KraneShares’ California carbon allowance ETF is rallying this week.
The KraneShares California Carbon Allowance ETF (KCCA) Is up 3.7% in the past week, lifting its year-to-date total return to 27%. The purchase of voluntary carbon credits aims to increase in coming years because California recently enacted the first mandatory climate emissions disclosure laws in the U.S.
The state’s new climate disclosure laws require businesses operating in California with annual revenues exceeding $1 billion to disclose their direct and indirect emissions. Some 5,300 companies must comply with this new mandate when it goes into effect in 2026, according to KraneShares.
This mandate represents the U.S.’ most comprehensive corporate climate emissions disclosure laws to date. California-based heavyweights including Apple and Microsoft, and Salesforce endorsed the rule.
Straightaway, the emissions scope includes anything from building operations to employee business travel to product shipping and transport, KraneShares wrote. Thereafter, downstream value-chain emissions from a company’s suppliers (Scope 3 emissions) will be added in 2027.
See more: “Climate ETFs Are a Long-Term Play”
Under the Hood of KraneShares’ California Carbon Allowance ETF
KCCA provides exposure to the California Carbon Allowances cap-and-trade carbon allowance program. The program is the largest carbon cap-and-trade market in the U.S. It addresses roughly 75% of its 300 million ton carbon footprint, according to KraneShares.
A carbon allowance is sometimes known as a carbon credit. It is a government-issued permit, representing the legal right to emit one metric ton of carbon dioxide or equivalent greenhouse gas.
The carbon cap-and-trade market is designed to lower emissions by 5% per year from 2021 to 2030. Furthermore, between 2015 and 2020, the program reduced greenhouse gas emissions by around 3% a year, according to C2ES.
Additionally, investors can complement KCCA with the KraneShares European Carbon Allowance Strategy ETF (KEUA). KEUA offers exposure to the European Union Allowances (EUA) program, which is the world’s oldest and most liquid carbon allowance market.
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