For investors new to the concept, carbon offset credits, or carbon allowances, are essentially permits for holders to emit a certain of carbon – if they’re willing to pay for the privilege.
It’s an expansive market and one with wide-ranging investment opportunities. The task of accessing this segment is made easier thanks to exchange traded funds, including the KraneShares Global Carbon Offset Strategy ETF (KSET). KSET, which follows the S&P GSCI Global Voluntary Carbon Liquidity Weighted Index, debuted nearly a year ago as one of the original U.S.-listed ETFs providing investors with access to the global carbon market.
While it’s still technically a “new ETF,” KSET may prove to be a well-timed one at that because of the massive growth expectations for the global voluntary carbon offset market.
“The voluntary carbon market, which allows participants to exchange credits, has attracted increased interest. It has quadrupled in value and almost doubled in volume to reach USD 2 billion in 2021, with 166 million tonnes of carbon emissions avoided or removed. The market is expected to reach between USD 10 billion and USD 40 billion by 2030,” noted BNP Paribas.
Making KSET a unique, though pertinent play, on green investing is the sheer expanse of the global carbon market and efforts to shore up confidence and transparency in a segment that has had its run-ins with controversy.
“Next to REDD+ (Reducing Emissions from Deforestation and Forest Degradation), other types of offsets include Afforestation, Reforestation and Revegetation (ARR) projects, Biochar carbon credits, Carbon Capture Utilisation and Storage offsets, and Direct Air Capture offsets,” added BNP Paribas.
Owing to its unique strategy and a limited number of related listed investment options, KSET is currently comprised of just two holdings – a nearly 81% weight to a nature-based global emission offset contracting maturing this year and an almost 19% allocation to a global emission offset, also expiring this year.
A case can be made that KSET’s concentrated lineup offers an element of simplicity, which could be prized by investors new to the world of carbon offset investing. At the very least, the ETF is relevant now and likely to remain that way for some time.
“We believe measures to reduce greenhouse gas emissions should be the priority and that carbon offsets should be used as a last resort. Voluntary carbon markets can play an important role in pricing externalities such as GHG emissions, but steps need to be taken to bolster confidence in their efficacy,” concluded BNP Paribas.
For more news, information, and strategy, visit the Climate Insights Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.