UK climate tech company SparkChange launched the first physically-backed carbon exchange-traded commodity (ETC) last week. The listing was created in partnership with HANetf, Europe’s leading white label ETP provider and will be traded on the London Stock Exchange with the distinctive “CO2” ticker.
The SparkChange Physical Carbon EUA ETC has a dual mandate – preventing CO2 carbon emissions, while at the same time providing market access to a commodity that has seen a compound annual growth rate of 55% since 2018.
Through this solution investors gain exposue to regulated European Union carbon Allowances (EUAs) – colloquially known as “permits to pollute” – and the opportunities they present, without the necessity to build their own infrastructure and systems, that are requirements (and barriers) to accessing the carbon allowances market directly.
Elliot Waxman, CEO of SparkChange, commented on the launch: “Carbon is now a physically-backed, investible instrument on the London stock exchange. This gives investors convenient access to a product that is designed to stop carbon emissions and boost returns.
“Unlike carbon offsets, where investors must choose between creating environmental impact or achieving returns, they can now do both. 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”.
SparkChange offering the definitive 21st century commodity?
Dan Barry, chairman of SparkChange seems even more bullish and added: “In the future, financial markets will come to see the 21st century carbon price as more important for prosperity than the oil price was in the 20th century.”
The claim that this financial instrument helps with reducing carbon emissions is based on two studies (“Emissions trading with rolling horizons” by Simon Quemin and Raphael Trotignon and research from Independent Commodity Intelligence Services).
The conclusion from both is that withholding one EUA for ten years, then reintroducing the EUA back into the market, permanently prevents between 0.82 and 1.48 tonnes of CO2 entering the atmosphere. Since SparkChange C02 withholds physical EUAs, the same quantifiable level of CO2 prevention is achieved via an investment in the newly-launched ETC.
An additiona benefit is the inherent scarcity of the EUAs. To cap pollution on the continent, the EU Commission automatically reduces the supply of EUAs each year in order to decrease emissions over time, creating upward price pressure and generating scarcity value. As each unit of SparkChange CO2 is physically-backed by one EUA, an increase in the price of EUAs would directly benefit investors.