NYSE: CTWO

Individual Shares will not be redeemed by the
Trust, but are listed for trading on NYSE Arca, Inc. (the “Exchange”) under the symbol “CTWO.” Shareholders will
take no part in the management or control of the Trust and will have no voting rights with respect to the Trust, except as expressly provided
for in the Trust Agreement. The Trust is not a registered investment company under the Investment Company Act of 1940, as amended
(“1940 Act”), and is not required to register with the Securities and Exchange Commission thereunder (the “SEC”).
The Trust is not a commodity pool for purposes of the Commodity Exchange Act of 1936, as amended, and the Trust and the
Sponsor are not subject to regulation by the Commodity Futures Trading Commission as a commodity pool operator or a commodity trading
advisor.

State Street Bank and Trust Company serves as
the Trust’s Transfer Agent, administrator (the “Administrator”) and cash custodian (the “Cash Custodian”).
Foreside Fund Services, LLC serves as the Trust’s marketing agent (the “Marketing Agent”).

Trust Objective

The investment objective of the Trust is for the
Shares to reflect the performance of the price of EUAs, less the expenses of the Trust’s operations. The Trust intends to achieve
this objective by investing substantially all of its assets in EUAs. The Trust will invest in EUAs on a non-discretionary basis (i.e.,
without regard to whether the value of EUAs is rising or falling over any particular period). As a result, the Trust will not attempt
to speculatively sell EUAs at times when its price is high or speculatively acquire EUAs at low prices in the expectation of future price
increases, nor will the Trust attempt to avoid losses or hedge exposure arising from the risk of changes in the price of EUAs.

EUAS and the EUA Industry

The following is a more complete description of EUAs, including, without
limitation, information about the history of EUAs, the EU ETS, and the global carbon credit market.

1

Description of EU Emissions Trading
Scheme

Background of EU Emissions
Trading Scheme

The EU ETS is a “cap and trade” system.
It caps the total volume of Green House Gas (“GHG”) emissions from installations and aircraft operators responsible for around
40% of European Union (“EU”) GHG emissions. While the cap was previously set “bottom-up” from the relevant national
allocation plans, since 2013 it has been set centrally by the EU which applies EU-wide.

The EU ETS is administered by the European Commission,
the executive branch of the EU, which issues a predefined amount of emission allowances through auctions or free allocation. Every year,
this amount decreases slightly, with the objective that emissions are forced to reduce over time.

The system allows trading of emission allowances
so that the total emissions of the installations and aircraft operators stay within the cap and the lowest cost measures can be taken
up to reduce emissions. The EU ETS is a major tool of the EU in its efforts to meet emissions reductions targets now and into the future.
The trading approach helps to combat climate change in a cost-effective and economically efficient manner. As the largest emissions trading
system for reducing GHG emissions, the EU ETS (together with the linked systems in Norway, Switzerland, Iceland and Lichtenstein) covers
more than 11,000 power stations and industrial plants in 31 countries, and flights between airports of participating countries.

In 2012, EU ETS operations were centralized into
a single EU registry operated by the European Commission (the “Union Registry”). The Union Registry covers all countries participating
in the EU ETS.

Types of EU Emissions Allowance

There are two types of EU emissions allowance:
(i) EUAs; and (ii) allowances for the aviation sector (“EUAA”). The Trust intends to hold EUAs only.

An EUA represents the right to emit one metric
ton of CO2 equivalent (tCO2e) into the atmosphere by operators of stationary installations (“Covered Entities”). By the end
of April each year, all Covered Entities are required to surrender EUAs equal to the total volume of actual emissions from their installation
for the last calendar year. EU ETS operators can trade (buy and sell) EUAs to achieve EU ETS compliance.

The cap of the total volume of GHG emissions for
Covered Entities will decrease each year by a linear reduction factor. The cap for 2013 from stationary installations was set at 2,084,301,856
allowances. During Phase III, this cap decreased each year by a linear reduction factor (“LRF”) of 1.74% of the average total
quantity of allowances issued annually in 2008-2012. This amounts to a reduction of 38,264,246 allowances each year.

The linear reduction factor was set in line with
the EU-wide climate action targets for 2020 — the overall 20% emissions reduction target and the EU ETS sector-specific 21% emissions
reduction target relative to 2005.

In Phase IV, the cap on emissions is subject to
an annual linear reduction factor of 2.2% and will increase to 5.1% beginning in 2024 and 5.38% beginning in 2025 in accordance with the
EU’s Fit for 55 initiative (the “Initiative”), which refers to a set of recently adopted laws and regulations aimed
at reducing the EU’s net GHG emissions by at least 55% by 2030. This gradual reduction in the carbon allowances will be effected
by a corresponding reduction in the amount of EUAs made available at auction. The amount of EUAs that are removed from an auction, up
to 400 million EUAs, are placed in a Market Stability Reserve (“MSR”) (discussed in greater detail below) for a twelve-month
period. Regardless, the number of EUAs available each year will decrease slightly but will have a negligible impact on the availability
of EUAs in the open market. This is because the gradual decrease in “issued” EUAs is and will likely be offset by Covered
Entities adjusting their operations to emit fewer GHGs which will decrease the amount of EUAs Covered Entities are required to surrender
each year. In addition, in any year, if the total number of EUAs in circulation is less than 400 million, 100 million allowances shall
be released from the MSR and added to the volume of allowances to be auctioned. If the MSR has fewer than 100 million EUAs in reserve,
all allowances in reserve shall be released. The Sponsor believes that there is sufficient liquidity in the daily EUA spot and futures
markets to enable the creation and redemption of Baskets by Authorized Participants without difficulty even with the gradual annual, limited
decrease in supply of EUAs.

2

Compliance Phases

The EU ETS was developed with five phases of adoption,
each phase having slightly more restrictive processes and procedures designed to gradually reduce the amount of greenhouses gasses emitted
throughout the EU:

Phase I (2005 – 2007) only covered
power generators and energy-intensive industries. Virtually all allowances were given to businesses for free during this period. The only
cost imposed was a €40/ton fine for noncompliance.

Phase 2 (2008 – 2012) saw free allocations
drop to 90%, with auctions being held for the non-freely distributed allowances. There were also 6.5% fewer allowances granted and the
noncompliance penalty rose to €100/ton. During this period, Iceland, Liechtenstein, and Norway joined the EU ETS. The aviation industry
was also brought under the auspices of the EU ETS. In an effort to ease tracking of and help facilitate trading, the Union Registry replaced
national registries in order to consolidate records of ownership. The empirical data collected through these two phases helped guide the
reforms instituted for future phases.

Phase 3 (2013 – 2020) included a number of key reforms:

● A single, EU-wide cap on emissions rather than a system of national caps;

● A transition to virtually all allowances being auctioned rather than freely distributed;

● Inclusion of more sectors of the economy and more types of emissions covered;

● Creation of the NER 300 Programme which set aside 300 million allowances to fund the deployment of technologies
in renewable energy and carbon capture; and

● The creation of the MSR, the goal of which is to aid in the maintenance of an orderly market for allowances.
The MSR adjusts auction supply according to how many allowances are in circulation. Every year the EU publishes the total net allowances
in circulation (“TNAC”). On May 12, 2022, the European Commission published that the TNAC was 1,449,214,182. If the allowance
surplus exceeds or drops below certain predetermined levels, the number of EUAs auctioned the following year are adjusted.

Phase 4 (2021 – 2030) includes a
goal of at least a 55% net reduction in greenhouse gas emissions by 2030. In July of 2021, the European Commission adopted a series of
proposals describing how it intends to reach this benchmark, which will require all sectors covered by the EU ETS to reduce their emissions
by 43% compared to 2005 levels. One of the key paths to reaching this goal is to cut the overall number of allowances issued each year.
This process is known as the “LRF”. The Phase 4 LRF is set at 2.2% per year. It is possible that the LRF could be adjusted
higher to 4.2% per year in order to meet the more ambitious EU 2030 emission reduction goals as set forth in the Initiative.

Source: REPORT FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT AND THE

COUNCIL, Report on the functioning of the European carbon market, November 18, 2020

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0740&from=EN:
p. 12

3

Auctioning

Depending on the sector, the transition to auctioning has taken place
progressively. According to the Joint Procurement Agreement, 28 Countries (25 EU member states plus Liechtenstein, Norway, and Iceland)
use a common platform called the European Energy Exchange (“EEX”) to conduct their regularly scheduled auctions. Germany and
Poland have opted out of the common auction but also utilize the EEX for auctions. These auctions take place on a regularly scheduled
basis; the number of allowances being auctioned is disclosed on a schedule prior to auction.

