Here’s Why You Should be Investing in California’s Carbon Market | ETF Trends

San Diego Gas & Electric took a lengthy, holistic look at the roadmap to carbon neutrality by 2045 for California in their recent report that takes into account industry-specific needs and tools to calculate the true cost and realistic needs that decarbonization will require for the state.

The study found that in order for California to reach its goal of net-zero by 2045, it will have to decarbonize at 4.5 times the rate that it has over the past decade. Not only will a rapid intensification be needed to hit the mandate, but decarbonization efforts will also need to take into account the four-fold increase in electricity needs that transportation and building electrification will require by then.

“Accelerated electrification of transportation and other sectors is essential to California and our region’s sustainability.  It is also incredibly important that California takes electric reliability into consideration and doesn’t leave anyone behind when developing a decarbonization roadmap,” said Caroline Winn, CEO of SDG&E, in the press release.

Winn goes on to highlight the need for cross-sector collaboration in decarbonization efforts, as well as the need to build up the electric vehicle charging infrastructure, modernizing and updating the existing power grid, as well as investing in new technologies and innovations such as energy storage that is based on hydrogen.

“While the exact combination of technologies and investments needed to get to net-zero is unknown at this time, what is certain today is that a flexible and diversified approach to decarbonization is both prudent and necessary to help ensure we are eliminating carbon emissions while also safeguarding grid reliability,” said David G. Victor, Professor at UC San Diego and co-director of the UCSD Deep Decarbonization Initiative, and the study’s advisor.

Investing in California’s Carbon Allowances Market

Last year, KraneShares expanded carbon allowance investing to offer more targeted investment approaches, including into the California and Quebec market with the KraneShares California Carbon Allowance ETF (KCCA).

KCCA is a fund that offers exposure to the California 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. The CCA includes up to 15% of the cap-and-trade credits from Quebec’s market.

The index measures a portfolio of futures contracts on carbon credits issued by the CCA and only includes futures with a maturity in December in the next year or two, while using a wholly-owned subsidiary in the Cayman Islands to prevent investors from needing a K-1 for tax purposes.

The fund may also invest in emission allowances issued under another cap-and-trade system, futures contracts that aren’t carbon credit futures, options on futures contracts, swap contracts and other investment companies, and notes that aren’t necessarily exchange-traded.

KCCA carries an expense ratio of 0.79%.

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