More voluntary carbon offset firms are listing in Canada. Some environmentalists aren't sold
Global market for voluntary carbon offsets expected to hit $250B by 2050, Morgan Stanley predicts
A small stock exchange in Toronto has become a global hub for companies trading in voluntary carbon offsets and more growth is expected, raising questions about the effectiveness of the new investments for fighting climate change.
The Cboe Canada exchange has become the "most public venue" in North America for companies selling voluntary carbon offsets to list their shares and raise capital, a senior executive said.
"I have not seen any other exchanges pushing that agenda [of voluntary carbon offsets] the same way we have," Erik Sloane, chief revenue officer for the Cboe Canada exchange, said in an interview. "We are certainly the most public and transparent about it at this stage."
The exchange lists the shares of about half a dozen voluntary carbon offset trading firms, said Sloane, who expects that "could easily double" in the next 18 months, as investor interest in the emerging sector grows.
While more companies trading in paper representing carbon emissions are setting up in Toronto, many environmentalists aren't convinced the buying and selling of voluntary offsets will do much to reduce climate change. Some say growth in the sector could actually make the problem worse.
"For companies [buying voluntary offsets] it appears they are doing something environmentally worthwhile but there is this risk of greenwashing," said Stefan Pauer, a former European Commission official whose work included tracking the impacts of voluntary offsets. He concluded they did little to help the planet.
"Using offsets is likely detrimental for reducing climate change, as they help prevent meaningful government action," Pauer, who now works for the think-tank Clean Energy Canada, said in an interview.
Businesses investing in voluntary carbon offsets say the tool is one of many for combating climate change, and putting a price on pollution can help address the problem while funnelling more money to conservation projects.
Regardless of their impact, interest in voluntary offsets is increasing as firms sell complex new financial instruments amid the climate crisis.
Morgan Stanley, an investment bank, expects the global market for voluntary carbon offsets will surge from $2 billion US in 2020 to more than $250 billion US by 2050.
The Wall Street Journal newspaper called the wave of carbon offset companies listing in Toronto a "new Canadian gold rush."
How it works
Voluntary carbon offsets are supposed to represent emissions of climate changing carbon dioxide that have been removed from the atmosphere by projects such as planting trees, preserving rainforests or switching to more environmentally friendly cooking methods.
Companies or individuals can purchase these voluntary offsets to compensate for their own pollution. For instance, if someone wants to make up for the climate changing carbon dioxide released by flying to Europe, they can buy voluntary offsets.
The same is true for large corporations looking to burnish their green credentials; big energy, technology and consumer products firms often buy the offsets to highlight in their sustainability reports, Justin Cochrane, the founder and CEO of Toronto-listed Carbon Streaming Corporation, said in an interview.
Part of the appeal of Toronto as a listing venue for upstart carbon trading firms stems from the large number of mining and energy companies listed on exchanges in the city, along with proximity to U.S. investors, said Sloane.
One of the largest offset companies trading on the Cboe exchange is Carbon Streaming Corporation, Sloane said, adding it "opened our eyes to a whole world of impact investing."
The company invests in 22 voluntary offset projects around the world, out of an estimated total of 6,000 globally across the whole industry, Cochrane said.
Getting average people to understand the voluntary carbon offset market and what exactly his business does is one of its biggest challenges, he said, providing an example of how the investments work from one of the company's projects.
Carbon Streaming has provided $15 million to a company reforesting areas of the western U.S. ravaged by wildfires. That capital goes to costs such as buying seedlings, paying for the tree planting and forestry analysis, the CEO continued.
Once the forests start regrowing, the land generates carbon credits, as the new forests suck carbon dioxide out of the atmosphere. Cochrane said the company then sells those new credits to corporate buyers, keeping about 20 per cent of the revenue and putting the rest back into the management of the forests.
"Planting trees to offset corporate emissions isn't, of course, as good as companies reducing their own emissions themselves," Cochrane said.
"Most companies are doing both: reducing their own emissions and buying credits," he said, noting that companies that actively purchase voluntary offsets are typically leaders in reducing their own emissions.
Pauer is especially skeptical of these kinds of forest-based carbon offsets, as the risk of wildfires rises with climate change.
"Wildfires essentially make offsets go up in smoke and any reductions they have claimed to produce are gone with it," he said.
Money-losing businesses
Voluntary offsets are just one of the different markets for carbon emissions in Canada. Alberta runs its own compliance trading system, which means large emitters of carbon dioxide are legally mandated to purchase offsets to address some of their pollution if they don't make enough other reductions.
Quebec is part of a different carbon trading system with California, and a system for trading in offsets launched by the federal government should have credits available for purchase in 2024, a spokesperson for Environment and Climate Change Canada said.
Carbon trading firms listed in Toronto have their investor disclosures and activities regulated by the Ontario Securities and Securities Commission just like any other public company, a spokesperson for the independent Crown agency said via email.
The spokesperson didn't respond to specific questions about whether the regulator tracks whether the offsets being sold by Toronto-listed companies are, in fact, doing what they claim to be related to reducing climate change, and declined under standard practice, to comment on the activities of individual firms.
Other carbon offset firms listed in Toronto, including Base Carbon, did not respond to requests for comment.
As wildfires linked to climate change rage across Canada, along with broader debates about the environmental impacts of voluntary carbon offsets, the sector hasn't been a winning bet for investors so far.
The Horizons Carbon Credits ETF, a Toronto-listed fund which tracks companies across the sector, has lost more than eight per cent of its total value since it was launched in 2022, poor performance compared to the broader Toronto Stock Exchange, which is up about seven per cent in the last year.
Ninepoint Carbon Credit ETF, another fund that tracks the sector and has a listing on the Cboe exchange, is down about 14 per cent since its launch in 2022.
Despite losses in the nascent sector, Carbon Streaming Corporation's Cochrane said he believes his company will be profitable by 2024. The impact of voluntary carbon offsets on the broader climate crisis, however, is still hotly debated.
"I have been running this company for four years and global emissions keep going to record highs," said Cochrane. "It's not easy."
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