Based on investor interest in KRBN (KraneShares Global Carbon ETF), the firm has launched two additional carbon allowances-focused ETFs.

“Through the phenomenal success of KRBN, we learned that many of our clients also want targeted exposure to the underlying markets,” said Luke Oliver, managing director and head of strategy at KraneShares.

“KEUA and KCCA provide access to the component carbon allowance markets at various stages of their growth cycle. With these new ETFs, investors can take a customizable precision-approach to invest in carbon markets.”

The KraneShares European Carbon Allowance ETF (KEUA) and the KraneShares California Carbon Allowance ETF (KCCA) are the new funds.

KEUA – Provides exposure to the European Union Allowances cap-and-trade carbon allowance program solely, and is actively managed with a 0.79% expense ratio.

The benchmark for the fund is the IHS Markit Carbon EUA Index, which follows the most-traded EUA futures contracts in the market, which is the oldest and most liquid for carbon allowances.

The market presently covers around 40% of all EU emissions, covering 27 member states as well as Norway, Iceland, and Liechtenstein. In an effort to reach long-term carbon emission targets, the yearly cap reduction was recently boosted from 2.2% to 4.2%.

KCCA– Provides exposure to the California Carbon Allowances cap-and-trade carbon allowance scheme solely, and is actively managed with a 0.79% expense ratio.

The fund’s benchmark is the HIS Markit Carbon CCA Index, which measures the most actively traded CCA futures contracts in a market that covers around 80% of California’s greenhouse gas emissions and has also covered Quebec’s emissions since its expansion in 2014.

The cap is now set to drop by 4% each year in order to achieve future carbon emission targets, and it has a built-in floor price that increases by 5% per year, plus an inflation adjustment.

Both funds may invest in carbon credit futures with different maturity dates than the index, or they may weight futures differently than the index. The fund may trade in CTFC-regulated futures and swaps beyond the CFTC 4.5 limit and is thus classified as a “commodity pool.”

Many countries and regions have implemented carbon-cap-and-trade programs, which limit how much carbon an individual firm can produce before needing to acquire allowances to offset extra emissions.

KraneShares presently invests in markets that have cap-and-trade schemes tied to emissions limits imposed by the Paris Agreement.

By establishing such programs, investors and markets can collaborate to put pressure on corporations to reduce emissions when exceeding the emissions limit becomes increasingly expensive.

Both funds join the increasing array of carbon allowance-focused ETFs, which includes the KRBN, which presently invests in the EU and North American markets, whereas the two new funds will each target a single market.

Over the past several years, Brazil’s image has been tainted through the practice of deforestation. To improve their environmental standing, Rio de Janeiro has made plans to establish a specialized exchange that will trade environmental assets.

According to Chicão Bulhões, Rio de Janeiro’s Secretary for Economic Development, their goal is to create tax incentives to fuel this market, consolidating the world’s most accepted regulatory standards to provide its framework. The plan is to launch by the end of the year.

“Brazil will be one of the biggest players in this market, which, as it is voluntary, has global reach. Companies around the world can buy credits to offset their emissions from anywhere else.”

With the global carbon market anticipated to reach $22 trillion by 2050, the city’s desire to tap into this can drive growth even further.

Bulhões hopes that as companies worldwide purchase credits to offset their own carbon emissions, Rio de Janeiro’s economy will strengthen, all through low-carbon initiatives, such as reforestation, seed, fertilizer production, and more.

The goal of this exchange goes beyond just the carbon credit industry. Bulhões has said they “Want to attract agents interested in trading all environmental assets, such as reverse logistics credits and environmental reserve quotas, which have great potential.”

Rio de Janeiro hosted the ECO 92 meeting that prompted the UN framework on climate change, which resulted in the Kyoto Protocol and the Paris Agreement. The city has celebrated these initiatives every 10 years since. As such, Bulhões believes this credit exchange is the natural next step. He hopes this will expand into Brazil as the country takes measures to combat the damage done to the Amazon rainforest.

In Brazil, the Amazon rainforest lost 10,129 square kilometers in 2019 – an increase of 34% from 2018 – and 11,088 square kilometers in 2020.