As countries strive to attain Net Zero goals, the carbon credit market can offer investors both portfolio diversification and growth.
Market analysts foresee more growth ahead as the world transitions from carbon-based energy sources to renewable alternatives. As such, massive opportunity exists in the carbon credit market, an asset class that could grow exponentially in the next decade.
“In the absence of a regulated UN market for carbon offsets the voluntary, unregulated carbon market has expanded as corporate and net-zero targets have proliferated,” Energy Intel noted. “This trade was worth some $2 billion in 2021, and some industry watchers forecast the sector could balloon to up to $50 billion-plus by 2030.”
For Carbon Credit Market Exposure, Here Are 2 ETFs
Getting global diversification provides investors with opportunities abroad that they may not be able to realize domestically. With that in mind, one option to consider is the KraneShares Global Carbon Offset Strategy ETF (KSET).
The fund tracks the S&P GSCI Voluntary Carbon Liquidity Weighted Index. Its unique benchmark tracks global voluntary carbon futures, which trade through the CME group. It comes with a 0.79% expense ratio.
As presently structured, KSET offers global coverage of voluntary carbon markets by tracking carbon offset futures contracts. These are comprised of nature-based global emissions offsets (N-GEOs) as well as global emissions offsets (GEOs).
As the world moves towards decarbonization, voluntary carbon markets could provide investors gains in the short- and long-term.
Another option is the KraneShares Global Carbon Strategy ETF (KRBN), which offers another broad-based option to the global carbon credit market.
Per its fund description, KRBN is benchmarked to IHS Markit’s Global Carbon Index. This benchmark offers broad coverage of cap-and-trade carbon allowances by tracking the most-traded carbon credit futures contracts. This serves multiple purposes: hedging risk and going long the price of carbon, while supporting responsible investing.
Currently, the index covers the major European and North American cap-and-trade programs: European Union Allowances (EUA), California Carbon Allowances (CCA), the Regional Greenhouse Gas Initiative (RGGI), and United Kingdom Allowances (UKA).
KRBN comes with a 0.78% expense ratio.
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