Since 2013, power generators must buy all
their allowances, with exceptions for some countries. The manufacturing industry received 80% of its allowances for free in 2013.
This proportion decreased gradually annually to 30% in 2020, with the exception of sectors that were deemed to be exposed to carbon
leakage. Carbon leakage refers to the situation that may occur if, for reasons of costs related to climate policies, businesses were
to transfer production to other countries with less restrictive emission constraints. This could lead to an increase in their total
emissions. The risk of carbon leakage may be higher in certain energy-intensive industries. Consequently, to safeguard the
competitiveness of industries covered by the EU ETS, the production from sectors and sub-sectors deemed to be exposed to a
significant risk of carbon leakage receives a higher share of free allowances compared to the other industrial installations. A list
of such sectors is published by the European Commission. 15% of the allowances in circulation in the aviation sector are
auctioned.

While the overall auction volume is written into law, the actual annual
auction volume varies significantly:

a. The MSR adjusts auction supply based on the surplus of allowances
in the market. Every year, the European Commission assesses the TNAC. If the allowance surplus exceeds 833 million allowances, 24% (as
of 2031: 12%) of that surplus is withdrawn from auctions over the next 12 months and placed in a reserve. If the surplus drops below
400 million allowances, the auction volume of the next 12 months is increased by 100 million allowances until the reserve is depleted.
In connection with the Initiative (discussed above), the MSR was reformed to provide that, if the allowance surplus is between 833 million
and 1.096 billion, then the number of allowances equal to the difference between the TNAC and 833 million will be withdrawn from auctions
over the next 12 months and placed in a reserve, and if the allowance surplus exceeds 1.096 billion allowances, then 24% (as of 2031:
12%) of that surplus is withdrawn from auctions over the next 12 months and placed in a reserve. The reforms set the number of allowances
that can be held in the MSR at 400 million, with any surplus allowances being cancelled. The reforms also mandate
the release of 75 million allowances to the extent that the average allowance price for the preceding six calendar months is more than
2.4 times the average allowance price at auctions for the preceding two year period. The mandatory release provision is only available
once every 12 months.

b. For administrative reasons, some countries are forced to delay the sale of allowances, e.g. because they failed to appoint an auctioneer
in time.

c. Some allowances are earmarked for special purposes such as financing low carbon technology innovation. The monetization of such allowances
(and therefore the timing of these sales) can vary over time.

d. In the case that not all allowances that are earmarked for free allocation are indeed issued, the remaining volume is auctioned towards
the end of a trading period.

In order to participate directly in an EUA auction on the EEX, one
must be a:

● Compliance buyer;

● Investment firm or credit institution;

● Business grouping of compliance buyers; or

● Other intermediary specifically authorized by the home member state.

4

Major Holders
and Allowance Use Cases

There is limited publicly available data on individuals or individual
organizations’ holdings in physical carbon allowances. Primarily, carbon allowances are held for three different use cases:

a. Complying with the EU ETS: Companies that need to surrender allowances under the EU ETS hold allowances to surrender them annually.
These positions are typically built over time and ultimately surrendered at time of compliance. Therefore, the largest emitters in the
EU ETS hold a significant amount of allowances, which include entities such as large utilities with a substantial share of fossil fuel
fired power plants, cement companies, steel producers, chemical producers, oil and gas majors and airlines.

b. Providing financial services for hedging purposes or speculation, such as clearing houses for the EEX or the Intercontinental Exchange
(ICE), or banks holding allowances for their clients.

c. Trading on and speculating around price moves, using physical emission allowances. This can take many forms, including “yield
trades”, which includes holding a physical allowance and selling an EUA future at a premium to gain the yield in the forward curve;
or outright positions for short term or long term speculation.

In addition to holding physical allowances, there is a liquid secondary
futures and options market that is primarily used for hedging future emissions or speculating. Active players include large compliance
entities, investment banks and hedge funds.

Trading EU Allowances

Transactions in allowances in the EU ETS take
place between accounts in the Union Registry. Actors in the EU ETS first need to open an account with the Union Registry to be able to
perform any transactions in EU allowances. Accounts can be held by individuals and by organizations, although the precise rules (e.g.
around account holder domicile) depend upon the specific national registry approached by the applicant.

Transfer instructions are given electronically
by an authorized representative of the transferring account, which indicates the number of allowances to be transferred and the details
of the recipient’s account. These instructions for the physical transfer are generally given after a trade has been confirmed and
approved by both parties, either over-the-counter or on an exchange.

Transferring allowances from a holding account to another account is subject to a 26- hour delay for security reasons.
Holding accounts can only transfer allowances to other accounts on their trusted account list. Authorized representatives (natural persons)
of the account holders can add new trusted accounts to their list after a security delay of seven days.

However, trading accounts have more flexibility and allow transfers
without delay to accounts on the trusted account list and with a 26- hour delay when transferring to accounts not on the list. In contrast,
transfers to accounts not on the list are not permitted for holding accounts.

Any transaction is also subject to a two-factor authentication process
(signature process): all transfer instructions must be confirmed with a code that is sent via a text message to the registered mobile
phone of the account representative initiating the transaction in the Union Registry.

There are times at which the Union Registry is
inaccessible for scheduled or unscheduled maintenance, during which no transactions can be initiated.

5

Trading Location

The EU ETS is linked to small emissions trading systems in Europe (Norway,
Switzerland, Iceland and Liechtenstein), but not to any other major cap and trade markets. Therefore, allowances handed out in the EU
ETS are not transferable to any registry outside of the EU ETS, and cannot be used for compliance in any other cap and trade market.

There
are a number of other trading systems globally, and like the EU ETS, no allowances of any of these systems can be used in any other system:

a. Western Climate Initiative (WCI): The US state of California and the Canadian province Quebec created a linked cap and trade market,
that covers >80% of emissions.

b. Regional Greenhouse Gas Initiative (RGGI): a group of US east coast states created a linked market that covers power generators only.

c. The China National ETS: Technically not a cap and trade scheme (as the amount of allowances is not fixed but calculated according
to historic production of units), this system is poised to be the world’s largest carbon market. In early 2021, it includes only
coal fired power generation and all allowances are handed out for free, but the regulator plans to expand the scope and reduce the share
of free allocation.

d. South Korea ETS: A comprehensive market covering the majority of Korean emissions

On top of such (multi)national approaches, the Paris Agreement aims
at establishing a global carbon market between countries. However, the details are yet to be defined.

Registry Accounts

The Union Registry is an online database that holds accounts for Covered
Entities, for aircraft operators as well as trading accounts for participants not covered under the EU ETS. The Union Registry records,
amongst other things, (i) national implementation measures (which is a list of installations covered by the EU ETS Directive in each EU
country and any free allocation to each of those installations in Phase III); (ii) accounts of companies or individuals holding such allowances;
(iii) transfers of allowances (“transactions”) performed by account holders; (iv) annual verified CO2 emissions from installations
and aircraft operators; and (v) annual reconciliation of allowances and verified emissions, where each company must have surrendered enough
allowances to cover all its verified emissions.

The Union Registry can be accessed online in a similar manner to online
banking systems. The operational and technical requirements of the Union Registry are specified in the Registries Regulation.

As mentioned above, a legal or natural person must open an account
in the Union Registry before being able to participate in the EU ETS and perform transactions with allowances. Depending on the nature
of the account holder and his role or activities, the following account types are available: operator holding accounts; aviation operator
holding accounts; verifier accounts; person holding accounts; trading accounts; and national accounts.

To open an account, the account holder has to provide specific supporting
evidence on the account holder and representatives (natural persons) that are authorized to use the account. The relevant national administrator
checks these documents prior to activation of the account.

The European Union Transaction Log (“EUTL”) also automatically
checks, records, and authorizes all transactions that take place between accounts in the Union Registry to ensure that transfers are in
accordance with the EU ETS rules.

6

Pricing of Allowances and Trading Volume

There are currently two primary avenues for trading EUAs: The primary
market involves participation in a regularly scheduled auction. The secondary market involves transactions between buyers and sellers
on regulated markets. The instruments offered for trading are the following (1) instruments with a daily expiry, including spot EUAs and
the Daily EUA Future, (2) futures contracts with various maturities; and (3) options on futures contracts. There are also over-the-counter
transactions, but they comprise a negligible percentage of transactions.

Liquidity differs between EUAs and EUAAs. Since fewer of the latter
exist, the liquidity in both primary and secondary markets is lower for EUAAs than for EUAs.

The EUA markets are generally liquid:

a. On a near-daily basis, EUA auctions are held, with the caveat that from mid-December to mid-January, auctions are paused. Also, August
auction volumes are typically 50% lower than average to account for less trading activity due to summer holidays. Prices achieved in these
auctions are published on various publicly-accessible websites, including the European Commission’s primary website.

b. As of the date of this annual report on Form 10-K (the “Report”),
the secondary market sees trading volumes in excess of €2bn daily on average, with the majority of the liquidity in the futures
market. Prices for secondary market transactions are published on various publicly-accessible websites, including those of the exchanges.

