SparkChange has launched the world’s first physically-backed EU Carbon Allowances (EUAs) exchange-traded product (ETP).

The SparkChange Physical Carbon EUA ETC (CO2) is listed on the London Stock Exchange with a total expense ratio (TER) of 0.89%.

Physically backed, CO2 tracks the price of EUAs which offer investors exposure to the “permits to pollute” that the European Commission (EC) forces companies to obtain as a cost of their polluting business activities.

The EC also automatically reduces the issue of future EUA issues each year to decrease emissions over time. In fact, EU law dictates holding the allowances for 12 months causes additional permits to be cancelled in future years.

This creates the potential for upwards price pressure, HANetf said, who are partnering with SparkChange to launch CO2, with the price of EUAs surging 192% in the past three years because of market reforms.

Offering physical redemption means CO2 also avoids some of the negatives associated with futures-based products, including counterparty risk, the cost of rolling contracts and underperformance when the market is in contango.

Commenting on the launch, Elliot Waxman, CEO of SparkChange, said: “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, CO2 can help investors meet their environmental goals without having to exclude companies that are not yet green.”

Nik Bienkowski, co-CEO of HANetf, added: “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, and the contango costs of carbon futures.”

Previously, Bienkowski was part of the team that issued Europe’s first futures-based carbon credit ETF in 2008. The strategy was then taken on by WisdomTree as part of its $611m acquisition of ETF Securities in 2018.

Having been forced to shut in June 2020 due to its swap counterparty terminating the purchase agreement, the WisdomTree Carbon (CARB) re-launched in August this year.

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