The second quarter of 2025 unfolded as a stress test for global carbon markets—and they held firm. KRBN had a positive quarter, appreciating 5.1% in Q2. The EU and UK carbon allowances (EUAs and UKAs) contributed positively, while California’s Cap-and-trade market (CCAs) detracted from the performance. The Regional Greenhouse Gas Initiative market (RGAs) and Washington’s Cap-and-invest market (WCAs) did not materially contribute to the performance. The quarter started with a tariff war launched on the “Liberation Day” (April 2), followed by President Trump’s executive order attacking states’ climate and emissions regulations, and ended with the Israel-Iran war in late June. While equity markets saw price swings nearly double to an annualized volatility of 30%, the global carbon market remained comparatively steadier, holding around the 25% level for the quarter.¹

This relative calm under pressure may reflect the increasing depth and structure of the carbon markets, which have shown signs of greater stability and resilience amid macro, political, and investment risks. In this Summer 2025 Carbon Quarterly Report, we examine the dynamics behind this performance across the five carbon markets included in the KraneShares Global Carbon Strategy ETF (Ticker: KRBN).

Global Carbon Market Highlights:

• European Union carbon allowances (EUAs) rebounded from tariff-driven turmoil and gained support from 2040 EU climate target progress
• California carbon allowances (CCAs) remained focused on market policy updates, saw relief rally with Executive Order in the rearview
• Northeast US power market (RGGI) boosted by cooling demand amid heatwaves and potential clean energy rollbacks
• Washington state carbon allowances (WCAs) saw strong auction results, legislature adopted bill to lower price ceiling
• UK carbon allowances (UKAs) rallied on renewed optimism around market linkage, market eyes next steps in post-Brexit alignment

1. Data from Bloomberg, as of 6/30/2025.