With the decarbonization trend in full swing around the world, carbon ETF’s and stocks have become more accessible investments for retail investors than ever before.

In particular, Canadian investors will be pleased to know that options are starting to open up for those without access to the American markets, or those who would rather not deal with currency exchange and associated fees.

Previously, those who wanted exposure to the carbon allowance or offset markets had their choices limited mostly to products listed in the U.S.

However, earlier this February, the first Canadian-listed carbon credits ETFs hit the exchanges up north. We’ll cover the top carbon ETF’s of 2022 options below:

Horizons Carbon Credits ETF (CARB)

Listed on the Toronto Stock Exchange, Horizon’s Carbon Credits ETF (CARB.TSX) is the first carbon-credit-related investment product to list on the Canadian markets.

A passive fund based on the Horizons Carbon Credits Rolling Futures Index, CARB is comprised solely of European Carbon Allowance (EUA) futures, with contracts rolled forward as they expire.

Of the two major types of carbon allowance futures, EUAs had the superior performance last year, as the chart below shows:

Many of the other leading carbon credit investment products on the U.S. exchanges, such as the KraneShares Global Carbon Strategy ETF (KRBN), have holdings that are heavily weighted towards EUA futures over the other regional carbon credits, or are comprised of EUA futures entirely, like the iPath Series B Carbon ETN (GRN).

As such, CARB is a good choice for Canadian investors looking for an ETF similar to GRN, with an emphasis on European carbon allowances.

You can learn more about CARB here.

Ninepoint Carbon Credit ETF (CBON / CBON.U)

The Ninepoint Carbon Credit ETF (CBON) came in hot on the heels of the Horizon ETF (CARB), with the former launching on the NEO exchange just a week after the latter.

Similar to CARB, CBON’s holdings are comprised entirely of carbon allowance futures. Where they differ, however, is that CBON provides exposure to a mix of the three leading carbon emissions trading schemes:

The European EUAs,
The Californian CCAs, and
The RGGIs of the northeastern U.S. states.

This makes CBON more similar to the previously mentioned top U.S. carbon credit ETF KRBN, which also holds a mix of futures for all three types of carbon allowances.

Ninepoint is a leading alternative investment manager focused on the clean energy economy. With this Fund, investors can access the global emissions market, which is expected to grow significantly over the next couple of decades.

An orderly energy transition supports Canada’s long-term energy leadership and is supported by various incentives. The investment community is also contributing to the success of this transition.

For Canadian investors looking for something with more balanced exposure to the compliance carbon markets instead of just the E.U.’s Emissions Trading System like KRBN, CBON is a good choice.

In addition, CBON has a second, U.S. Dollar-denominated listing – CBON.U. This is the exact same product as CBON, just trading under U.S. Dollars instead of Canadian Dollars.

For those carbon conscious Canadian investors who already have investments or savings held in USD, choosing CBON.U instead can help eliminate the currency risk associated with making an investment in CBON.

You can learn more about CBON here.

The NEO ETF Tracker

The NEO exchange has launched user-friendly market intelligence portal to track all things ETF. It’s a place where investors can sort and filter for any particular ETF, providing a one stop location for real-time institutional grade market data.

This market expands the ESG and net zero markets by covering ETF’s from all across the Canadian market landscape.

Click here to go to the NEO ETF Tracker

Powering the NEO ETF portal is Trackinsight, which provides news data and analytics to many tier 1 digital media companies and platforms.

Most Canadians have access to online brokerage accounts and can easily access the following US based ETF as well.

KraneShares Global Carbon Strategy ETF (KRBN.NYSE)

KRBN is the world’s largest carbon ETF with a mix of carbon allowances from various compliance markets. It’s also one of the largest dollar volume ETF’s trading in the carbon markets.

KRBN is focused on providing exposure to the performance of various compliance markets. Retail investors and other financial institutions are already using these funds to invest in the carbon markets.

The ETF contains various types of carbon allowances available in different regions. Some of these include the European Union Allowances and the California Carbon Allowances.

Click here to learn more about KRBN.

Through its holdings, KRBN allows investors to add exposure to the performance of the compliance markets without having to purchase futures.

