Informational only
This page explains how carbon funds work. It is not financial advice, and the products named are examples, not recommendations.
“Carbon credit ETF” is the name most people search for, but the products it describes rarely hold carbon credits in the offsetting sense. The products covered here track the price of allowances in government compliance markets. This page explains what they hold, how they track prices and what can go wrong. It is part of our invest section.
What do carbon ETFs hold?
Most carbon funds hold futures contracts on emission allowances, with cash and money market funds held as collateral. KraneShares’ KRBN, for example, tracks the S&P Global Carbon Credit Index, which covers EU, California, RGGI, UK and Washington State allowances, and invests through a Cayman Islands subsidiarySource 1.
A smaller group holds allowances directly. HANetf describes the SparkChange Physical Carbon EUA ETC as an exchange-traded commodity that is fully backed by physical EU allowancesSource 5. An allowance is a permit to emit, used by companies covered by a scheme such as the EU ETSSource 8. It is not a voluntary offset.
Examples of carbon allowance products
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| Product | Structure | Exposure | Stated annual cost |
|---|---|---|---|
| KraneShares Global Carbon Strategy ETF (KRBN, NYSE) | US-listed ETF holding futures | EU, California, RGGI, UK and Washington allowances | 0.91% total annual operating expense |
| KraneShares California Carbon Allowance Strategy ETF (KCCA, NYSE) | US-listed ETF holding futures | California allowances | 0.95% expense ratio |
| WisdomTree Carbon (CARB) | Collateralised ETC, synthetic (swap), Jersey | ICE EU allowance futures | 0.35% management fee plus 0.45% swap rate |
| SparkChange Physical Carbon EUA ETC (CO2) | ETC backed by physical allowances | EU allowances | 0.89% total expense ratio |
Sources: issuers' product pages and factsheet (KraneShares, WisdomTree, HANetf). Products available depend on your country and broker.As of Oct 2026
The figures come from each issuer’s own pagesSource 1Source 2Source 4Source 5. Check the latest prospectus or key information document before relying on them.
Where a product is listed affects who can buy it. KRBN and KCCA trade on the NYSESource 1Source 2. HANetf lists its physical EUA ETC on the London Stock Exchange, Borsa Italiana, Xetra and the Mexican stock exchange, in several currenciesSource 5. Your broker may not offer every listing.
How futures-based funds track prices
Futures expire, so a fund that wants continuous exposure has to sell contracts before they expire and buy later ones. FINRA calls this rolling the positionSource 6. When later contracts cost more than the ones being sold, a market said to be in contango, rolling can cause losses; when they cost less, it can add gainsSource 4.
WisdomTree’s factsheet for CARB says its price comes from three parts: the return on EU allowance futures, the roll yield, and a yield on the collateralSource 4. FINRA notes that futures-linked products can perform better or worse than the spot price of the commodity itselfSource 6. Over long periods that gap can growSource 6.
Physical and futures-based products compared
A physically backed product such as SparkChange’s holds EU allowances themselvesSource 5, so it doesn’t need to roll futures contracts, though it still charges an annual fee. A futures-based fund holds contracts with set expiry dates. KraneShares publishes KRBN’s holdings, which list allowance futures such as December contracts on EU and California allowances, alongside cash and money market fundsSource 1.
Check which kind you are looking at before comparing returns. A futures fund’s performance includes roll yield and collateral incomeSource 4, while a physical product follows the allowance price minus its costs.
Are carbon ETFs the same as offsets?
No. Most track compliance allowances, not voluntary credits. Voluntary credits are bought mainly to be retired, and once retired they can’t be recirculated or resoldSource 9. Owning fund units doesn’t retire any credits, and it doesn’t offset your emissions.
If your aim is to deal with your own footprint, carbon funds are the wrong tool. See voluntary vs compliance markets for how the two markets differ, and carbon registries for how retirement is recorded. If you do compare voluntary credits, our guides to CCP labels and carbon credit ratings explain how quality is judged. For the latest allowance auction prices, see our EU ETS price page.
Risks to understand
- Policy-driven prices. Allowance supply is set by governments; the EU cap is reduced every year in line with its climate targetSource 8. ESMA reported that EU allowance prices rose from €8 in January 2018 to a record €96 in February 2022, then fell below €70 in early March 2022Source 7.
- Roll costs. Futures-based funds can lag the allowance price when the market is in contangoSource 6.
- Fund closures. Small funds can shut. KraneShares’ European Carbon Allowance Strategy ETF (KEUA) stopped trading on the NYSE on 13 March 2026 and was liquidated on 20 March 2026Source 3.
- Structure. ETFs and ETCs are different legal structures. HANetf states that its physical EUA ETC is not a UCITS-compliant fund, and that investors’ capital is at riskSource 5.
- Currency. Allowance prices are set in their market’s currency, so returns in your own currency also depend on exchange rates.
Questions to ask about any carbon fund
- What exactly does it hold: futures, physical allowances or swaps?
- Which markets does it cover: EU, UK, California or a mix?
- What are all the costs, including swap or roll costs?
- How large is it, and what happens if it closes?
For the wider picture, see can you invest in carbon credits?. EU ETS allowances explains the market most of these products track, and how to sell carbon credits covers holders of voluntary credits.