During the 2015 COP 21 in Paris, members of the United Nations Framework Convention on Climate Change (UNFCCC) embraced the Paris Agreement as a strategy to diminish greenhouse gas emissions.
The primary objective of the agreement is to cap the global temperature increase at 1.5 degrees Celsius above pre-industrial levels, a critical threshold believed by scientists to avert catastrophic consequences of climate change on the environment and human life. Since 2015, there has been substantial momentum in the global drive to decarbonize, and carbon allowances have emerged as a crucial instrument in realising these objectives.
Opting for a bullish stance on carbon prices can align with responsible investing, encouraging pollution reduction in harmony with the objectives of impact investments.
The global carbon allowance market could experience a favourable boost in performance due to the tightening of emissions regulations.
In 2022, the four primary global carbon futures markets monitored by IHS Markit's Global Carbon Index recorded an annual trading volume of $712.1 billion.
The surge in the performance of compliance carbon allowances has recently garnered considerable attention as an emerging asset class. Compliance carbon is rooted in cap-and-trade programs, or Emissions Trading Systems (ETS), which oversee emissions in mandated industries within specific jurisdictions. This has given rise to a novel investable asset class known as carbon allowances or carbon credits.
Governments in the EU, California, the US East Coast, and the United Kingdom have mandated participation in these programs, exercising control over the supply. Under this system, if a company emits 10 tons, they are required to purchase 10 credits. To encourage companies to transition to environmentally friendly practices, governments aim to raise the price of emissions gradually over time.
Through these few ETFs available on our CMC Invest platform, investors can gain access to the largest, most traded carbon allowance futures markets:
KRBN:US, KraneShares Global Carbon Strategy ETF: the global basket of the European Union, California, United Kingdom, and Northeastern US Regional Greenhouse Gas Initiative (RGGI) carbon allowance futures
KCCA:US, KraneShares California Carbon Allowance Strategy ETF: targeted exposure to the California carbon allowance futures
KEUA:US, KraneShares European Carbon Allowance Strategy ETF: targeted exposure to the European carbon allowance futures
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Disclaimer: CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.
