KraneShares Debuts Carbon Offset ETFs

KraneShares has launched two new ETFs aimed at providing exposure to the carbon offset futures markets in California, Quebec and in Europe.

The KraneShares European Carbon Allowance ETF (KEUA) and the KraneShares California Carbon Allowance ETF (KCCA) both launched on the NYSE Arca Tuesday with expense ratios of 0.79%.

KEUA and KCCA aim to track the price of carbon offset futures contracts in the European Union and in California, which is a combined market between the state and Quebec due to an agreement made in 2014. The funds are both actively managed but aim to track indexes from IHS Markit following those futures markets.

The carbon offset contracts are the product of “cap and trade” policies in those areas. Under that system, regulated entities like energy producers are limited to releasing whatever amount of carbon permits they've acquired through the market.

Europe and California are both in the midst of potentially tightening the amount of carbon offsets they issue into their respective markets. The EU Commission is aiming to cut its emissions by at least 55% by the end of the decade and go carbon-neutral by 2050, while California is reviewing how much of an expanded role its carbon market may play in its aim to reduce emissions by 40% between 2016 and 2026.

The two new funds are effectively localized versions of the KraneShares Global Carbon ETF (KRBN), which uses the same strategy but aims to replicate a combined index of carbon offset prices in California, the European Union and the Regional Greenhouse Gas Initiative that covers 11 states in the Northeastern U.S.

KraneShares Managing Director Luke Oliver said investor demand for exposure to specific carbon markets drove the decision for the two launches today. He also said KraneShares may consider launching an ETF following RGGI contracts depending on the liquidity of trading down the line.

KRBN has the same 0.79% expense ratio as KEUA and KCCA, and currently has $926 million in assets under management.

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