The price of California’s carbon allowances continues to rise in the wake of its most recent auction in November. With further regulatory clarity on the horizon likely early next year, investors find themselves with an opportunity to gain access to the market at reduced costs.
California’s regulated carbon market just held its final auction for the year, with prices clearing 5% higher than August’s auction, at $31.91, reported KraneShares. Investor demand increased in November’s auction, accounting for nearly 18% of allowances bought. While compliance participation declined, a normal occurrence for November auctions, the 82% compliance participation was higher than the 80% in previous years.
CCA prices fell in the wake of the presidential election, dropping from $38 to $33.19, but are on the rise once again post-auction. For now, market participants and investors alike await further clarification around market tightening in the coming years. The regulatory body has consistently pushed off further guidance after announcing in July its intent to tighten the market further, beginning in 2026.
“The market will be waiting for more certainty around the next step in the rulemaking process, the release of the Initial Statement of Reasons (ISOR) report,” KraneShares explained in the Climate Market Now blog. “The ISOR was initially expected to be released a few weeks after the regulator’s last announcement in October but appears to be delayed to potentially after the new year.”
Position Ahead of California Carbon Tailwinds With KCCA
The California carbon market appears to be in somewhat of a holding pattern until early next year when the regulatory body announces further clarification. It creates a window of opportunity for investors to gain access to the market ahead of the anticipated tailwinds of regulatory clarity and tightening.
Those 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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