Carbon Credits Market Has Strong Long-Term Outlook

Myriad topics in the sustainable investing realm garnered attention this year. It’s fair to say the carbon credits market was part of that group.

Around the world, an increasing amount of governments are touting large-scale carbon-reduction efforts. That’s potentially driving more interest in ETFs such as the KraneShares Global Carbon Strategy ETF (KRBN).

KRBN and stablemates KraneShares European Carbon Allowance Strategy ETF (KEUA) and the KraneShares California Carbon Allowance ETF (KCCA) have been commanding more attention of late. That’s due in large part to the recently held COP28 Conference in Dubai. At that forum, many heads of state  expressed commitments to carbon-reduction efforts, including cutting dependence on fossil fuels.

COP28 Could Be Constructive for Carbon ETF KRBN

Governments are known for lethargy and often disappointing investors. But when it comes to implications for KRBN and its peers, rhetoric from COP28 – assuming it turns into action – could be a long-term boon for the carbon credits market.

The reference to all fossil fuels, and not just coal as had been the case at the previous COP, can be seen as a significant milestone. However, the non-binding agreement leaves room for improvement, with Samoa’s lead negotiator claiming the text featured a ‘litany of loopholes’,” according to BNP Paribas research.

For investors taking the long view of the KraneShares ETFs, it’s pivotal carbon talk that could advance beyond the talk phase. After all, the chatter out of COP28 is positive. If it morphs into tangible action, KRBN and friends could benefit.

Stricter Targets and Policies Called For

“The meeting reaffirmed the 1.5C target for global warming and acknowledged the need for a 43% reduction in emissions by 2030 and 60% by 2035 compared to 2019 levels. It called for substantially stricter targets and policies when nations present new their emissions commitments in 2025, as agreed in the 2015 Paris Accord,” added BNP Paribas.

Another noteworthy development from the conference is the point that some wealthy nations pledged $725 million to help some developing economies in their carbon-reduction and climate efforts. That’s not a massive amount. But it’s a starting point. And it’s one that underscores some countries’ commitments to helping others on their carbon-reduction journeys. However, there’s more work to be done. That could bode well for KRBN.

“There was no agreement on Article 6 of the Paris Agreement. This acknowledges that achieving the so-called Nationally Determined Contributions (NDCs) cannot depend just on public funds. Private sector involvement is crucial to finance ambitious emission reduction initiatives,” concluded BNP Paribas.

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