Those who believe that carbon allowance prices will continue to rise in 2022 will want to keep an eye on this ticker.

Carbon Streaming Corporation (NETZ.NEO and OFSTF)

It would be remiss to talk about Canadian carbon investments and not bring up NETZ, trading on the NEO exchange.

Not only was NETZ the first carbon-related investment of any kind to hit the Canadian markets, it also still remains the only listed company of its kind on any exchange.

In addition to being the first streaming/royalty type company in the carbon space, NETZ is also still one of the only companies focusing on carbon offset credits – the voluntary carbon market – as opposed to carbon allowances, which are tied to the compliance markets.

Since it’s an individual company as opposed to an investment product like an ETF, NETZ is a much higher risk investment than something like CBON or CARB. In addition, the voluntary carbon markets are still in their early stages, which further compounds the risk factors.

However, for Canadian investors with a greater appetite for risk, NETZ offers unique exposure to the voluntary carbon offset markets with a business model already previously proven to work in other sectors.

You can learn more about NETZ here.

Strong Carbon Net Zero Mandates

Due to the large number of companies that have announced their intention to be net-zero, and the amount of money that’s going into renewable energy, it’s becoming a major theme in the financial markets.

Among the tech companies that are leading this charge are Microsoft, Facebook, Netflix, and Apple. Mining and energy companies like Barrick, ConocoPhillips and Exxon are also making major corporate moves to go net zero.

The increasing number of investors interested in carbon will accelerate as 2025 and 2030 net zero target gets closer.

The post The Top Carbon ETF’s of 2022: Investing Ideas for Canadians appeared first on Carbon Credits.

In an effort to curb climate change, big companies like Microsoft, Google, and Starbucks are setting ambitious goals to achieve carbon neutrality and the Voluntary Carbon Market (VCM) is helping them to do so.

The VCM gives companies, non-profit organizations, governments, and individuals the opportunity to buy and sell carbon offset credits. A carbon offset is an instrument that represents the reduction of one metric tonne of carbon dioxide or GHG emissions.

To put this in perspective, to capture one ton of CO2 emissions you would have to grow approximately 50 trees for one-year ¹.

Companies that are unable to reach their greenhouse gas (GHG) emission targets can purchase carbon offset credits by investing in environmental projects that are designed to avoid, reduce, or remove carbon emissions.

For instance, an airline company that wants to claim carbon neutrality can calculate how many carbon emissions they are unable to get rid of. They can then purchase an equivalent amount of carbon offset credits by investing in a regenerative farming project in Brazil using the VCM. In doing so, the airline company can claim carbon neutrality.

What is the Difference Between the Voluntary Carbon Market and the Compliance Market? 

The compliance market is regulated by national, regional, or international carbon reduction regimes. These markets operate under a cap-and-trade system where only a certain amount of ‘allowances’ (basically a permit that ‘allows’ you to emit GHGs) are created. This then limits the amount of GHGs that can be emitted by a country or industry.

The cap represents a finite supply of allowances. You can’t create or remove allowance but they can be traded.

If an industry is able to achieve its mandated targets or, better yet, if they emit less than they were allowed, it can sell the extra credits to someone else. The ability to trade surplus credits can financially motivate participants to reduce their overall emissions.

Examples of compliance carbon markets include the Kyoto Protocol, The European Union emissions trading system, the California emissions trading system, the Australia emissions trading system, the British Columbia emissions trading system, and the New Zealand emissions trading system.

The voluntary carbon market functions outside of the compliance market. Those that participate in this market are not required to reduce their emissions, it’s entirely voluntary. Many companies participate because they feel it is the socially responsible thing to do, because of shareholder pressure, or because it’s a good PR move.

Instead of a cap-and-trade system, the VCM uses a project-based system in which there is no finite supply of allowances.

Within the VCM more carbon credits can be created through the development of environmental projects. These credits can be purchased by companies in order to offset unavoidable emissions and reach their targets.

Voluntary vs. Compliance Market

Voluntary Market
Compliance Market 

Exchanged Commodity
Carbon offsets. Facilitated by the project-based system
Allowances. Facilitated by the cap-and-trade system.

