Investing in emission allowances helps accelerate decarbonization trajectories via four complementary mechanisms:
Confiscatory effect: Each allowance purchased by an investor is withdrawn from the capped market, immediately reducing possible emissions.
Price effect: The decrease in supply raises the price of allowances, strengthening the economic incentive for companies to invest in low-carbon technologies.
Regulatory effect: The purchase of allowances by individuals increases the total number of allowances in circulation, leading to a definitive reduction in the cap on allowances placed on the market in subsequent years.
Post-sale effect: Even after resale, part of the impact remains: this is the residual positive impact, resulting from the combination of the preceding effects.
Here is a blog article that explains these mechanisms in detail.