Investors seeking overlooked opportunities in today’s market should consider California carbon allowances. With a number of long-term tailwinds and current reduced prices, investors looking for long-term potential would do well to consider the KraneShares California Carbon Allowance Strategy ETF (KCCA ).
California’s carbon market covers a range of industries and 80% of the state’s greenhouse gas emissions, according to CARB. By limiting allowed emissions each year, and shrinking that limit annually, the cost to pollute rises. Market participants must purchase carbon allowances to cover any overages — a supply that also shrinks over time. The market also increases the floor price of carbon allowances by 5% every year, making it an attractive inflation hedge for some investors.
The last year proved a challenging one for CCA prices, as regulators continuously delayed clarity on tightening plans for the cap-and-trade market. The regulator announced tighter emissions reforms last year, but failed to provide details of those plans, and pushed back their implementation by another year, to 2026.
At each new delay by the California Air and Resources Board (CARB), volatility and declines followed for allowance prices. Although CARB is committed to more aggressive tightening, the exact trajectory still remains uncertain. It’s a reality that left many investors choosing to sit on the sidelines last year.
The regulatory body is due to give that clarification in the coming months. More rapid tightening and a reduction in future CCA supply creates tailwinds for CCA prices looking ahead. It also provides a window of opportunity to buy into California carbon allowances at reduced prices ahead of impending regulator clarity and subsequent price movement.
It’s worth noting that the joint California and Quebec cap-and-trade market exists at the state level. While it may be impacted by broader federal mandates, it receives a level of insulation as a state-mandated program. The program has also survived a string of legal challenges to its validity to-date.
Invest in California's Carbon Market With KCCA
Long-term investors seeking to capture exposure to California’s carbon market at current reduced prices should consider the KraneShares California Carbon Allowance Strategy ETF (KCCA ).
The fund offers targeted exposure to the joint California and Quebec carbon allowance markets. The market is one of the fastest-growing carbon allowance programs worldwide. Its benchmark is the S&P Carbon Credit CCA Index. The CCA includes up to 15% of the cap-and-trade credits from Quebec’s market.
The index tracks the most-traded CCA futures contracts. The fund uses a wholly owned subsidiary in the Cayman Islands to prevent investors from needing a K-1 for tax purposes.
KCCA carries an expense ratio of 0.87%.
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