Carbon Credit Firms Are Listing in Speculative-Friendly Canada

Canada may be parodied for its purportedly uptight politeness and staid banking culture, yet when it comes to the country’s equity markets, The Great White North has behaved more like the Wild Wild West.

Take the latest example. A growing number of startups sell carbon credits — speculative vehicles that many traditional investors still regard with suspicion. What do Canada’s indexes say? They’re Eh-Okay.

It’s Either Make Believe or Maple Leaf

According to banking officials who spoke to The Wall Street Journal, roughly a dozen carbon-credit startups are lined up to list their shares on Canadian exchanges. Carbon credits are tradeable permits that companies can buy to offset emissions. The credits fund new technologies as well as the preservation or expansion of environmental reserves — approaches that help fight climate change.

The trading of carbon credits is a stable market valued at hundreds of millions of dollars, yet a substantial concern remains: climate finance consultants, experts, and environmental groups have suggested that carbon credits either don’t deliver the amount of carbon reductions promised or end up funding experimental technology that ultimately goes nowhere. Companies then claim credit for activity that does little for the environment, which critics call greenwashing.

This is precisely why carbon credits are still seen by many as both speculative and dubious. Which brings us to Canada, a country whose markets have been surprisingly open to industries and companies that might not pass a full background check.

• After Canada legalized marijuana in 2018, the five largest Canadian cannabis companies reached $40 billion in value on the promise of a massive new speculative market. They have since lost over half their value.
• The speculative concerns are already materializing. Base Carbon, which listed on Toronto’s NEX exchange last month, is down 30%. Carbon Streaming Corp, which listed last year, is down 60% since December.

“We need a lot of capital to develop these carbon-reduction projects that by their nature involve a lot of risk,” Josh Crumb, Base Carbon founder, and former Goldman Sachs commodities strategist, told the WSJ. “That is why we are listing in Canada. You need speculators to invest.”

If Past is Prologue: Evidence suggests regulatory scrutiny of the carbon-credit market could stir trouble. According to the Global Sustainable Investment Alliance, after the EU introduced anti-greenwashing rules, the European market for sustainable investments shrunk by $2 trillion between 2018 and 2020.