How is the market regulated?
Functions outside of the compliance market.
National, regional or international carbon reduction regimes E.g. Kyoto Protocol, California Carbon Market

What is the price?
Voluntary credits tend to be cheaper because they cannot be used in compliance markets.2 The price is impacted by project type, project size, location, co-benefits, and vintage.
Compliance credits tend to be more expensive because they are driven by regulatory obligations.3

Who can purchase credits?
Businesses, governments, NGOs, and individuals
Companies and governments have adopted emission limits established by the United Nations Convention on Climate change

Where do credits trade?
Currently no centralized voluntary carbon credit market. Project developers can sell credits directly to buyers, through a broker or an exchange, or sell to a retailer who then resells to a buyer.
Companies that surpass their emission targets can sell their surplus credits to those looking to offset emissions. Credits can be sold under the Kyoto Protocols emissions trading scheme.4

What Type of Environmental Projects are Found in the VCM? 

The VCM offers a wide variety of environmental projects to interested investors. The goal of all of these projects is to reduce or remove GHG emissions or carbon dioxide from the atmosphere.

Projects range from small community-based activities such as clean-cookstoves, to large industrial-style projects including high-volume hydro plants and commercial reforestation.

Community-based projects typically produce smaller volumes of carbon credits but also generate more additional socio-economic and environmental co-benefits.5

A co-benefit can include anything from saving endangered animals from extinction to improving local water quality or creating sustainable jobs. Project developers often align co-benefits with the UN’s Sustainable Development Goals (SDGs) as these co-benefits can help to increase the overall value of a credit.

Large industrial projects are capable of producing larger volumes of carbon credits but don’t always generate strong co-benefits. As a result, credits from these large projects may trade at a discount compared to the projects that achieve SDGs.

Source: Taskforce on Scaling Voluntary Carbon Markets – Summary Pack, 2021

While there are a wide variety of projects to choose from, they all have one thing in common. To be part of the VCM, each project must be “additional.”

This means that the removal or reduction of carbon or GHGs would not have occurred without the offset project.

For instance, a project developer looking to preserve a forest that is to be clear cut in Vietnam will have to prove that if the proposed project did not occur, the forest would be cut down.

Examples of the types of projects that can be invested in on the VCM include:

Renewable energy
Industrial gas capture
Energy efficiency
Forestry initiatives (avoiding deforestation)
Clean water
Regenerative agriculture
Wind power
Biogas
Oil recycling
Solar power
Water filters

Who participates in the VCM?

There are several key participants actively involved in the VCM. These participants include:

Project developers. Project developers work to produce the carbon credits that other sectors or industries will buy.
Consumers. This group is made up of private companies, NGOs, governments, universities, and individuals that purchase carbon credits from producers.
Retail traders. Traders purchase credits in bulk from suppliers, bundle the credits in portfolios, and then sell them to the end buyer, usually for a commission.
Brokers. A broker will buy carbon credits from a trader and market them to a consumer. A broker will typically charge a commission. It is common for a broker to also act as a trader.
Third-party verifiers. These are organizations, typically NGOs, that verify that a project meets its stated objectives and volume of emissions.

What is the pricing for VCM vs the compliance markets?

The pricing of carbon credits in the VCM is not as straightforward as it is in the compliance market. This is due to the many types of environmental projects that are available. Prices vary widely according to the category of the project (e.g. renewable energy vs. forestry) and even within a particular category. Several other variables also contribute to how a carbon credit is priced, including:

Size of project. Larger projects that produce higher volumes of carbon credits are often associated with a lower price. Smaller projects are often more expensive to implement but produce fewer carbon credits.
Location of offset. Where does the environmental project take place? Locations where there is conflict and higher risk may make the project more expensive.
Vintage. What year did the emission reduction occur? Older projects are typically priced lower.
Quality. The standard in which the project was certified can affect the price.
Co-benefits. A co-benefit is any positive impact that is produced by the project above and beyond GHG emissions. For instance, if a project creates jobs for local communities or increases biodiversity, these would be considered co-benefits.

