As cryptocurrencies and the crypto industry increasingly look to go green, there are a growing number of carbon credits now tied to cryptocurrency tokens; more than 17 million metric tons of carbon offsets, to be exact, reports the Wall Street Journal.
Carbon markets are experiencing sustained growth as more industries turn to carbon credits to balance their emissions budgets. Some within crypto believe that the existing voluntary markets are not transparent or lack standards and create confusion for interested parties.
Their solution? Using blockchain technologies to create platforms such as Toucan to buy and sell tokens tied to carbon credits. It works by linking a Base Carbon Tonne (BCT), the native token, to a carbon credit provided by the user.
These tokens are then traded on crypto exchanges, providing real-time pricing as well as the ability to track trades and easily identify who can claim the funding credit for projects working to improve climate change.
Taking it one step further is Klima, a decentralized autonomous organization where BCT tokens are traded for Klima tokens, and then the BCT tokens are held indefinitely to take carbon credits off the market. Klima tokens are then traded on crypto exchanges where crypto investors can speculate on crypto assets that have been carbon-backed.
It’s a solution that isn’t without skepticism, though, in part because Klima founders are anonymous and in part because crypto itself is fraught with its own emissions issues.
“Secure, decentralized technology could go some way towards offering the transparency the voluntary market is looking for. However, the carbon footprint of crypto has to be clearly addressed before this can be credibly assessed,” said Luke Oliver, managing director and head of strategy for KraneShares.
KRBN Offers Exposure to the Compliance Mandated Carbon Markets
“It’s worth noting that the wrapping of carbon offsets into crypto tokens is happening in the voluntary offset space. The mandatory, compliance markets we (Krane) currently offer clients access to are already highly transparent and tracked via traditional methods,” explained Oliver.
For investors looking for exposure to the more regulated mandatory compliance carbon markets, the KraneShares Global Carbon ETF (NYSE: KRBN) offers a first-of-its-kind take on carbon credits trading and is in a position to capture the rise in carbon allowance prices as emissions limits become more stringent.
KRBN tracks the IHS Markit Global Carbon Index, which follows the most liquid carbon credit futures contracts in the world.
This includes contracts from the European Union Allowances (EUA), California Carbon Allowances (CCA), and Regional Greenhouse Gas Initiative (RGGI) markets. North American pricing data is supplied by IHS Markit’s OPIS service, while European prices are supplied by ICE Futures Pricing.
KRBN invests in its futures contracts via a Cayman Islands subsidiary, meaning that it can avoid distributing the dreaded K-1 tax form to its shareholders.
KRBN carries an expense ratio of 0.78% and has $1.7 billion in net assets.
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