Some of the world’s largest emissions trading systems are currently going through unique periods of reform. These programs are controlled by governmental regulatory bodies, that function in a similar capacity as a central bank. The regulators control the supply of allowances in the system, ensuring the cost of emissions does not rise too quickly to negatively impact the economy but also rises fast enough that it incentivizes emissions reductions aligned with various carbon targets. 

Regulators periodically reassess the cap-and-trade program to ensure it aligns with the state’s updated emission reduction goals. Carbon traders follow these regulatory changes closely, much like investors and economists track changes in interest rate policies. This review process tends to introduce some volatility, especially when there are delays and a lack of clarity around reform updates, similar to how uncertainty over interest rates can impact overall market sentiment. At the same time, we see this window as a strategic opportunity for these markets at current price levels before the policy tightening is fully priced in.

In this Fall quarterly report, we cover all the latest reform updates and other macroeconomic developments shaping the four largest compliance carbon markets in the KraneShares Global Carbon Strategy ETF (KRBN). Thanks for reading, and please follow our weekly blog for ongoing market and policy updates.

Report Contents Include:

• Q3 KRBN Commentary
• Correlations, Performance, Contango
• Supply/Demand Modeling
• European & California Carbon Investment Fund Positioning

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