Global carbon credit ETF lists in the US

Sep 16th, 2022 | By | Category: Commodities

Carbon Fund Advisors has launched an ETF in the US providing exposure to cap-and-trade carbon allowances traded globally.

Global carbon credit ETF lists in the US

The ETF provides exposure to carbon credits issued globally.

The Carbon Strategy ETF (KARB US) has been listed on NYSE Arca.

In a typical cap-and-trade regime, 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 incrementally scaling back the number of allowances over time, cap-and-trade regimes represent a powerful policy tool for achieving ambitious climate targets such as those set out by the Paris Agreement.

For investors, as well as delivering exposure to the energy transition economy, carbon credits have historically exhibited a low correlation to traditional asset classes such as equities and fixed income, offering the potential to enhance portfolio diversification.

While the ETF is actively managed, it generally follows the performance of the Carbon Streaming BITA Compliance Index. The index consists of carbon allowance futures contracts in some of the most heavily traded carbon markets located in Europe and North America including European Union Allowances (EUA), California Carbon Allowances (CCA), and the Regional Greenhouse Gas Initiative (RGGI) CO2 Allowances.

The ETF comes with an expense ratio of 0.75% which is slightly cheaper than the largest global carbon credit ETF in the US – the $820m KraneShares Global Carbon Strategy ETF (KRBN US) – which costs 0.78%.

Tim Collins, Founder and President of Carbon Fund Advisors, said: “There is a growing global push to regulate and reduce greenhouse gas emissions in an effort to combat climate change, and emissions trading systems can be an effective tool for governments across the globe to achieve their climate goals.

“Most investors do not have access to directly buy and sell carbon allowances in these systems. While active futures markets can provide investors with exposure to certain compliance carbon markets, investing directly in carbon allowance futures contracts can be challenging because of the difficulties associated with gaining access to derivative markets. The Carbon Strategy ETF is a potential solution for that issue because it opens the door to invest in a portfolio of carbon allowance futures at a time when global carbon prices are forecast to rise as the world aims to achieve the goals of the Paris Agreement.”

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