February’s auction of California Carbon Allowances cleared at a two-year low but several catalysts prove promising for the market looking ahead. Investors seeking to seize the opportunity in the market would do well to consider the KraneShares California Carbon Allowance Strategy ETF (KCCA ).
“The first quarterly auction for California Carbon Allowances (CCAs) of 2025 cleared at $29.27/tonne on February 19, the lowest in two years though sub-$30 was largely expected,” explained KraneShares on the Climate Market Now blog.
Current low prices reflect investor and market frustrations at the lack of clarity regarding policy changes. The California Air Resources Board (CARB) must update the existing program to meet more aggressive, state-mandated tightening in the market. However, it spent much of 2024 delaying an updated version of those plans. Wildfires at the end of last year also forced further delays.
The next step for CARB includes releasing an Initial Statement of Reasons that will allow for public comments. That will likely happen in the coming months. At the same time, California lawmakers put forward two bills to extend the regulated program beyond 2030.
“While CARB has been drawing up plans to adjust the market parameters to meet the state’s updated 2040 goal of a 70% cut in greenhouse gas emissions, any extension of the market after 2030 still requires an overarching legislative decision,” KraneShares noted.
Opportunity in California's Carbon Market
A number of potential catalysts for CCA prices exist this year. More aggressive tightening in the market creates the potential for positive price momentum on a long-term timeline. At the same time, extending the program would reflect the state’s commitment to the cap-and-trade market. It’s worth noting that California’s carbon market also increases allowance prices annually, with a floor price that rises 5% plus inflation each year.
Since the weak February auction but subsequent legislative filings to extend the program, KCCA gained 8.80% on a price returns basis between lows on February 19 through March 2, 2025 according to Y-Charts data. The fund continues to recover from recent lows and sits at an attractive entry point for investors.
The KraneShares California Carbon Allowance Strategy ETF (KCCA ) 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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