Global Heatwaves Could Warm Up Investors to Carbon ETFs

This summer is turning into one of the hottest on record around the globe, which could force investors to warm up to carbon credit-focused exchange traded funds (ETFs).

“Historic heatwaves are sweeping the planet from China to Europe and the United States, with 2023 on track to become the hottest year on Earth since records began,” Independent reported.

The report mentioned that Europe, particularly in the southern region, has been racked by extreme heat and wildfires, also noting that “Meteorologists predict this week Europe can record its highest temperature ever as parts of Italy are forecast to cross 48C (118.4F).” The record heat is agreed to be a product of climate change.

Therefore, investors seeking out opportunities for growth may want to consider the carbon allowance market. It allows companies to continue operation despite not meeting emissions requirements by purchasing carbon credits.

A global opportunity for this market exists in the KraneShares Global Carbon ETF (KRBN). It’s just one of the many options from KraneShares that offers ETF exposure to the carbon allowance market.

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) and the United Kingdom Allowances (UKA) overseas. It also includes the California Carbon Allowances (CCA) and Regional Greenhouse Gas Initiative (RGGI) markets domestically.

Region-Specific Carbon ETF Exposure

If investors are looking for more region-specific exposure, KraneShares offers a couple of ETFs to consider. For Europe, there’s the KraneShares European Carbon Allowance ETF (KEUA).

KEUA offers targeted exposure to the EU carbon allowances market. The fund tracks the IHS Markit Carbon EUA Index, which in turn tracks the most-traded EUA futures contracts.

The EUA cap-and-trade program is 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.

For even more localized exposure, specifically to California (which offers some of the more stringent carbon emissions laws), investors can consider the KraneShares California Carbon Allowance ETF (KCCA). The fund offers targeted exposure to the joint California and Quebec carbon allowance market, which includes California’s cap-and-trade carbon allowance program — one of the fastest-growing carbon allowance programs worldwide — and is benchmarked to the IHS Markit Carbon CCA Index.

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