Price forecasts for one carbon allowance in the California cap-and-trade program are $100 per ton by 2029. It’s a sharp increase from current prices and the KraneShares California Carbon Allowance ETF (KCCA ) offers exposure.
In a report from Energy Aspects, California carbon allowances (CCAs) are anticipated to grow to $34 a ton by the beginning part of next year. Luke Oliver, managing director, head of climate investments, head of strategy at KraneShares, outlined the price outlook in the Climate Market Now blog.
That price will continue trending upwards, hitting $40 per ton by 2025 from the current $29 per ton. They will rise further to $100 per ton by 2029, a growth of nearly 250%.
The Benefits of Tightening Supply
“The firm’s longer-term forecast shows that the market remains oversupplied on an annual basis in 2023," Oliver wrote. However, “that demand steadily outpaces supply from 2024 through to 2030.”
Tightening supply and aggressive emissions targets in California create a 48% reduction forecast in 2030. This tightening will create foundational pricing pressures that investors are likely to find increasingly attractive.
“The report suggested that investors will increase their holdings steadily over the 2024-2027 period as the expected tightness in supply is gradually priced into the market,” said Oliver.
For a more detailed look at current global carbon markets and the outlook for carbon allowances, don’t miss this recent webcast hosted on the VettaFi platform.
Invest in California Carbon Allowance Price Potentials With KCCA
KCCA offers targeted exposure to the joint California and Quebec carbon allowance markets and will benefit from California’s aggressive push to reduce emissions alongside the increasing demand for allowances within the market. Carbon allowance investing is worth considering for the diversification benefits that it can bring to portfolios.
KCCA is currently up 5.34% YTD. The fund remains above both its 50-day Simple Moving Average as well as its 200-day SMA. These are strong technical indicators for trend followers that signal the fund is a buy.
KCCA is a fund that offers exposure to the California cap-and-trade carbon allowance program. This market is one of the fastest-growing carbon allowance programs worldwide. Its benchmark is the IHS Markit Carbon CCA Index and includes up to 15% of the carbon credits from Quebec’s market.
The index measures a portfolio of futures contracts on carbon credits issued by the CCA. The index only includes futures with a maturity in December in the next year or two. The fund also uses a wholly-owned subsidiary in the Cayman Islands which makes a K-1 unnecessary for taxes.
KCCA carries an expense ratio of 0.78%.
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