California's Aggressive Climate Measures Puts This ETF in Play

California’s aggressive climate laws will move forward in 2023 as part of its move to attain net-zero in five years less than the majority of other states. This certainly puts the KraneShares California Carbon Allowance ETF (KCCA) in play for investors looking for carbon credit exposure.

“In 2023, the wave of historic climate laws California passed last year officially come into effect,” an Environmental Defense Fund article noted, naming the top states focused on climate change. “Last fall, in a legislative frenzy, California passed some of the nation’s most aggressive climate measures in history. While most other governments pat themselves on the back for aspiring to reach net-zero by 2050, California has committed to reaching this goal by 2045.”

“Everyone will be watching how California implements its new law establishing a framework for responsibly deploying carbon capture technologies,” the article added “This includes banning the practice of injecting carbon dioxide underground if the sole purpose is to extract even more fossil fuels and ensuring that communities already overburdened by pollution are protected as the race to get carbon back in the ground kicks off.”

KCCA  which provides targeted exposure to the California Carbon Allowances (CCA) cap-and-trade carbon allowance program. The fund follows an index that measures a portfolio of futures contracts on carbon credits issued by the CCA and only includes futures with a maturity in December in the next year or two while using a wholly owned subsidiary in the Cayman Islands to prevent investors from needing a K-1 for tax purposes.

KCCA is benchmarked to the IHS Markit Carbon CCA Index, which tracks the frequently traded CCA futures contracts. The fund is a part of the KraneShares suite of carbon ETFs and provides exposure to an investment vehicle that capitalizes on the price of carbon and hedges risk while supporting goals aligned with environmental, social, and governance (ESG) initiatives.

A Broader ETF Play

Investors looking for a more broad play outside California and beyond can look to the KraneShares Global Carbon ETF (KRBN). The fund, with its global reach, gives investors wider, more diversified exposure to goals for net-zero all around the world.

KRBN tracks the IHS Markit Global Carbon Index, which follows the most liquid carbon credit futures contracts in the world. As mentioned on its product website, KRBN “introduces a new measure for hedging risk and going long the price of carbon while supporting responsible investing.”

Speaking to its global reach, the fund includes contracts from the European Union Allowances (EUA), California Carbon Allowances (CCA), Regional Greenhouse Gas Initiative (RGGI) markets, and the United Kingdom Allowances (UKA). North American pricing data is supplied by IHS Markit’s OPIS service, while European prices are supplied by ICE Futures Pricing.

For more news, information, and strategy, visit the Climate Insights Channel.