The carbon cap-and-trade program in California has experienced impressive growth in recent weeks.
The KraneShares California Carbon Allowance ETF (KCCA ) is up over 31% year to date as of November 29, strengthened by new policy tightening measures. KCCA offers targeted exposure to the California Carbon Allowances (CCA) cap-and-trade carbon allowance program.
While KCCA has garnered significant attention recently for its standout returns, cap-and-trade programs, also known as Emissions Trading Systems (ETS), play a crucial role in decarbonizing economies and achieving net-zero goals.
California’s market has raised over $23 billion from auction revenues, according to data from California Air Resource Board (CARB) as of November 2022. These funds have gone toward projects that provide environmental, health, and economic benefits.
According to KraneShares, California has implemented nearly 600,000 projects since the start of the program. This has included expanding transit and high-speed rail services, increasing renewable energy capacity, restoring and conserving land, building more affordable housing, and issuing rebates for electric vehicles.
Why Invest in Compliance Carbon Allowances
Compliance carbon can offer a pure exposure to climate action as well as align with impact investment goals, according to KraneShares.
The cap-and-trade programs aim to reduce carbon emissions within the economies in which they operate. Therefore, by participating in these markets, investors help support price discovery and add liquidity, making the markets more efficient and effective, according to KraneShares.
Carbon prices are projected to rise dramatically, which means polluters either have to decarbonize their business operations or take on higher costs to source allowances. According to KraneShares, these higher prices also drive fuel switching and more capital toward green innovations.
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