The auction venue provides transparency by releasing
the auction data (total number of EUAs auctioned, the clearing price, bids received, and the cover ratio) shortly after the completion
of each auction at 11 a.m. Central European Time (“CET”). Usually, the secondary market trades in a very close range around
the primary market at that time.

Twenty-eight countries (25 EU member states plus Liechtenstein, Norway,
and Iceland) have agreed to use EEX to conduct their regularly scheduled auctions. Germany and Poland have opted out of the common auction
but also utilize the EEX for auctions. Hence, EUA auctions take place exclusively on EEX. These auctions take place on a regularly scheduled
basis; the number of allowances being auctioned is disclosed on a schedule prior to auction. Prices achieved in these auctions are published
on various publicly-accessible websites, including the European Commission’s primary website. There is no price management in the
EU ETS, with the exception that if the primary auction clears significantly below the secondary market range preceding the auction, the
auction can be cancelled. (this has occurred in the past when bidding interest was insufficient). The unsold volume is then added to the
next few auctions.

The spot and futures markets for EUAs have existed since 2005 after
the formal launch of the EU ETS on January 1, 2005. Spot EUAs are traded exclusively on the EEX, and futures contracts and options on
futures contracts are traded on EEX, ICE Endex Markets B.V. (“ICE Endex”) and Nasdaq Oslo, although the latter’s market
share is marginal.

EUA markets are generally liquid. The classifications for market participants
include five basic categories — (1) investment firms or credit institutions, (2) investment funds, (3) other financial institutions,
(4) operators with compliance obligations and (5) commercial undertakings which are non-financial firms without compliance obligations
under the EU ETS. The number of participants in the market have a direct bearing on the quality of trading.

Exchange-traded instruments with daily expiry traded on an exchange
include spot EUAs traded on the EEX and the Daily EUA Future traded on ICE Endex.

Secondary Spot EUA Market

As noted above, exchange-traded spot EUAs are traded exclusively on
the EEX. The current value (spot price) for an EUA is greatly influenced by a number of factors, including regulatory changes, world events
and general levels of economic activity. The trading hours for spot EUAs on EEX are 8:00 a.m. to 6:00 p.m. CET, and trade registrations
are possible until 6:45 p.m. CET. Trades concluded before 4:00 p.m. CET are settled on the next business day, or T+1, while trades after
4:00 p.m. CET are settled on the day after the first business day, or T+2. The EEX calculates and publishes each trading day an index
(the “EUA End of Day Index”) reflecting the end of day price of EUAs traded in the secondary market on EEX.

7

Daily EUA Futures

Most liquidity in the secondary market is achieved by trading futures
contracts. These contracts have expiration going out as far as 2030. The Daily EUA Future is exclusively traded on the ICE Endex. The
Daily EUA Future settles each day at the close of trading. The Daily EUA Future is a deliverable contract where each person with a position
open at cessation of trading is obliged to make or take physical delivery of EUAs upon the expiration of the contract at the end of each
trading day. Settlement of the Daily EUA Future does not occur through cash transactions. Each Daily EUA Future represents one lot of
1,000 EUAs, with each EUA providing an entitlement to emit one ton of carbon dioxide equivalent gas. Generally, Daily EUA Futures trade
on ICE Endex from approximately 2:00 a.m. Eastern Time (“E.T.”) to approximately 12:00 p.m. E.T. The settlement price is fixed
each business day and is published by the exchange at approximately 12:15 E.T. Final settlement of the requisite number of EUAs versus
cash occurs the first business day following the expiry day (T+1).

Past and Future Performance of the EUAs

As movements in the price of EUAs are expected to directly affect the
price of the Shares, investors should understand what the recent movements in the price of EUAs have been. Investors, however, should
also be aware that past movements in the EUA price are not indicators of future movements.

Regulation

As far as the EU ETS is concerned, it is established pursuant to the
EU ETS Directive, the Auctioning Regulation and the Registries Regulation.

The EU ETS Directive governs the companies involved while the Auctioning
Regulation details the sale of allowances and the Registries Regulation regulates the Union Registry and transfer of allowances.

Any major changes to the EU ETS are implemented through amendments
of the EU ETS Regulation, which requires a full Comitology process on EU level. More technical aspects are implemented though the regulations.

As with all EU law, the EU ETS Directive establishes a legal framework
that needs to be translated into national law in each member state. The linked emissions trading schemes (Iceland, Liechtenstein, Norway
and Switzerland) need to adjust their respective rules accordingly to remain linked to the EU ETS.

EU emissions allowances and any derivatives thereof are considered
financial instruments respectively under points 11 and 4 of Section C of Annex 1 to the Markets in Financial Instruments Directive II
(“MiFID II”). Accordingly, certain investment services and activities relating to EU emissions allowances may be licensable
activities under MiFID II.

Similarly, under Article 82B of the Financial
Services and Markets Act 2000 (“FSMA”) (Regulated Activities) Order 2001 (as amended from time to time,
“RAO”) and only in relation to, amongst others, “an investment firm or qualifying credit institution” that
is “providing or performing investment services and activities on a professional basis,” EU emissions allowances and any
derivatives thereof are considered “specified investments” for the purposes of FSMA. Accordingly, firms specified in
Article 82B(2) engaging in “specified activities” (as defined under FSMA and the RAO) relating to EU emissions
allowances may be conducting a regulated activity requiring authorization under FSMA.

Due to the existing legal framework, data regarding the EU carbon market
is fragmented, with each available dataset having a specific scope regarding the counterparties and types of instruments covered. Additionally,
while all EU ETS operations have been centralized in the Union Registry since 2012, there is no centralized market monitoring of the EU
carbon market and is instead largely conducted by individual EU member states, namely Germany, Netherlands and Norway. This lack of centralized
market monitoring of the EU carbon market at the EU level may make it more difficult for potential market manipulation and abuse practices
to be identified. However, EUAs are financial instruments under the EU’s Market Abuse Regulation (“MAR”) and as such
are subject to the full set of laws and regulations applicable to financial instruments under MAR, MiFID II and the Markets in Financial
Instruments Regulation (“MiFIR”). MAR generally prohibits insider dealing, unlawful disclosure of inside information and market
manipulation in connection with the financial instruments traded within the EU. MIFID II and MIFIR provide the general EU wide framework
for the regulation of financial services business in the EU. MiFID II relates to the framework of trading venues/structures in which financial
instruments are traded, while MiFIR is concerned with regulating the operation of these trading venues and the processes, systems and
governance measures adopted by market participants.

8

Calculating Net Asset Value

The Trust’s NAV and NAV per Share are calculated
by:

● Determining the current market value of the Trust’s total assets;

● Subtracting any liabilities (which include estimated accrued but unpaid fees and expenses); and

● Dividing that total by the number of outstanding Shares.

The Administrator calculates the NAV of the Trust
once each Exchange trading day. The NAV for a particular day is released after the markets close, which is typically 4:00 p.m. E.T. The
Administrator uses the settlement price for the Daily EUA Futures as established by the ICE Endex. The ICE Endex determines and releases
this value daily by 5:15 p.m. CET. The Administrator also converts the value of Euro denominated assets into US dollar equivalents using
published foreign currency exchange prices by an independent pricing vendor. Third parties supplying quotations or market data may include,
without limitations, dealers in the relevant markets, end-users of the relevant product, information vendors, brokers and other sources
of market information.

If the Sponsor determines in good faith that the
settlement price of the Daily EUA Future does not reflect an accurate EUA price, then the Sponsor will instruct the Administrator to employ
an alternative method to determine the fair value of the Trust’s assets. In determining an alternative fair value method, the Sponsor
may consider such criteria as observable market-based inputs, including market quotations and/or trading platforms on which EUAs or Daily
EUA Futures are traded. Moreover, the terms of the Trust Agreement do not prohibit the Sponsor from changing the valuation method used
to calculate the net asset value of the Trust. Any such change in the valuation method could affect the value of the Trust’s Shares
and investors could suffer a substantial loss on their investment in the Trust. In the event of a material change, the Sponsor will notify
shareholders in a prospectus supplement and/or a current report on Form 8-K or in its annual or quarterly reports, as applicable.

In addition, in order to provide updated information
relating to the Trust for use by investors and market professionals, an updated indicative fund value (“IFV”) is made available
through on-line information services throughout the core trading session hours of 9:30 a.m. E.T. to 4:00 p.m. E.T. on each trading day.
The IFV is calculated by ISS STOXX using the prior day’s closing NAV per Share of the Trust as a base and updating that value throughout
the trading day to reflect changes in the most recently reported mid-point of the bid/ask spread of the Daily EUA Future traded on the
ICE Endex. All major exchanges that trade either EUAs or Daily EUA Futures, such as the EEX, ICE ENDEX, and Nasdaq Oslo exchanges, provide
real time pricing information to the general public through data vendors such as Bloomberg. Additionally, the trading prices for EUAs
and the Daily EUA Futures are disseminated by on-line subscription services or by one or more major market data vendors during the Exchange’s
code trading session of 9:30 a.m. to 4:00 p.m. E.T. The IFV disseminated during the Exchange’s core trading session hours should
not be viewed as an actual real time update of the NAV, because the NAV is calculated using a different manner and it is calculated only
once at the end of each trading day based upon the relevant end of day values of the Trust’s investments.

