Subdued performance in the first few months of the year from major regulated carbon markets globally reflect the challenging macro environment. However, as the European carbon market turned around in May, it lifted the KraneShares Global Carbon Strategy ETF (KRBN ). The fund remains in solid buy territory heading into summer months.
After a challenging start to the year, the European carbon market is on the move in May. Muted economic forecasts, a milder-than-anticipated winter, and ongoing macro risk suppressed performance in the first several months of 2024. The addition of added carbon allowance supply from the RePowerEU plan alongside faster renewable energy transition in the EU led to forecasts for subdued carbon allowance demand for much of the year.
Climbing natural gas prices on supply concerns lifted carbon allowance prices this month.
“The short-term correlation between front-month TTF [natural gas] and December 2024 EUA prices has remained high at more than 0.8 for the last six weeks,” explained KraneShares on the Climate Market Now blog.
In addition, the sharp reduction of net short positions by investors mid-onth likely raised prices.
On the U.S. side, the California carbon market continues to move predominantly sideways this year. For now, investors and market participants await guidance on further tightening from the California Air and Resources Board. Meanwhile the Regional Greenhouse Gas Initiative (RGGI) in the Northeastern U.S. is up approximately 35% YTD.
For those investors seeking diversified exposure across the major carbon markets, KRBN is worth consideration.
The fund crossed above its 200-day simple moving average (SMA) mid-May. It remains above both its 50- and 200-day SMA for the first time in nearly a year. Funds trending above their SMAs are considered a strong buy signal for trend followers and investors.
KRBN was the first of its kind to offer an investment take on carbon credits trading. KRBN tracks the S&P Global Carbon Credit Index, which follows the world’s most liquid carbon credit futures contracts.
This includes contracts from the European Union Allowances (EUA) and California Carbon Allowances (CCA). It also includes the RGGI markets and the United Kingdom Allowances (UKA). KRBN carries a management fee of 0.79%.
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