A new ETF was launched on the NYSE that gives investors exposure to carbon markets. The Carbon Strategy ETF (NYSE: KARB) is an actively managed thematic ETF that was launched on September 13th by Carbon Fund Advisors Inc.
It will provide investors with exposure to the global compliance carbon markets. The compliance carbon market is reported to have grown from €186 billion ($220 billion) in 2018 to €760 billion ($899 billion) in 2021.
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The Carbon Strategy ETF will invest in carbon credit futures contracts that are expected to increase in value over time.
The carbon credit futures contracts are commodity futures contracts linked to the value of emission allowances. Emissions allowances are usually issued by governments to give a right to companies/ industries to emit certain volumes of greenhouse gases.
A cap is set on the total annual greenhouse gas emissions generated by companies in countries that regulate emissions. The cap, or permitted emissions, declines annually to achieve the climate goals of the government.
Purchasers and suppliers of emissions allowances can trade them, which results in a market price for CO2.
Thanks to KARB, investors can now have the opportunity to invest directly into carbon allowance futures contracts that usually are hard to gain exposure to. They are mostly available only to those registered in an emissions trading scheme.
“While active futures markets can provide investors with exposure to certain compliance carbon markets, investing directly in carbon allowance futures contracts can be challenging because of the difficulties associated with gaining access to derivative markets. KARB is a potential solution for that issue because it opens the door to invest in a portfolio of carbon allowance futures at a time when global carbon prices are forecast to rise as the world aims to achieve the goals of the Paris Agreement,” said Tim Collins, a founder and president of Carbon Fund Advisors.
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KARB will initially hold futures contracts for carbon allowances in some of the most heavily traded carbon markets in Europe and North America like European Union Allowances, California Carbon Allowances, the US Regional Greenhouse Gas Initiative CO2 Allowances and the United Kingdom Emissions Trading Scheme (UK ETS).
As the world is trying to reduce emissions and tackle climate change, the price for emitting carbon is set to move on an upward trajectory in the long run. That creates opportunities for investors to profit from the dynamic carbon market while also boosting the industry of decarbonizing the economy.
