EU Achieved 2020 Emissions Reduction Goals: These Funds Capture

Greenhouse gas emissions in the European Union dropped 11% in 2020 compared to 2019 levels, the biggest drop since 1990 and a downward trend that has extended over three decades, reported the European Environment Agency in a press release.

The EU has far surpassed its 2020 goal of a 20% reduction in emissions compared to 1990 levels, ending the year at a 34% reduction, or the equivalent of 1.94 billion tons of CO2e, a carbon dioxide equivalent.

The bloc had actually achieved its goals as of 2019, before the onset of the pandemic, reducing emissions by 26%, with 2020’s performance extending that reduction.

“Key drivers that led to emission reductions over the past three decades include the growing use of renewables, the use of less carbon-intensive fossil fuels and improvements in energy efficiency, structural changes in the economy, lower demand for heating due to warmer winters in Europe,” according to the press release.

Reductions were seen sector-wide with the exception of transportation and refrigeration, and air conditioning; the biggest contributors to the drop were manufacturing industries as well as construction, iron and steel production, residential combustion, and electricity and heat production.

A supportive policy regime since the 1990s has played a large role in driving change and emissions reduction, working to transition agriculture and environmental policies in the last 30 years, with more targeted energy and climate policies since 2005.

How to Invest in Compliance and Voluntary Carbon Markets

KraneShares offers a targeted investment opportunity in the cap-and-trade carbon allowance futures markets in the EU, and a broader globally-focused one that includes the EU allowances market futures as part of its exposure, as well as investment exposure to the voluntary carbon markets globally.

The KraneShares European Carbon Allowance ETF (KEUA) offers targeted exposure to the EU carbon allowances market and is actively managed. The fund’s benchmark is the IHS Markit Carbon EUA Index, which tracks the most-traded EUA futures contracts, the oldest and most liquid market for carbon allowances.

The market currently offers coverage for roughly 40% of all emissions from the EU, including 27 member states and Norway, Iceland, and Liechtenstein. KEUA has an expense ratio of 0.79%.

The KraneShares Global Carbon ETF (NYSE: KRBN) offers a global approach to investing in carbon allowances markets and diversity in its exposures. KRBN tracks the IHS Markit Global Carbon Index, which follows the most liquid carbon credit futures contracts in the world.

This includes contracts from the European Union Allowances (EUA), California Carbon Allowances (CCA), and Regional Greenhouse Gas Initiative (RGGI) markets. KRBN carries an expense ratio of 0.78%.

The KraneShares Global Carbon Offset Strategy ETF (KSET) is the first U.S.-listed ETF offering investors exposure to the voluntary carbon markets by tracking carbon offset futures contracts comprised of nature-based global emissions offsets (N-GEOs) as well as global emissions offsets (GEOs) that trade via CME Group.

KSET is dynamic in a way that is similar to KRBN, such that as new markets scale up to size, they will be included within the fund. The fund carries an expense ratio of 0.79%.

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