As the global carbon market gains traction, investors can diversify their portfolios with related exchange traded funds to tap into a maturing new market for trading carbon allowances in the ongoing fight against climate change.
The European Union’s Emissions Trading Scheme (ETS), the oldest and largest carbon market, has become a model for trading carbon allowances. EU carbon dioxide emission credits now trade around €80 per metric ton, or around $87, the Wall Street Journal reports.
Since 2020, carbon prices have dipped to a low of €15 per metric ton in the wake of the height of the COVID-19 pandemic and global lockdowns, and they then reached a high of €96 as global economies reopened and fired on all pistons. More recently, prices have dipped in the wake of uncertainty stemming from the Russia-Ukraine war.
In the beginning, the economic depression from the global financial crisis generated a glut of carbon allowances that kept prices down until a 2018 reform. Since then, prices have steadily increased, albeit with two swift pullbacks in recent years.
Aside from those two dips associated with the pandemic and the Ukraine war, EU carbon credits have seen prices rise because the bloc has increased its decarbonization goals and cut the supply of free allowances it grants.
Europe has led the charge in carbon markets, providing a blueprint for a robust and investible market. Consequently, other nations, including China, have followed the EU’s success as a model.
As investors look for ways to tap into this growing carbon allowances market, there are a number of ETF strategies to choose from. For example, the KraneShares Global Carbon ETF (KRBN) can help investors access the global carbon allowances futures market. KRBN tries to reflect the performance of the IHS Markit’s Global Carbon Index, which offers broad coverage of cap-and-trade carbon allowances by tracking the most-traded carbon credit futures contracts.
KraneShares also came out with two more targeted carbon markets-related ETFs: the KraneShares European Carbon Allowance ETF (KEUA) and the KraneShares California Carbon Allowance ETF (KCCA). KEUA offers exposure to the European Union Allowances cap-and-trade carbon allowance program only and is actively managed. KCCA offers exposure to the California Carbon Allowances cap-and-trade carbon allowance program only and is actively managed.
For more news, information, and strategy, visit the Climate Insights Channel.