Alternative Investments/ESG: After Blockbuster KRBN, KraneShares Launches European and California Carbon ETFs
The KraneShares Global Carbon ETF (KRBN) has returned 105.45% since inception in July 2020.
Asset management firm Krane Funds has launched two new ETFs that expand its range of carbon market offerings – the KraneShares European Carbon Allowance ETF (KEUA) and the KraneShares California Carbon Allowance ETF (KCCA).
The KraneShares Global Carbon ETF (NYSE: KRBN), which was launched last year, offers exposure to three major cap-and-trade programs: European Union Allowances (EUA), California Carbon Allowances (CCA), and the Regional Greenhouse Gas Initiative (RGGI).
Cap and trade carbon markets
In a cap-and-trade system, the government sets an emissions cap and issues a quantity of emission allowances consistent with that cap. Emitters must hold allowances for every ton of greenhouse gas they emit. Companies may buy and sell allowances, and this market establishes an emissions price. Companies that can reduce their emissions at a lower cost may sell any excess allowances for companies facing higher costs to buy.
“Through the phenomenal success of KRBN, we learned that many of our clients also want targeted exposure to the underlying markets,” said Luke Oliver, managing director and head of strategy at KraneShares. “KEUA and KCCA provide access to the component carbon allowance markets at various stages of their growth cycle. With these new ETFs, investors can take a customizable precision-approach to invest in carbon markets.”
KraneShares European Carbon Allowance ETF (KEUA)
This new actively managed ETF provides exposure to the European Union Allowances (EUA) cap-and-trade program, the world’s oldest and most liquid carbon allowance market.
The program aims to reduce emissions by at least 55% of 1990 levels by 2030 and climate neutrality by 2050. It covers approximately 40% of the EU’s total emissions.
The ETF benchmarks against the IHS Markit Carbon EUA Index, an index that tracks the most-traded EUA futures contracts.
It has an expense ratio of 0.79%.
KraneShares California Carbon Allowance ETF (KCCA)
This ETF provides exposure to the California Carbon Allowances (CCA) cap-and-trade program and covers approximately 80% of the state’s emissions.
The program plans to achieve a 40% reduction from 1990 greenhouse gas levels and carbon neutrality by 2045.
The ETF benchmarks against the HIS Markit Carbon CCA Index, an index that tracks the most-traded CCA futures contracts.
It has an expense ratio of 0.79%.
“We believe investors are attracted to the carbon allowance investment opportunity because they see its low-correlated growth potential, which can also have a positive impact on the planet,” said Jonathan Krane, CEO of KraneShares.
“Our suite of carbon market ETFs helps to catalyze climate-action and complement the progress of cap-and-trade programs,” said Eron Bloomgarden, Co-Founder of Climate Finance Partners, the non-discretionary subadvisor to KRBN, KEUA, and KCCA. “We believe there may also be significant upside potential in the market as the world addresses the climate crisis.”
Related Story: KRBN, A New ETF, Could Move The Needle on Carbon Pricing
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