KraneShares has launched its first exchange-traded commodity (ETC) in Europe, offering broad coverage of cap-and-trade carbon allowances traded worldwide.
Cap-and-trade carbon allowances represent a market-based way of controlling pollution.
The KraneShares Global Carbon Strategy ETC (KRBN) has been listed on Deutsche Börse Xetra and Borsa Italiana in euros, priced with an expense ratio of 0.78%.
The ETC replicates the strategy of the $270 million US-listed KraneShares Global Carbon Strategy ETF (KRBN US), which is the first, largest, and most liquid publicly listed carbon allowance ETF in the world.
In typical cap-and-trade carbon allowance regimes, a limit (or cap) is set by a regulator, such as a government entity or supranational organization, on the total amount of specific greenhouse gases, such as CO2, that can be emitted by regulated entities, such as manufacturers or energy producers.
The regulator may then issue or sell individual emission allowances to regulated entities. Polluters that want to increase their emissions must buy allowances from others willing to sell them, thereby representing a market-based approach to controlling pollution.
By gradually reducing allowances over time, cap-and-trade systems serve as a critical policy tool for meeting ambitious climate goals, such as those outlined in the Paris Agreement. These regimes promote fuel switching and investment in renewable technologies.
KRBN is linked to the S&P Global Carbon Credit Index which covers the major European and North American cap-and-trade programs: European Union Allowances (EUA), California Carbon Allowances (CCA), United Kingdom Allowances (UKA), and the Regional Greenhouse Gas Initiative (RGGI), which covers the Northeast US Power Market. In 2023, these four carbon markets had an annual trading volume of $754.1 billion.
For investors, carbon credits not only provide exposure to the energy transition economy but also historically exhibit low correlation to traditional assets like equities (with a 0.3 correlation to US large caps) and fixed income, enhancing portfolio diversification while offering inflation and climate risk hedging opportunities.
Luke Oliver, Head of Climate Investments at KraneShares, commented: “KraneShares is a global leader in carbon market ETFs. We launched the first, largest, and most liquid carbon ETF on the New York Stock Exchange in 2020 in partnership with Climate Finance Partners. We believe carbon allowances provide a compelling investment opportunity because they offer low correlations and a structural upside that does not exist in other traditional commodity allocations.”
Xiaolin Chen, Head of International at KraneShares, added: “We believe carbon allowances can play an important role in every investor’s portfolio. They are structurally designed for long-term price appreciation as part of their core application of decreasing emissions. Besides the potential portfolio benefits, allocating to carbon supports price discovery and liquidity in the markets, which we believe promotes sustainability and true environmental impact.”