In one of its last rulings before its recess, the Supreme Court struck down the Environmental Protection Agency’s ability to regulate emissions from power plants under the Clean Air Act.
The Supreme Court ruled that the EPA doesn’t have the authority as an agency to create emissions caps, and instead, the regulation must be mandated by Congress who then will direct the EPA to enforce those regulations. The ruling was 6-3, and while it does limit the EPA’s authority, it isn’t an end-all to climate change progress.
“We’re seeing significant emission reduction goals and targets put out by companies, and the utility sector is transitioning away from those older and dirtier sources of pollution. And so while it is disappointing, and certainly will have an impact, it doesn’t preclude either federal government or state or local government action on climate change,” Jonathan Skinner-Thompson, associate clinical professor at Colorado Law, director of the Getches-Green Natural Resources, Energy & Environmental Law Clinic, and former EPA attorney told the Colorado University Boulder Today.
The California carbon market remains unaffected because it is currently regulated by state law, and the state has committed to fighting the ruling by the Supreme Court. While the EPA had previously granted California waivers that allowed higher emissions standards than the federal mandate with net-zero goals set for 2045, KraneShares believes that these waivers have very low odds of being revoked.
“Any time federal power to regulate climate change is constrained, state power gets more important. California has always been a leader in the fight against climate change, and I expect that will continue and become even more crucial,” said Cara Horowitz, co-executive director of the Emmett Institute on Climate Change and the Environment at UCLA School of Law, in a UCLA interview.
The KraneShares California Carbon Allowance ETF (KCCA) offers targeted exposure to the joint California and Quebec carbon allowance markets.
KCCA is a fund that offers exposure to the California cap-and-trade carbon allowance program, one of the fastest-growing carbon allowance programs worldwide, and is benchmarked to the IHS Markit Carbon CCA Index. The CCA includes up to 15% of the cap-and-trade credits from Quebec’s market.
The index measures a portfolio of futures contracts on carbon credits issued by the CCA and only includes futures with a maturity in December in the next year or two while using a wholly-owned subsidiary in the Cayman Islands to prevent investors from needing a K-1 for tax purposes.
The fund may also invest in emission allowances issued under another cap-and-trade system, futures contracts that aren’t carbon credit futures, options on futures contracts, swap contracts and other investment companies, and notes that aren’t necessarily exchange traded.
KCCA carries an expense ratio of 0.79%.
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