KraneShares European Carbon Allowance ETF Rallies

KraneShares’ European carbon allowance ETF has posted impressive returns in the past week.

The KraneShares European Carbon Allowance ETF (KEUA) is up 7.5% in the past one week, bringing its one-month return to 3.1%. Meanwhile, the fund has climbed 33.9% over a one-year period.

KEUA is an actively managed ETF providing targeted exposure to the EU cap-and-trade carbon allowance program. The fund is benchmarked to the IHS Markit Carbon EUA Index, which tracks the most traded EUA futures contracts.

KEUA has $21 million in assets under management and charges 79 basis points.

The EU carbon market covers more than 12,000 participants and a variety of industries. Companies within certain industries such as power, agriculture, industrial, and aviation are mandated to participate.

See more: “Consider a Carbon ETF for Portfolio Diversification

Implementing Carbon Pricing

Notably, the European Union’s Carbon Border Adjustment Mechanism (CBAM) went into effect on October 1, requiring importers to report the volume of greenhouse gases emitted in the production of the materials they bring into the EU. This is the first time any jurisdiction has imposed a cost on the carbon content of imported raw materials, according to KraneShares.

In the initial transitional stage, importers are only required to report emissions. However, beginning in 2026, importers will also need to buy CBAM certificates to cover the emissions. CBAM certificates’ cost will be equivalent to the average weekly EU Allowance auction price at the time of purchase.

At first, only imports of cement, iron and steel, aluminum, fertilizers, hydrogen, and electricity will be included. However, more products could be included later on, KraneShares wrote.

The development of the CBAM encourages other countries to begin implementing carbon pricing. According to KraneShares, India has begun to plan a market, and other major carbon-intensive exposures including Indonesia, Malaysia, Brazil, Vietnam, and Mexico, are also setting up carbon pricing regimes.

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