SparkChange launches world-first physical carbon ETC
Nov 4, 2021
- First ever Exchange-Traded Commodity physically-backed with carbon allowances launches today
- “SparkChange CO2” prevents carbon emissions by withholding carbon allowances from polluters
- Tradable instrument creates positive environmental impact while capturing potential price increases
SparkChange, a climate tech company, has launched the world’s first physically-backed carbon exchange-traded commodity (ETC), listing today on the London Stock Exchange (LSE).
SparkChange Physical Carbon EUA ETC (Ticker: CO2.L), also known as SparkChange CO2, prevents carbon emissions while providing access to one of the best performing commodities over recent years.1
This product provides investors with exposure to regulated European Union carbon Allowances (EUAs) without needing to build the complex and costly infrastructure required to access that market directly and take delivery of the carbon allowances.
Unlike solutions that try indirectly to limit carbon emissions – such as buying offsets, excluding dirty stocks, or buying products based on EUA futures – SparkChange CO2 specifically prevents carbon emissions from being emitted, creating measurable environmental impact.
Elliot Waxman, CEO of SparkChange, comments 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”.
Dan Barry, chairman of SparkChange, adds: “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.”
How SparkChange CO2 reduces carbon emissions:
An EUA is a “permit to pollute 1 tonne of CO2”. Each unit of SparkChange CO2 is physically-backed by one EUA2. The EUAs held within the ETC structure cannot be used by polluters, ensuring direct and positive environmental impact.Two independent studies conclude 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.3 Since SparkChange C02 withholds physical EUAs, the same quantifiable level of CO2 prevention is achieved via an investment in the newly-launched ETC.
How SparkChange CO2 creates value for investors:
To cap pollution in Europe, 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.
As a result, EUAs are one of the best performing commodities of the last five years, providing a compound annual growth rate of 55% since 2018.4
SparkChange CO2 also avoids the performance drag associated with EUA futures-based products. This drag (known as “contango”) erodes the value of a futures-based investment over time, at the expense of the investor, and has recently been 50-130bp a year. Historically, it has been much higher5. As SparkChange CO2 uses physical EUAs rather than futures, investors will not suffer from this effect.
SparkChange CO2 was created in partnership with HANetf, Europe’s leading white label ETP provider.
Nik Bienkowski, CEO of HANetf, concludes: “Investors need as many ways as possible to decarbonise their portfolios – and we’re proud to be a partner in this new and groundbreaking development. Exchange-traded products have an enormous role to play in tackling the climate crisis and energy transition – and now investors can use an ETC to access the physical market for carbon itself.”
* Past performance is not indicative of future results
1 Wall Street Journal
2 Adjusted for management fees accumulated since launch
3 Based on MSR withdrawal rates, LSE carbon market model and ICIS research paper
4 Source: EEX
5 Source: EEX settlement prices as 1st Sept 2020: Dec20 futures = €27.75, Dec21 futures = €28.11, or circa 1.30% contango for the year; as at 1st Sept 2021: Dec21 futures = €60.12, Dec22 futures €60.42, or circa 0.50% contango for the yearPartners and advisors in the launch of SparkChange CO2 included; Solactive, Barclays, State Street and HANetf (see below).
About HANetf
HANetf is an independent white label ETF and ETC platform. The company enables specialist market experts, technology providers and asset managers to bring innovative investment ideas to European investors.