Carbon markets regained their momentum in the third quarter of 2025, led by a resurgence in California following the long-anticipated extension of its cap-and-trade program through 2045. This policy development removed a key policy overhang and reenergized market sentiment, sending California Carbon Allowances (CCAs) to their first positive quarter since 2023. KRBN advanced 9.6% in Q3, with strong contributions from both the European markets and California as four of five covered markets posted gains. Carbon allowances are proving their staying power as a resilient asset class, and investors and institutions alike are taking notice. The CFA Institute highlighted carbon as a key focus area in its 30-page report, Global Compliance Carbon Markets: Structure Explained. Meanwhile, Cambridge Associates published an analysis on the timeliness of California carbon investments, and Richard Sandor gave KraneShares a mention in his latest book, Carbon Hunters. In this Fall 2025 Carbon Quarterly Report, we examine the dynamics behind this performance across the five carbon markets included in the KraneShares Global Carbon Strategy ETF (KRBN).

Global Carbon Market Highlights:

• European Union carbon allowances (EUAs) advanced on regulatory momentum
  around the Carbon Border Adjustment Mechanism (CBAM), expected to be finalized by
  year-end
• California carbon allowances (CCAs) rallied on the passage of the landmark
  extension bill (AB 1207), providing a 20-year price signal with the extension of the
  state’s cap-and-trade program through 2045
• Northeast US power market (RGGI) traded sideways as the market digested mixed outcomes from the Third Model Rule, which establishes standardized guidelines for the allocation, trading, and compliance of carbon allowances across participating jurisdictions that will tighten caps but expand reserve tiers
• Washington state carbon allowances (WCAs) reached record highs amid tight
  supply and strong auction demand, with linkage work to California and Québec on
  track for 2026
• UK carbon allowances (UKAs) outperformed on progress toward potential EU
  linkage, narrowing the discount to EUAs

For KRBN standard performance, top 10 holdings, risks, and other fund information, please click here.