It should also be noted that although the IFV
is disseminated throughout the core trading session, the customary trading hours for EUAs, the Trust’s primary asset, are 2 a.m.
to 12 p.m. E.T. This means that there is a gap in time at the end of each day during which the Trust’s Shares are traded on the
Exchange, but real-time trading prices for EUAs are not available. During such gaps in time the IFV will be calculated based on the last
reported mid-point of the bid-ask spread of the Daily EUA Future in the immediately preceding the trading session until the day’s
settlement price is reported, in which case the day’s settlement price will be used.

During customary trading hours for EUAs the IFV
will be calculated as follows:

(((Most recently reported mid-point
of the bid/ask spread of Daily EUA Future on ICE Endex × number of EUAs held by Trust) × Euro to U.S. dollar exchange rate)
- accrued expenses)/number of Shares outstanding

Outside customary trading hours for EUAs the IFV
will be calculated as follows:

(((end of day settlement price of the
Daily EUA Future on ICE Endex × number of EUAs held by Trust) × Euro to U.S. dollar exchange rate) - accrued expenses)/number
of Shares outstanding

9

The Exchange disseminates the IFV through the
facilities of CTA/CQ High Speed Lines. In addition, the IFV is published on the Exchange’s website and is available through on-line
information services such as Bloomberg. The Trust, the Sponsor and its affiliates are not involved in, or responsible for, the calculation
or dissemination of the IFV and make no warranty as to its accuracy.

The Sponsor believes that the Daily EUA Future
settlement price is the most appropriate metric for measuring the values of the Trust’s EUA holdings. The daily settlement price
of the Daily EUA Future can be expected to be substantially identical to the daily EUA End of Day Index value.

Trust Expenses

The Trust’s only ordinary recurring expenses
are expected to be the Sponsor’s Management Fee, paid monthly in arrears, in an amount equal to 0.79% per annum of the daily NAV
of the Trust. The aggregate Sponsor’s Management Fee for the fiscal year ended November 30, 2025 was $7,710.

In exchange for the Sponsor’s Management
Fee, the Sponsor has agreed to assume all routine operational, administrative and other ordinary expenses of the Trust, including, but
not limited to, each of the Trustee’s, Administrator’s, Cash Custodian’s, Transfer Agent’s and Marketing Agent’s
monthly fee and out-of-pocket expenses and expenses reimbursable in connection with such service provider’s respective agreement;
the marketing support fees and expenses; exchange listing fees; SEC registration fees; printing and mailing costs; maintenance expenses
for the Trust’s website; audit fees and expenses; and routine legal expenses. The routine ordinary expenses assumed by the Sponsor
on behalf of the Trust are not subject to any caps. The Sponsor also paid the costs of the Trust’s organization and the initial
sale of the Shares.

The Trust will be responsible for reimbursing
the Sponsor or its affiliates for paying all the extraordinary fees and expenses, if any, of the Trust. Extraordinary fees and expenses
are fees and expenses which are non-recurring and unusual in nature, such as legal claims and liabilities, litigation costs or indemnification
or other unanticipated expenses. Such extraordinary fees and expenses, by their nature, are unpredictable in terms of timing and amount.
The Trust will either (i) cause the Sponsor to receive EUAs from the Trust in such quantity as may be necessary to pay the Sponsor’s
Management Fee or (ii) sell EUAs in such quantity as may be necessary to permit payment in cash of the Sponsor’s Management Fee
and other Trust expenses and liabilities not assumed by the Sponsor, if any.

Creation and Redemption of Shares

The Trust creates and redeems Shares from time
to time, but only in one or more Baskets. The creation and redemption of Baskets is only made in exchange for delivery to the Trust or
the distribution by the Trust of the amount of EUAs, or the amount of cash sufficient to purchase the amount of EUAs, represented by the
Baskets being created or redeemed, the amount of which is equal to the combined NAV of the number of Shares included in the Baskets being
created or redeemed determined as of 4:00 p.m., E.T., on the day the order to create or redeem Baskets is properly received. Creations
of Baskets may only be settled after the requisite amount of EUAs or cash is deposited in the Trust’s Union Registry account, or
Cash Custodian account, as applicable. For a creation or redemption in cash, the Sponsor shall arrange for the EUAs represented by the
Baskets to be purchased from, or sold to, a third party selected by the Sponsor who (1) is not the Authorized Participant and (2) will
not be acting as an agent, nor at the direction, of the Authorized Participant with respect to the delivery of EUAs to the Trust (such
third party, a “Liquidity Provider”) Liquidity Provider selected by the Sponsor. In the case of a cash redemption, the cash
proceeds from the sale of EUAs are distributed from the Trust’s account at the Cash Custodian to the Authorized Participant. The
Liquidity Providers are selected at the Sponsor’s sole discretion and may include any broker-dealer authorized to trade on the EEX
or ICE Endex. As of the date of this Report, Vertis Environmental Finance Ltd. (“Vertis”) and Redshaw Advisors Ltd. (“Redshaw”)
has each agreed to serve as a Liquidity Provider for the Trust.

10

Authorized Participants are the only persons that
may place orders to create and redeem Baskets. To become an Authorized Participant, a person must enter into an Authorized Participant
Agreement with the Sponsor. The Authorized Participant Agreement provides the procedures for the creation and redemption of Baskets and
for the delivery, or facilitation of the delivery, of the EUAs or cash required for such creations and redemptions. The Authorized Participant
Agreement and the related procedures attached thereto may be amended by the Trust or the Sponsor, without the consent of any shareholder
or Authorized Participant. Authorized Participants pay the Administrator a transaction fee of $100 for each order they place to create
or redeem one or more Baskets. The transaction fee may be waived, reduced, increased or otherwise changed by the Sponsor, taking into
account the volume of creation and redemption orders and the cost to the Administrator and Sponsor of processing the creation and redemption
orders, among other factors. Authorized Participants who make deposits with the Trust in exchange for Baskets receive no fees, commissions
or other form of compensation or inducement of any kind from either the Trust or the Sponsor, and no such person will have any obligation
or responsibility to the Sponsor or the Trust to effect any sale or resale of Shares.

Some Authorized Participants or Liquidity Providers
or their affiliates may from time to time buy or sell EUAs and may profit in these instances. The Sponsor believes that the size and operation
of the EUA market, as well as the current price of EUAs and the corresponding size of Baskets, make it unlikely that Authorized Participants’
or Liquidity Providers’ direct activities in the EUA market will significantly impact the price of EUAs or the Trust’s Shares.
Authorized Participants must be (1) participants in the Depository Trust Company (“DTC”), such as banks, brokers, dealers
and trust companies (“DTC Participants”); (2) registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and regulated by the Financial Industry Regulatory Authority (“FINRA”) or some other
self-regulatory organization or be exempt from being or otherwise not required to be so regulated or registered; and (3) qualified to
act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires. Each Authorized Participant
will have its own set of rules and procedures, internal controls and information barriers as it determines is appropriate in light of
its own regulatory regime.

Under the Authorized Participant Agreement, the
Sponsor, and the Trust under limited circumstances, have agreed to indemnify the Authorized Participants against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the “Securities Act”), and to contribute to the payments
the Authorized Participants may be required to make in respect of those liabilities.

The following description of the procedures for
the creation and redemption of Baskets is only a summary and an investor should refer to the relevant provisions of the Trust Agreement
and the form of Authorized Participant Agreement for more detail, each of which has been filed as an exhibit to this Report.

The use of cash creations and redemptions has
transaction costs of buying and selling EUAs. These costs include the bid-ask spread along with the operational costs from the labor and
overhead involved in calculating, executing, monitoring, and accounting for transactions in the EUA markets and related cash movements.
The Trust’s Authorized Participant Agreement provides that transaction costs and slippage related to Basket creation and redemption
are the responsibility of the Authorized Participant.

Creation
Procedures

On any business day, an Authorized Participant
may place an order with the Transfer Agent, which must be approved by the Marketing Agent, to create one or more Baskets. Currently, creation
orders are accepted in exchange for cash or EUAs. For purposes of processing creation and redemption orders, a “business day”
means any day other than a day when the Exchange, the New York Stock Exchange, EEX, ICE Endex or other exchange material to the valuation
or operation of the Trust, or the calculation of EUAs or Daily EUA Futures, is closed for regular trading. Purchase orders must be placed
by 11:00 a.m., E.T., or the close of regular trading on the Exchange, whichever is earlier. The day on which an order is received by the
Transfer Agent and approved by the Marketing Agent, is considered the purchase order date. Creation orders received by the Transfer Agent
on or after the order cut-off time on a business day shall be considered received at the opening of business on the next business day
and shall have as their purchase order date such next business day.

