Investing in Europe�s Carbon Allowances Drives Change

The European Union has announced its latest round of investments into major clean-tech projects via the Innovation Fund, issuing grants of €1.8 billion. The 17 large-scale projects are on the cutting edge of innovation in reducing greenhouse gas emissions while still being at a developmental stage that they will be able to scale and deploy in a cost-effective manner.The grants target improvements in some of the most energy and emission-intensive industries such as cement, chemicals, refineries, production of green hydrogen, and manufacturing parts for renewable energy and energy storage.Funding for the grants comes from the EU Emissions Trading System, the EU’s cap-and-trade system, with €38 billion guaranteed from the EU ETS until 2030. The projects funded are helping to drive the energy and emissions transition and look to ultimately put EU companies at the forefront of their industries as technology leaders worldwide.“The Innovation Fund is an important tool to scale up innovations in renewable hydrogen and other solutions for European industry,” said EU executive Vice-President Frans Timmerman in the press release. “Compared to the first disbursement round, the funds available have increased by 60%, enabling us to double the number of projects supported. This is a big boost for the decarbonization of energy-intensive industry in the European Union.”The KraneShares European Carbon Allowance ETF (KEUA) offers targeted exposure to the EU carbon allowances market and is actively managed.The fund’s benchmark is the IHS Markit Carbon EUA Index, an index that tracks the most-traded EUA futures contracts, a market that is the oldest and most liquid for carbon allowances. The market currently offers coverage for roughly 40% of all emissions from the EU, including 27 member states and Norway, Iceland, and Liechtenstein. The annual cap reduction was recently increased from 2.2% to 4.2% to meet long-term carbon emission targets.As the fund is actively managed, it may invest in carbon credit futures with different maturity dates or weight futures differently from the index. The fund potentially trades in CTFC-regulated futures and swaps above the CFTC 4.5 limit and is therefore considered a “commodity pool.”KEUA has an expense ratio of 0.79%.For more news, information, and strategy, visit the Climate Insights Channel.

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