SparkChange and HANetf have launched the world’s first ETP backed by physical EU carbon allowances (EUAs) on the London Stock Exchange.
The SparkChange Physical Carbon EUA ETC (Ticker: CO2) is designed to provide investors with an easier way to invest in physical EU carbon allowances, or “permits to pollute” that the EU Commission forces industrial emitters to obtain to cap the level of pollution in Europe.
As polluters and investors compete for a supply of EUAs, investors will be able to reduce the amount of EUAs in the marketplace available to polluters. This is likely to have the effect of increasing scarcity and upward price pressure until they are too expensive for polluters, incentivising the polluters to switch away from using dirty fossil fuels to cleaner energy. This gives investors not only an opportunity to participate in on the top performing commodities of recent years, but in a new product that can actively contribute to decarbonisation.
SparkChange Physical Carbon EUA ETC (Ticker: CO2) is backed by physical allowances and thus tracks the price of EUAs (excluding fees).
EUAs are increasing in scarcity value, contributing to upward price pressure. The EU Commission automatically reduces the issue of future allowances each year in order to decrease emissions over time, with the potential to create upward price pressure and drive scarcity value. Under EU law, holding EUAs for 12 months triggers additional permits being cancelled in future years adding to further scarcity and removing EUAs from polluters. EUAs valuations have risen more than 192 per cent in the last three years on the back of market reforms and are one of the top performing commodities of recent years.
With SparkChange CO2, each unit is physically-backed by one EUA. EUAs are physically withheld which prevents industrial firms from using that EUA to pollute, creating a positive environmental impact. This not only ensures that SparkChange CO2 is always backed by physical EUAs, but also ensures that there are fewer EUAs available for polluting companies to purchase.
This can have the effect of increasing the price of EUAs, making pollution more expensive, and thus potentially increasing the rate at which polluting industries switch to cleaner technologies. The firm writes that EUAs are also recognised as “valid” to achieve global net zero emissions targets by organizations including the Paris Aligned Investment Initiative and IIGCC.
Elliot Waxman, CEO of SparkChange, says: “Carbon is now a physically-backed, investible instrument on the stock exchange. This gives investors convenient access to a product that is designed to stop carbon emissions and boost returns. When constructing a low-carbon portfolio, SparkChange CO2 can help investors meet their environmental goals without having to exclude companies that are not yet green”.
Currently, buying physical permits for carbon allowances is very difficult for investors. SparkChange CO2 has been designed to overcome the issues of investing in the physical carbon allowance market such as the complexity of opening an EUA registry account.
Nik Bienkowski, Co-CEO of HANetf says: “The SparkChange Physical Carbon EUA ETC (CO2 ETC) is a ground breaking way for investors to participate in the EU carbon emission allowance market, helping to decarbonise the earth and help revolutionise the way asset managers meet their net zero goals.