By placing a purchase order, an Authorized Participant
agrees to deposit EUAs with the Trust or cash with the Cash Custodian. Prior to the delivery of Baskets for a purchase order, the Authorized
Participant must also have wired the nonrefundable transaction fee due for the creation order.

11

Determination
of Required Deposits

The total deposit of EUAs or cash required to
create each Basket is an amount of EUAs or cash that is in the same proportion to the total assets of the Trust (net of accrued expenses
and other liabilities) on the date the order to purchase is properly received, as the number of Shares to be created under the purchase
order is in proportion to the total number of Shares outstanding on the date the order is received. On the purchase order date, following
receipt of the purchase order from the Authorized Participant, the Sponsor shall, in its sole discretion, select a Liquidity Provider
and cause the Trust to execute a trade to purchase EUAs from that Liquidity Provider in the amount of the Basket Deposit (the calculation
of which is explained below), with the purchased EUAs to be delivered by the Liquidity Provider on the purchase settlement date in exchange
for a cash price to be delivered by the Trust on the purchase settlement date. The Liquidity Provider, not the Authorized Participant,
shall be responsible for delivering EUAs to the Trust.

On each day that the Exchange is open for regular
trading, the Administrator adjusts the quantity of EUAs constituting the Basket Deposit as appropriate to reflect accrued expenses. The
computation is made by the Administrator as promptly as practicable after 4:00 p.m. E.T. The Administrator determines the Basket Deposit
for a given day by dividing the amount of EUAs and cash, if any, held by the Trust as of the opening of business on that business day,
adjusted for the amount of EUAs and cash, if any, constituting estimated accrued but unpaid fees and expenses of the Trust as of the opening
of business on that business day, by the quotient of the number of Shares outstanding at the opening of business divided by 50,000. This
produces the “Basket Deposit,” which is a number of EUAs equal to the amount of EUAs and any cash attributable to each Basket
as of the opening of business on trade date. The resulting EUA amount is then valued, in cash, at the settlement price for the Daily EUA
Futures calculated on that trade date. This produces the “Basket Cash Deposit”. The Basket Deposit, and the Basket Cash Deposit,
so determined, is communicated via electronic mail message to all Authorized Participants and made available on the Sponsor’s website
for the Shares. The Exchange also publishes the Basket Deposit determined by the Administrator as indicated above.

By the end of day Eastern time (or such other
time as the parties may agree) on the trade date for a purchase order, the Administrator will communicate to the Authorized Participant
the full cash amount required to settle the transaction. This amount will be equal to the amount of cash equal to the Basket Cash Deposit
plus any additional cash required to account for the price at which the Trust agrees to purchase the requisite amount of EUAs to the extent
the price of EUAs is greater than the Daily EUA Future settlement price on each purchase order date. The Trust acknowledges that, if the
actual cash purchase price of EUAs from the Liquidity Provider is below the Basket Cash Deposit, the Authorized Participant shall be entitled
to retain the difference and the cash required to create a Basket shall be reduced accordingly.

Fractions of an EUA less than one EUA are disregarded
for purposes of the computation of the Basket Deposit. Because the disregarded EUA amounts will always be less than a single EUA, the
value of which will be spread over all of the Trust’s outstanding Shares, which will be at least 50,000 Shares, which is the size
of a Basket, the Sponsor has determined that those amounts will always be de minimis.

It is highly unlikely that discounting an EUA
would ever affect the Trust’s NAV per Share by more than a penny per Share, and, due to the large size of Baskets, it is impossible
that discounting an EUA would ever reduce per Share NAV by a material amount (e.g., more than one half of one percent).

12

Delivery of Required Deposits

For cash creations, an Authorized Participant
who places a purchase order is responsible for arranging for the delivery to the Trust’s account with the Cash Custodian of
the required cash deposit by 2:00 p.m. E.T. on the first business day following the purchase order date. The Liquidity Provider
delivers EUAs to the Trust’s Union Registry account in exchange for the cash purchase price. Upon settlement of the EUA
purchase from the Liquidity Provider into the Trust’s Union Registry account, the Trust instructs the Transfer Agent to
release the Shares to the Authorized Participant, and the Transfer Agent directs DTC to credit the number of Shares ordered to the
applicable DTC account, by close of business on the purchase settlement date.

For in-kind creation orders, an Authorized Participant who places a
purchase order is responsible for arranging for the delivery to the Trust’s Union Registry account with the required EUA deposit
by 2:00 p.m. E.T. on the first business day following the purchase order date. Upon receipt of the EUA deposit amount in the
Trust’s Union Registry account, the Union Registry will notify the Sponsor that the EUAs have been deposited.

Upon receipt of confirmation from the Union Registry that the EUA deposit
amount has been received, the Administrator will direct DTC to credit the number of Shares created to the Authorized Participant’s
DTC account.

EUAs held in the Trust’s Union Registry account are the property of the Trust and are not traded, leased, or loaned
under any circumstances.

There may be circumstances where the Trust will receive EUA deposits
from an Authorized Participant or Liquidity Provider only in whole lots of EUAs, consisting of 1,000 EUAs, in exchange for Baskets of
Shares. This may occur if, for example, partial lots could only be acquired from a Liquidity Provider at disadvantageous prices, relative
to whole lots, or if an Authorized Participant is unable to assume the risk of, or lacks the infrastructure for, trading in partial lots.
However, a Basket Deposit will not likely consist of only whole lots of EUAs, but rather will consist of a fraction of a whole lot in
addition to whole lots of EUAs. Therefore, to facilitate the creation of Baskets, an Authorized Participant or Liquidity Provider who
must provide a fraction of a lot of EUAs may credit the Trust’s Union Registry account with a whole lot of EUAs and the Trust will
immediately reimburse the Authorized Participant or Liquidity Provider an amount equal to the pro rata portion of the EUA lot that exceeds
the value of the Basket Deposit. The Trust will reimburse the Authorized Participant or Liquidity Provider using cash on hand, in accordance
with procedures adopted by the Sponsor. The Trust intends to maintain approximately 1% of its assets in cash to reimburse the Authorized
Participant or Liquidity Provider for EUAs deposited in excess of the value of the Basket Deposit. In this way, any EUAs deposited with
the Trust’s Union Registry account in excess of the Basket Deposit will never be included in the calculation of the Trust’s
NAV at the end of each business day.

Suspension of Purchase Orders

The Sponsor may, in its discretion, suspend the right to purchase,
or postpone the purchase settlement date: (1) for any period during which the Exchange, the New York Stock Exchange, EEX, ICE Endex or
other exchange material to the valuation or operation of the Trust is closed, or when trading is suspended or restricted on such exchanges
in EUAs or Daily EUA Futures, other than customary weekend or holiday closings, or trading of Shares on the Exchange is suspended or restricted,
or (2) during an emergency as a result of which delivery, disposal or evaluation of EUAs is not reasonably practicable. The Sponsor will
not be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement. In the event
that the Sponsor intends to suspend or postpone purchases, it will provide shareholders with notice in a prospectus supplement and/or
through a current report on Form 8-K or in the Trust’s annual or quarterly reports.

13

Rejection of Purchase Orders

The Sponsor or its designee has the absolute right, but does not have
any obligation, to reject any purchase order or Basket Deposit if the Sponsor determines that:

● the purchase order or Basket Deposit is not in proper form;

● it would not be in the best interest of the shareholders of the Trust;

● the acceptance of the purchase order or the Basket Deposit would have adverse tax consequences to the Trust or its shareholders;

● the acceptance or receipt of which would, in the opinion of counsel to the Sponsor, be unlawful; or

● circumstances outside the control of the Trust, the Sponsor, the Marketing Agent or the Union Registry make it, for all practical
purposes, not feasible to process Baskets.

None of the Sponsor, the Transfer Agent, the Marketing Agent, the Union
Registry or the Cash Custodian will be liable for the rejection of any purchase order or Basket Deposit.

Redemption Procedures

The procedures by which an Authorized Participant can redeem one or
more Baskets mirror the procedures for the creation of Baskets. Redemption orders may be processed either in cash or in-kind in EUAs.
On any business day, an Authorized Participant may place an order with the Administrator to redeem one or more Baskets. Redemption orders
must be placed by 11:00 p.m., E.T., or the close of regular trading on the Exchange, whichever is earlier. A redemption order
will be effective on the date it is received by the Transfer Agent (“Redemption Order Date”). Redemption orders received by
the Transfer Agent on or after the order cut-off time on a business day shall be considered received at the opening of business on the
next business day and shall have as their Redemption Order Date such next business day.

