KraneShares’ California carbon ETF provided compelling returns for investors in 2023.
The KraneShares California Carbon Allowance ETF (KCCA ) is up 33.0% over a one-year period, making it KraneShares’ top-performing ETF in 2023. The fund provides targeted exposure to the California Carbon Allowances (CCA) cap-and-trade carbon allowance program.
Carbon allowances, also called carbon credits, are a newer investable asset class. While KCCA was KraneShares’ top-performing ETF in 2023, the fund also serves as a meaningful portfolio diversifier. Carbon markets have historically shown low correlations to other asset classes, making them an attractive portfolio diversifier.
Compliance carbon is based on cap-and-trade programs, also known as emissions trading systems (ETS), which regulate emissions for mandated industries in their respective jurisdictions.
The CCA program is one of the fastest-growing carbon allowance programs globally. Carbon allowances are expected to continue to rise in value over time as demand remains consistent, but supply is reduced.
The CCA cap-and-trade program was implemented by the California Air Resources Board (CARB) in 2012. The program covers approximately 80% of the state’s greenhouse gas (GHG) emissions, according to KraneShares.
In 2014, the program was expanded to cover Quebec and its emissions. Furthermore, the CCA includes up to 15% of the cap-and-trade credits from Quebec’s market.
Recent Updates on Carbon Pricing
California’s cap-and-trade program regulator, the Air Resources Board (CARB), presented price models for the first time in November, lifting KCCA.
This marked a significant milestone for the space, as it was the first time CARB has ever released its own price projections for the cap-and-trade program, according to KraneShares. Investors can use these projected price levels to gauge the return potential for the market.
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