How to Invest in California’s Newest Carbon Reduction Plans


The California Air Resources Board has finally released its draft of the 2022 Scoping Plan Update that will see net-zero carbon emissions reached by 2045, plans that have been in the works for a year, reported Reuters.

The plans are expected to be finalized by the end of 2022 and include an analysis of greenhouse gas emissions reductions that aim to be 40% below levels from 1990 by 2030. The update is a regularly scheduled one as the original bill (the California Global Warming Solutions Act of 2006) requires that it be updated every five years to stay on the frontline of technological advancements and capture the best cost-effective solutions.

The 2022 draft has taken place throughout droughts, wildfires, and extreme heat that California experienced in the last year. It lays out a multi-sector transformation to achieve emissions reductions, targeting the industrial and transportation sectors in particular. Also added to the update this year was including carbon dioxide removal in dealing with “residual emissions” in all sectors.

The California emissions cap-and-trade program has been the beneficiary strengthening from these kinds of updates in the past and will benefit from increased regulatory support of California’s emissions transition.

Cap-and-trade programs, and the associated carbon allowance markets, work on the premise that the cost of emitting harmful greenhouse gases is only going to increase for companies and industries in a world focused on decarbonization. The KraneShares California Carbon Allowance ETF (KCCA) offers targeted exposure to the joint California and Quebec markets.

KCCA is a fund that offers exposure to the California cap-and-trade carbon allowance program, one of the fastest-growing carbon allowance programs worldwide, and is benchmarked to the IHS Markit Carbon CCA Index. The CCA includes up to 15% of the cap-and-trade credits from Quebec’s market.

The index measures a portfolio of futures contracts on carbon credits issued by the CCA and only includes futures with a maturity in December in the next year or two while using a wholly-owned subsidiary in the Cayman Islands to prevent investors from needing a K-1 for tax purposes.

The fund may also invest in issue allowances issued under another cap-and-trade system, futures contracts that aren’t carbon credit futures, options on futures contracts, swap contracts and other investment companies, and notes that aren’t necessarily exchange traded.

KCCA carries an expense ratio of 0.79%.

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