Determination of Redemption Distribution

The redemption distribution from the Trust consists of a transfer to
the redeeming Authorized Participant or its agent an amount of EUAs or cash that is determined in the same manner as the determination
of the deposit required to create Baskets, discussed above. Fractions of an EUA included in the redemption distribution smaller than one
EUA are disregarded. The redemption distribution due from the Trust will be delivered once the Administrator notifies the Sponsor that
the Authorized Participant has delivered the Shares represented by the Baskets to be redeemed to the Trust’s DTC account. If the
Trust’s DTC account has not been credited with all of the Shares of the Baskets to be redeemed, the redemption distribution will
be delayed until such time as the confirmation of delivery of all such Shares. Only whole Baskets will be redeemable.

Delivery of Redemption Distribution

The redemption distribution due from the Trust will be delivered to
the Authorized Participant or its agent on the first business day following the Redemption Order Date if, by 2:00 p.m. E.T.,
on such business day, the Trust’s DTC account has been credited with the Baskets to be redeemed. If the Trust’s DTC account
has not been credited with all of the Baskets to be redeemed by such time, the redemption distribution will be delivered to the extent
of whole Baskets received. Any remainder of the redemption distribution is delivered on the next business day to the extent of remaining
whole Baskets received if the Administrator receives the fee applicable to the extension of the redemption distribution date which the
Administrator may, from time to time, determine and the remaining Baskets to be redeemed are credited to the Trust’s DTC account
by 2:00 p.m. E.T. on such next business day. Any further outstanding amount of the redemption order may be cancelled.

For cash redemptions, on the redemption settlement date, the Liquidity
Provider delivers cash to the Trust’s account with the Cash Custodian in exchange for the amount of EUAs constituting the Basket
Deposit. Upon settlement of the EUA sale by the Trust to the Liquidity Provider and the receipt of the Liquidity Provider’s cash
in the Trust’s Cash Custodian account, the Trust instructs the Transfer Agent to deliver the Authorized Participant’s Shares
in the Baskets to be redeemed back to the Trust, in exchange for which the Trust instructs the Cash Custodian to transfer the Basket Cash
Deposit to the Authorized Participant’s designated bank account and the redemption order is settled.

14

For in-kind redemptions, once the Administrator notifies the Sponsor
that the Shares have been received in the Trust’s DTC account, the Sponsor instructs the Union Registry to transfer the redemption
EUA amount from the Trust’s Union Registry account to the Union Registry account of the Authorized Participant or its agent.

The
Sponsor is the only entity that may initiate a withdrawal of EUAs from the Trust’s Union Registry account, and the only accounts
that may receive EUAs from the Trust’s Union Registry account are the Union Registry accounts of the Authorized Participants and
Liquidity Providers, their agents or the Sponsor.

There may be circumstances where an Authorized Participant or Liquidity
Provider will receive only whole lots of EUAs, consisting of 1,000 EUAs, in exchange for redeemed Baskets of Shares. This may occur if,
for example, partial lots could only be sold to a Liquidity Provider at disadvantageous prices, relative to whole lots, or if an Authorized
Participant or Liquidity Provider is unable to assume the risk of, or lacks the infrastructure for, trading in partial lots. However,
a Basket Deposit will not likely consist of only whole lots of EUAs, but rather will consist of a fraction of a whole lot in addition
to whole lots of EUAs. Therefore, the Trust may transfer to an Authorized Participant or Liquidity Provider whole lots of EUAs that exceed
the value of the Basket Deposit, in accordance with procedures adopted by the Sponsor. In the case of cash redemptions, after selling
whole lots to a Liquidity Provider, the Trust will deliver to the Authorized Participant an amount of cash equal to the value of the Basket
Deposit and retain the cash generated by the sale of the partial lot in excess of the value of the redemption distribution. In the case
of in-kind redemptions, the Authorized Participant will immediately reimburse the Trust for the overpayment of EUAs in excess of the value
of the redemption distribution. In this way, the delivery of whole lots of EUAs that exceed the value of the Basket Deposit will not result
in the dilution of a shareholder’s interest in the Trust.

Suspension or Rejection of Redemption Orders

The Sponsor may, in its discretion, suspend the right of redemption,
or postpone the redemption settlement date, (1) for any period during which the Exchange, the New York Stock Exchange, EEX, ICE Endex
or other exchange material to the valuation or operation of the Trust is closed, or when trading is suspended or restricted on such exchanges
in EUAs or Daily EUA Futures, other than customary weekend or holiday closings, or trading of Shares on the Exchange is suspended or
restricted, or (2) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of EUAs is not
reasonably practicable. For example, the Sponsor may determine that it is necessary to suspend redemptions to allow for the orderly liquidation
of the Trust’s assets. If the Sponsor has difficulty liquidating the Trust’s positions, e.g., because of a market
disruption event or an unanticipated delay in the liquidation of a position in an over the counter contract, it may be appropriate to
suspend redemptions until such time as such circumstances are rectified.

Redemption orders must be made in whole Baskets. The Sponsor acting
by itself or through the person authorized to take redemption orders in the manner provided in the Authorized Participant Agreement may,
in its sole discretion, reject any redemption order (1) the Sponsor determines not to be in proper form, (2) if the fulfillment of the
order, in the opinion of its counsel, might be unlawful, or (3) if circumstances outside the control of the Sponsor, the person authorized
to take redemption orders in the manner provided in the Authorized Participant Agreement or the Union Registry make it, for all practical
purposes, not feasible to process.

None of the Sponsor, the Administrator, or the Union Registry will
be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement. In the event that
the Sponsor intends to suspend or postpone redemptions, it will provide shareholders with notice in a prospectus supplement and/or through
a current report on Form 8-K or in the Trust’s annual or quarterly reports.

Creation and Redemption Transaction Fee

To compensate the Administrator for expenses incurred in connection
with the creation and redemption of Baskets, an Authorized Participant is required to pay a transaction fee of $100 to the Administrator
to create or redeem Baskets, which does not vary in accordance with the number of Baskets in such order. The transaction fee may be waived,
reduced, increased or otherwise changed by the Sponsor, taking into account the volume of creation and redemption orders and the cost
to the Administrator and Sponsor of processing the creation and redemption orders, among other factors. The Sponsor will notify DTC of
any change in the transaction fee and will not implement any increase in the fee for the redemption of Baskets until thirty (30) days
after the date of notice.

In addition, in connection with a cash creation or redemption of Baskets,
an Authorized Participant is responsible for any operational processing and brokerage costs, or other transfers fees or taxes associated
with the purchase or sale of EUAs from or to the Liquidity Provider. Such fees may be reduced, increased or otherwise changed by the Sponsor.

15

Tax Responsibility

Authorized Participants are responsible for any transfer tax, sales
or use tax, stamp tax, recording tax, value added tax or similar tax or governmental charge applicable to the creation or redemption of
Baskets, regardless of whether or not such tax or charge is imposed directly on the Authorized Participant, and agree to indemnify the
Sponsor and the Trust if they are required by law to pay any such tax, together with any applicable penalties, additions to tax and interest
thereon.

Secondary Market Transactions

The Trust issues Shares in Baskets to Authorized Participants from
time to time in exchange for deposits of the amount of EUAs represented by the Baskets being created. A current list of Authorized Participants
is available from the Administrator and the Sponsor.

As discussed above, Authorized Participants are the only persons that
may place orders to create and redeem Baskets. Authorized Participants must be registered broker-dealers or other securities market participants,
such as banks and other financial institutions that are not required to register as broker-dealers to engage in securities transactions.
An Authorized Participant is under no obligation to create or redeem Baskets, and an Authorized Participant is under no obligation to
offer to the public Shares of any Baskets it does create.

Authorized Participants that do offer to the public Shares from the
Baskets they create will do so at per-Share offering prices that are expected to reflect, among other factors, the trading price of the
Shares on the Exchange, the NAV of the Trust at the time the Authorized Participant purchased the Baskets, the NAV of the Shares at the
time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of EUAs or other
portfolio investments. Baskets are generally redeemed when the price per Share is at a discount to the per Share NAV. Shares initially
comprising the same Basket but offered by Authorized Participants to the public at different times may have different offering prices.
An order for one or more Baskets may be placed by an Authorized Participant on behalf of multiple clients. Authorized Participants who
make deposits with the Trust in exchange for Baskets receive no fees, commissions or other forms of compensation or inducement of any
kind from either the Trust or the Sponsor and no such person has any obligation or responsibility to the Sponsor or the Trust to effect
any sale or resale of Shares.

Shares are expected to trade in the secondary market on the Exchange.
Shares may trade in the secondary market at prices that are lower or higher relative to their NAV per Share. The amount of the discount
or premium in the trading price relative to the NAV per Share may be influenced by various factors, including the number of investors
who seek to purchase or sell Shares in the secondary market and the liquidity of EUAs.

Investors who decide to buy or sell Shares of the Trust will place
their trade orders through their brokers and may incur customary brokerage commissions and charges.

