California is easily one of the top five economies in the United States and thus, their influence in dealing with reducing carbon emissions will have a profound impact on the rest of the nation. Additionally, it opens opportunities in one particular exchange-traded fund (ETF).
One of the key components to meet California’s emissions goal is their Scoping Plan from the California Air Resources Board (“CARB”). As mentioned, how California implements this plan could have a spillover effect on how other states can reduce their emissions output.
“Given California’s status as a market leader both nationwide and globally, how California addresses climate change will undoubtedly have an immense impact on the rest of the country,” a JD Supra article said. “Included in the Scoping Plan is a description of how California’s direct investments in green technologies and climate resilience will reduce and mitigate the impacts of climate change.”
Below are some key goals for the Scoping Plan as reported by JD Supra:
- $13.8 billion for lower-carbon transportation that focus on public transit and improvements to biking and walking infrastructure
- $10 billion in zero-emission vehicles, with a stated goal of having every new passenger vehicle sold in California be a zero-emission vehicle by 2035
- $9 billion in both clean energy and drought/wildfire resilience
Capture California’s Push to Net-Zero
California’s ambitious push towards net-zero opens opportunities for investment, particularly in carbon credits. This allows companies to pay for credits in order to continue operating as they work to reduce their emissions output.
While there are ways to capture this revenue exposure, one broad-based opportunity that focuses strictly on California is the KraneShares California Carbon Allowance ETF (KCCA). The fund provides targeted exposure to the California Carbon Allowances (CCA) cap-and-trade carbon allowance program.
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.
The index 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. Furthermore, CCA provides investors with portfolio diversification with exposure to assets that don’t typically correlate to the broader stock market.
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