Many countries and regions have adopted cap-and-trade programs for carbon emissions that set limits on how much carbon an individual company can emit before having to purchase allowances to offset additional emissions.
The markets currently invested by KraneShares have cap-and-trade programs set against emission limits in accordance with the Paris Agreement. By creating such programs, investors and markets can work together to pressure companies to reduce emissions, as it becomes increasingly expensive to exceed the emissions limit.
The two funds join the growing lineup of carbon-focused ETFs alongside the KraneShares Global Carbon AND F (KRBN), which takes a holistic approach to investing in carbon markets. KRBN is currently investing in the EU and North American markets, while the two new funds will each target a single market.
“Thanks to the phenomenal success of KRBN, we’ve learned that many of our clients also want targeted exposure to the underlying markets, ”said Luke Oliver, Managing Director and Head of Strategy at KraneShares. “KEUA and KCCA provide access to carbon allowance markets for components at different stages of their growth cycle. With these new ETFs, investors can take a customizable precision approach to investing in carbon markets. “
KEUA provides exposure to the European Union’s cap-and-trade allowance carbon allowance program only and is actively managed.
The fund’s benchmark is IHS Markit Carbon USA Index, an index that tracks the most traded USA futures contracts, which is the oldest and most liquid market for carbon allowances. The market currently provides coverage for around 40% of all EU emissions, including 27 Member States as well as Norway, Iceland and Liechtenstein. The annual reduction in the cap was recently increased from 2.2% to 4.2% in an effort to meet long-term carbon emissions targets.
Since the fund is actively managed, it may invest in carbon credit futures contracts with different maturity dates or weight futures contracts differently from the index. The fund potentially trades CTFC-forward contracts and regulated swaps above CFTC 4.5 and is therefore considered a “commodity pool”.
KEUA has an expense ratio of 0.79%.
KCCA provides exposure to the California Carbon Allowances carbon cap-and-trade program only and is actively managed.
The fund’s benchmark is HIS Markit Carbon ACC Index, an index that tracks the most traded ACC Futures contracts, a market that encompasses about 80% of California’s greenhouse gas emissions and which also covers Quebec’s emissions since its expansion in 2014. The cap is currently expected to decrease by 4% each year to reach future ones target carbon emission levels, and it has a built-in floor price that increases by 5% plus an inflation adjustment each year.
Since the fund is actively managed, it may invest in carbon credit futures contracts with different maturity dates or weight futures contracts differently from the index. The fund potentially trades CTFC-forward contracts and regulated swaps above CFTC 4.5 and is therefore also considered as a “commodity pool”.
KCCA also carries an expense ratio of 0.79%.
“The funds will specifically monitor the Californian and European markets, allowing investors to refine their exposure to individual markets and supplement their exposure to KRBN and carbon markets. With their diversification benefits, structural upside potential and exposure to the main tool of climate policy, investors should consider the place of carbon in their portfolio, ”said Oliver. AND F Tendencies.
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