Description
of Shares

The Trust is authorized under the Trust Agreement
to create and issue an unlimited number of Shares. The Trust will create Shares in Baskets (a Basket equals a block of 50,000 Shares)
only upon the order of an Authorized Participant. The Shares represent units of fractional undivided beneficial interest in the net assets
of the Trust and have no par value. The Shares of the Trust are listed for trading on the Exchange under the symbol “CTWO.”
The Trust’s Shares may be bought and sold on the Exchange like any other exchange-listed security.

Shareholders may obtain pricing information on
EUAs from various financial information service providers, including Bloomberg. In addition, the Trust’s website (www.cotwoadvisors.com)
will provide pricing information for EUAs and the Shares. Market prices for the Shares will be available from a variety of sources including
brokerage firms, information websites and other information service providers. The NAV of the Trust will be published by the Sponsor on
each day that the Exchange is open for regular trading and will be posted on the Trust’s website.

Cash and Other Distributions

If the Trust is terminated and liquidated, the
Sponsor will distribute to the shareholders any amounts remaining after the satisfaction of all outstanding liabilities of the Trust and
the establishment of such reserves for applicable taxes, other governmental charges and contingent or future liabilities as the Sponsor
shall determine. Shareholders of record on the record date fixed by the Sponsor (or one of its delegates) for a distribution will be entitled
to receive their pro rata portion of any distribution.

16

If the Sponsor determines that there is more cash
being held in the Trust than is reasonably expected to be needed to pay the Trust’s expenses in the near future or to be used for
acquiring odd lots of EUAs in connection with creation transactions, as described above under “Creation and Redemption of Shares
— Delivery of Required Deposit,” the Sponsor will use such cash in excess of a set threshold to acquire additional EUAs. The
Trust has no obligation to make periodic distributions to shareholders.

Registered holders of Shares will receive these
distributions in proportion to the number of Shares owned. Before making a distribution, the Administrator will deduct any applicable
withholding taxes and any fees and expenses of the Trust that have not been paid. It will distribute only whole U.S. dollars and cents
and will round fractional cents down to the nearest whole cent. Neither the Sponsor nor the Administrator will be responsible if the Sponsor
determines that it is unlawful or impractical to make a distribution available to registered holders.

Description of Limited Rights

The Shares do not represent a traditional investment
and should not be viewed as similar to “shares” of a corporation operating a business enterprise with management and a board
of directors. A shareholder will not have the statutory rights normally associated with the ownership of shares of a corporation; however,
the Delaware Statutory Trust Act (“DSTA”) does provide shareholders the right to bring “oppression” or “derivative”
actions. All of the Shares are of the same class with equal rights and privileges. Each of the Shares is transferable, is fully paid and
nonassessable and entitles the holder to vote on the limited matters upon which shareholders may vote under the Trust Agreement. The Shares
do not entitle their holders to any conversion or pre-emptive rights or, except as provided below, any redemption rights or rights to
distributions.

Voting Rights

Under the Trust Agreement, shareholders have no
voting rights except as the Sponsor may consider desirable and so authorize in its sole discretion.

Book-Entry Form

Individual certificates will not be issued for
the Shares. Instead, one or more global certificate will be deposited by the Transfer Agent with DTC and registered in the name of Cede
& Co., as nominee for DTC. The global certificates will evidence all of the Shares outstanding at any time. Shareholders are limited
to: (1) DTC Participants; (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant (“Indirect
Participants”); and (3) those banks, brokers, dealers, trust companies and others who hold interests in the Shares through DTC Participants
or Indirect Participants. The Shares are only transferable through the book-entry system of DTC. Shareholders who are not DTC Participants
may transfer their Shares through DTC by instructing the DTC Participant holding their Shares (or by instructing the Indirect Participant
or other entity through which their Shares are held) to transfer the Shares. Transfers are made in accordance with standard securities
industry practice.

DTC may decide to discontinue providing its service with respect to
Baskets and/or the Shares by giving notice to the Transfer Agent and the Sponsor. Under such circumstances, the Sponsor will find a replacement
for DTC to perform its functions at a comparable cost or, if a replacement is unavailable, the Sponsor will terminate the Trust.

The rights of the shareholders generally must be exercised by DTC Participants
acting on their behalf in accordance with the rules and procedures of DTC. Because the Shares can only be held in book-entry form through
DTC and DTC Participants, shareholders must rely on DTC, DTC Participants and any other financial intermediary through which they hold
the Shares to receive the benefits and exercise the rights described in this section. Shareholders should consult with their broker or
financial institution to find out about procedures and requirements for securities held in book-entry form through DTC.

Share Splits

If the Sponsor believes that the per Share price in the secondary market
for Shares has fallen outside a desirable trading price range, the Sponsor may declare a split or a reverse split in the number of Shares
outstanding and make a corresponding change in the number of Shares constituting a Basket.

The
Sponsor

The Sponsor, COtwo Advisors LLC, is a Delaware limited liability company.
The Sponsor’s mailing address is 140 Elm Street, Suite 6, New Canaan, CT 06840. The Sponsor has no experience or history of past
performance in managing an investment vehicle like the Trust.

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The Sponsor’s Role

The Sponsor: (1) will select the Trustee, Administrator, Transfer Agent,
Cash Custodian, Marketing Agent and any other Trust service providers; (2) will negotiate various agreements and fees for the Trust; (3)
will develop a marketing plan for the Trust on an ongoing basis and prepare marketing materials regarding the Shares; (4) will maintain
the Trust’s website; and (5) will perform such other services as the Sponsor believes that the Trust may require.

The Trust is managed and controlled by the Sponsor pursuant to
the terms of the Trust Agreement and the Sponsor Agreement. The Sponsor arranged for the creation of the Trust, the registration of
the Shares for their public offering in the United States and the listing of the Shares on the Exchange. The Sponsor also paid the
costs of the Trust’s organization and the initial sale of the Shares, including applicable SEC registration fees. In exchange
for the Sponsor’s Management Fee, the Sponsor has agreed to assume to pay all of the routine operational, administrative and
other ordinary expenses of the Trust, including, but not limited to, the following administrative and marketing expenses incurred by
the Trust: each of the Trustee’s, Administrator’s, Cash Custodian’s, Transfer Agent’s and Marketing
Agent’s monthly fee and out-of-pocket expenses and expenses reimbursable in connection with such service provider’s
respective agreement; the marketing support fees and expenses; exchange listing fees; SEC registration fees; printing and mailing
costs; maintenance expenses for the Trust’s website; audit fees and expenses; and routine legal expenses. The routine ordinary
expenses assumed by the Sponsor on behalf of the Trust are not subject to any caps. The Sponsor is not responsible for interest
expenses and certain litigation expenses and other non-recurring or extraordinary fees and expenses.

While the Sponsor will not exercise day-to-day oversight over the Trust’s
service providers, the Sponsor will engage the Transfer Agent, the Marketing Agent, the Administrator and the Cash Custodian to assist
in implementing the creation and redemption process for the Trust.

The Trustee

The sole Trustee of the Trust is Wilmington Trust, National Association,
a national banking association. The Trustee’s principal offices are located at 1100 North Market Street, Wilmington, Delaware 19890.
The Trustee is unaffiliated with the Sponsor. The Trustee’s duties and liabilities with respect to the offering of Shares and the
management of the Trust are limited to its express obligations under the Trust Agreement.

The Trustee’s Role

The Trustee is the trustee of the Trust for the sole and limited purpose
of fulfilling the requirements of the DSTA. The Trustee will accept service of legal process on the Trust in the State of Delaware and
will make certain filings under the DSTA. Under the Trust Agreement, the Trustee has delegated to the Sponsor the exclusive management
and control of all aspects of the activities of the Trust.

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The Administrator

State Street Bank and Trust Company serves as the Administrator. The
Administrator’s office is located at 1 Lincoln Street, Boston, Massachusetts 02110. Information regarding creation and redemption
Basket composition, NAV of the Trust, transaction fees for the creation and redemption of Baskets and the names of the parties
that have executed an Authorized Participant Agreement may be obtained from the Administrator.

The Administrator’s Role

The Administrator is generally responsible for
the day-to-day administration of the Trust, including keeping the Trust’s operational records. The Administrator’s principal
responsibilities include: (1) valuing the Trust’s EUAs and calculating the NAV per Share of the Trust; (2) supplying pricing information
to the Sponsor for the Trust’s website; and (3) receiving and reviewing reports on the custody of and transactions in cash and EUAs
from the Cash Custodian and the Union Registry, respectively, and taking such other actions in connection with the custody of cash as
the Sponsor instructs and (4) accounting and other fund administrative services. The Administrator shall, with respect to directing the
Cash Custodian, act in accordance with the instructions of the Sponsor.

