Rising Natural Gas Prices Also Boost 'Carbon Emission Allowance ETF'

[Asia Economy Reporter Junho Hwang] Carbon emission allowance exchange-traded funds (ETFs) listed on the Korea Exchange have risen for three consecutive trading days through the 30th. This is analyzed to be due to the rise in natural gas prices caused by the winter cold wave and political uncertainties.

According to the Korea Exchange on the 30th, over the past three trading days, domestic representative carbon emission allowance ETFs such as SOL Global Carbon Emission Allowance Futures IHS and KODEX Europe Carbon Emission Allowance Futures ICE showed increases of 3.50% and 4.69%, respectively.

The rise in natural gas prices is cited as the main cause. When natural gas prices rise, demand for the substitute coal increases. In Europe, power companies use relatively cheaper coal due to the burden of natural gas prices. This leads to increased demand for carbon emission allowances for coal use, which in turn raises the price of emission allowances.

On the 21st, the natural gas futures price at the Netherlands TTF exchange, a European natural gas benchmark, soared to an intraday record high of 180 euros (approximately 241,800 KRW) per megawatt-hour (MWh). Although it dropped to 103 euros as of the 29th, it remains five times higher compared to the beginning of the year when it traded around 20 euros.

Researcher Kyuyun Jeon of Hana Financial Investment said, "As Russia halted supply through the Yamal-Europe gas pipeline, European natural gas prices skyrocketed, and the gap between US and European natural gas prices widened sharply," adding, "Political uncertainties at a time when seasonal demand for natural gas increases could prolong the energy crisis in Europe."

Although not as much as Europe, the US is also experiencing a rise in natural gas prices due to the cold wave. On the 27th (local time), US natural gas futures closed at $4.060 (4,818 KRW) per million British thermal units (mmBtu), up 8.8% from the closing price of $3.731 on the 24th.

Jung Hyun Kim, head of the ETF Management Center at Shinhan Asset Management, said, "In the short term, the correlation between natural gas and carbon emission allowances is expected to be maintained," but added, "However, it is also necessary to consider various price determinants such as regional carbon regulation policies like Green Taxonomy, the global economy, and seasonality."