to an increase in carbon prices and a corresponding increase in the demand for offsets.

Examples of large multinational corporations that are committed to reducing their GHG emissions and may be purchasing EU ETS offsets include companies such as Microsoft, Unilever, and Nestle. 

These companies have made public commitments to reducing their carbon footprints. And they have implemented a variety of measures to achieve these goals, including:

purchasing renewable energy, 
improving energy efficiency, and
investing in emissions reduction projects.

It’s worth noting that there are a growing number of companies that are voluntarily purchasing offsets as part of their efforts to become carbon-neutral or achieve other sustainability goals. 

These companies may include those in the tech industry, such as Salesforce and Google, as well as companies in the fashion industry, such as Burberry and H&M.

The EU Emissions Trading System

The high carbon price is a reflection of the urgent need to address climate change. It also provides a powerful incentive for businesses and investors to transition to a sustainable future.

However, there are concerns about the impact of the high EU carbon prices on consumers and businesses. So, it will be important for the EU to strike a balance between achieving its climate targets and protecting vulnerable groups. 

The future of the EU ETS will depend on various factors. Thus, it will be crucial to continue to monitor its carbon price and its impact on the economy and society.

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