The Administrator intends to regularly communicate with the Sponsor
in connection with the administration of the Trust. The Administrator, along with the Sponsor, will liaise with the Trust’s legal,
accounting and other professional service providers as needed. The Administrator will assist and support the Sponsor with the preparation
of all periodic reports required to be filed with the SEC on behalf of the Trust. The Administrator’s monthly fees and out-of-pocket
expenses will be paid by the Sponsor. Affiliates of the Administrator may from time to time act as Authorized Participants or purchase
or sell EUAs or Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.

The Administrator will keep proper books of registration and transfer
of Shares at its office located in 1 Lincoln Street, Boston, Massachusetts 02110 or such office as it may subsequently designate. These
books and records are open to inspection by any person who establishes to the Administrator’s satisfaction that such person is a
shareholder at all reasonable times during the usual business hours of the Trustee. The Administrator will keep a copy of the Trust Agreement
on file in its office which will be available for inspection on reasonable advance notice at all reasonable times during its usual business
hours by any shareholder.

The Fund Administration and Accounting Agreement
(the “Administration Agreement”), will be in effect for an initial term of 3 years from the commencement of the Trust’s
operation, the first date on which the Administrator is entitled to receive fees under the Administration Agreement. The Administration
Agreement automatically renews for additional one (1) year periods thereafter, unless terminated by the Trust or the Administrator on
at least ninety (90) days’ prior written notice.

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The Transfer Agent

State Street Bank and Trust Company serves as the Transfer Agent. The
Transfer Agent’s office is located at 1 Lincoln Street, Boston, Massachusetts 02110. The Transfer Agent, among other things, provides
transfer agent services with respect to the creation and redemption of Baskets by Authorized Participants, the issuance and redemption
of Shares, the payment, if any, of distributions with respect to the Shares, the recording of the issuance of the Shares and the maintaining
of certain records therewith.

The Transfer Agent’s Role

The Transfer Agent’s responsibilities include: (1)
receiving and processing orders from Authorized Participants for the creation and redemption of Baskets; and (2) coordinating the
processing of orders from Authorized Participants with the Marketing Agent, the Cash Custodian, the Trust and the DTC.

The Transfer Agent’s fees and expenses are to be paid by the Sponsor pursuant to the terms of the Transfer Agency and Service Agreement.

The Transfer Agency and Service Agreement will be in effect for an
initial term of three (3) years from the commencement of the Trust’s operation, the first date on which the Transfer Agent is entitled
to receive fees under the Transfer Agency and Service Agreement. The Transfer Agency and Service Agreement automatically renews for additional
one (1) year periods thereafter, unless terminated by the Trust or the Transfer Agent on at least ninety (90) days’ prior written
notice.

Liquidity Providers

Vertis Environmental Finance Ltd.

The Trust has entered into a Framework Agreement for the Spot Sale
and Purchase of Emissions Allowances (the “Vertis Liquidity Provider Agreement”) with Vertis whereby Vertis is a Liquidity
Provider in connection with cash orders from Authorized Participants to create or redeem Trust Shares and, in that capacity, Vertis delivers
EUAs to the Trust or delivers cash to the Trust and receives EUAs from the Trust, in each case, at the direction of the Sponsor. The Sponsor
selected Vertis as a Liquidity Provider because of Vertis’ position as a large participant in the EUA market that can provide the
access to EUAs that the Trust requires at competitive prices. Additional Liquidity Providers may be added in the future, at the sole discretion
of the Sponsor. The Sponsor is not aware of any relationship between Vertis and any Authorized Participant or, except for the Vertis Liquidity
Provider Agreement, the Sponsor.

Under the Vertis Liquidity Provider Agreement, the Trust shall determine
and notify Vertis of its intention to sell or purchase EUAs. Vertis does not have an obligation to accept any such offer from the Trust
and shall be entitled to buy or sell the EUAs from or to the Trust, respectively, according to the terms extended by the Trust. Payment
for and delivery of the EUAs will be due as agreed between the Trust and Vertis. Delivery of the EUAs are considered to be completed when
the EUAs are credited to the Union Registry account of the acquiring party.

The Vertis Liquidity Provider Agreement may be
terminated at any time by any party upon eight (8) days prior written notice delivered to the other parties and may be terminated earlier
by any party to the Vertis Liquidity Provider Agreement at any time on the event of default or force majeure by either party upon written
notice to the defaulting party. Notwithstanding the foregoing, any party may, by prior written notice to the other party, terminate the
Vertis Liquidity Provider Agreement at any time if: (i) required by applicable law, (ii) the other party terminates or suspends its business,
becomes insolvent, makes an assignment for the benefit of creditors, becomes subject to direct control of a trustee, receiver or similar
authority, (iii) the other party becomes subject to any bankruptcy or insolvency proceeding under applicable law, such termination being
effective immediately upon any declaration of bankruptcy, or (iv) a party is in breach of any material term, condition, or provision of
this Agreement, and such breach cannot be or has not been cured within five (5) banking days.

The Vertis Liquidity Provider Agreement shall be governed by the laws
of Hungary.

Redshaw Advisors Ltd.

The Trust has entered into a Framework Agreement for the Sale and Purchase
of Emissions Allowances (the “Redshaw Liquidity Provider Agreement”) with Redshaw whereby Redshaw is a Liquidity Provider
in connection with cash orders from Authorized Participants to create or redeem Trust Shares and, in that capacity, Redshaw delivers EUAs
to the Trust or delivers cash to the Trust and receives EUAs from the Trust, in each case, at the direction of the Sponsor. The Sponsor
selected Redshaw as a Liquidity Provider because of Redshaw’s position as a large participant in the EUA market that can provide
the access to EUAs that the Trust requires at competitive prices. Additional Liquidity Providers may be added in the future, at the sole
discretion of the Sponsor. The Sponsor is not aware of any relationship between Redshaw and any Authorized Participant or, except for
the Redshaw Liquidity Provider Agreement, the Sponsor.

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Under the Redshaw Liquidity Provider Agreement, the Trust and Redshaw
shall jointly determine the terms of the proposed transaction and verify the terms no later than one (1) business day after the trade
date, orally or in writing. Payment for and delivery of the EUAs will be due as agreed between the Trust and Redshaw. Delivery of the
EUAs is considered to be completed when the EUAs are credited to the Union Registry account of the acquiring party.

The Redshaw Liquidity Provider Agreement may be terminated at any time
by either party upon not less than thirty (30) days prior written notice delivered to the other party.

The Redshaw Liquidity Provider Agreement shall be governed by the English
Law.

The Marketing Agent

Foreside Fund Services, LLC, a Delaware limited liability company registered
as a broker-dealer under the Exchange Act and a member of FINRA, serves as the Marketing Agent. The Marketing Agent’s principal
office is located at Three Canal Plaza, Suite 100, Portland, ME 04101.

The Marketing Agent’s Role

The Marketing Agent’s responsibilities shall include: (1) working
with the Transfer Agent to review and accept or reject orders placed by Authorized Participants with the Transfer Agent; (2) reviewing
and approving all sales and marketing materials for compliance with applicable laws, and filing such materials with FINRA as required
by the Securities Act, and the rules promulgated thereunder, and (3) facilitating arrangements between the Sponsor, the Transfer Agent
and broker-dealers for the purchase and redemption of Baskets. All such sales and marketing materials must be approved, in writing, by
the Marketing Agent prior to use.

The Marketing Agent will generally make it known in the brokerage community
that prospectuses and product descriptions are available, including by (i) advising the Exchange on behalf of its member firms of the
same, (ii) making such disclosure in all marketing and advertising materials prepared and/or filed by the Marketing Agent with FINRA,
and (iii) as may otherwise be required by the SEC. The Marketing Agent shall not bear any costs associated with printing prospectuses
and all other such materials.

The Marketing Agent Agreement shall be effective on the date set forth
above, and unless terminated as provided therein, shall continue for two years from its effective date, and thereafter from year to year,
provided such continuance is approved annually by the Trust.

The Cash Custodian

State Street Bank and Trust Company, a Massachusetts trust company,
serves as the Cash Custodian. The Cash Custodian has a trust office at 1 Lincoln Street, Boston, Massachusetts 02110. The Cash Custodian
is subject to supervision by the Board of Governors of the Federal Reserve System.

The Cash Custodian’s Role

The Cash Custodian is responsible for holding the Trust’s cash
as well as receiving and dispensing cash on behalf of the Trust in connection with the payment of Trust expenses.

The Cash Custodian’s fees and expenses are to be paid by the
Sponsor. The Cash Custodian and its affiliates may from time to time act as Authorized Participants or purchase or sell EUAs or Shares
for their own account, as an agent for their customers and for accounts over which they exercise investment discretion. The Sponsor, on
behalf of the Trust, has entered into the Cash Custody Agreement with the Cash Custodian, under which the Cash Custodian maintains the
Trust Account.

The Cash Custody Agreement shall be in effect commencing upon the operation
of the Trust and shall continue until terminated.