According to a 2020 report by the World Bank, carbon prices on the VCM start at less than US$1/ton CO2e and increase to US$119/ton CO2e and almost half of emissions are priced at less than US$10/tCO2e.6

Rabobank, a Dutch multinational banking financial services company, reports that renewable energy projects have the lowest average prices at US$ 1.4/ton CO2e while projects in forestry and land use are on the higher end of the scale at US$ 4.3/ton CO2e.7

Pricing can also be affected by the co-benefits generated by the project. Projects that meet the UN’s SDGs can help to increase the value of the carbon credits.

Larger scale projects that don’t generate as many co-benefits or don’t meet the additional SDGs may trade at a discount.

To meet the temperature goals outlined in the Paris Agreement, the High-Level Commission on Carbon Prices stated that prices of at least US$40-80/tCO2 were required by 2020 and US$50 to $100/tCO2e are required by 2030.8 The OECD estimates a price of US$147 is needed by 2030 to reach net-zero emissions by 2050.9 

In the compliance market, the current weighted carbon price is $34.99.10 This is considerably higher than the VCM pricing but still below the High-Level Commission threshold.

The bottom line when looking at both the VCM and compliance markets is that the current carbon prices are too low to meet targets.

Where do these Credits Trade?

There is currently no centralized voluntary carbon credit market.11 Instead, project developers, or companies can sell their credits directly to buyers or through a broker. Project developers can also sell their credits to a retailer who can then resell the credits to a buyer. All voluntary credits must be verified by an independent third party and must adhere to existing standards.

Voluntary Demand Scenarios

There is incredible demand projected for the voluntary market. According to the Taskforce on Scaling Voluntary Markets, the market is projected to grow to around 15-fold from 0.1 to 1.5-2 GtCO2 of carbon credits per year in 2030.

And that will sacle up to a maximum of 100-fold by 2050 (7-13 GtCO2 of carbon credits per year).

Producing this incredible scale of carbon elimination will be a massive challenge. And it will provide many nations and corporations with incredible opportunities. As the taskforce mentions in their 2021 report,

“This underlines the need for emissions reduction to be implemented as urgently as possible, and likely at a faster pace than identified in the NGFS scenarios.”

Who verifies the Variable Carbon Market Credits? 

When purchasing carbon offset credits, consumers should only consider offsets that are third-party verified.

There are a number of standards that use different methodologies for measuring and verifying carbon emission reduction. These standards provide a robust verification process to ensure the credibility of emission reduction projects. The most widely used standard include:

Verra (The Verified Carbon Standard)
Plan Vivo
The Gold Standard
The American Carbon Registry
Climate Action Reserve
The Verified Carbon Standard Program

Can regular Mom-and-Pop Investors Invest in Voluntary Credits?

The VCM is open to anyone who wants to participate. From businesses to governments, non-profits, universities, and even individual investors.

If you are taking a long flight or vacationing on a luxury yacht and you want to absolve your environmental sins, you can purchase carbon credits to offset your emissions. In fact, many airlines are making it easy for individuals to offset their flights. These airlines list the amount of CO2 emitted by the flight and then give customers the opportunity to fly net-zero for a price which is offered at checkout.

The Bottom Line

Voluntary carbon credits are here to stay. More and more companies and individuals are feeling the need to do their part to reduce their carbon footprint. And, for companies that want to achieve carbon neutrality, the VCM is often a necessary tool.

References

¹ Climate Neutral Group. What Exactly is 1 Tonne of CO2? Accessed Aug 4, 2021
2 Carbon Offset Guide. Voluntary Offset Program. Accessed Aug 3, 2021
3 Carbon Offset Guide. Mandatory & Voluntary Offset Markets. Accessed Aug 3, 2021
4 UN Climate Change. Emissions Trading. Accessed Aug 3, 2021
5 S&P Global. Voluntary Carbon Markets. Accessed Aug 3, 2021
6 World Bank. State and Trends of Carbon Pricing 2020. Accessed Aug 4, 2021
7 Rabobank. Can voluntary carbon markets change the game for climate change? Accessed Aug 5, 2021
8 World Bank. Report of the High-Level Commission on Carbon Prices. Accessed Aug 5, 2021
9 UN Environment Programme. Discussion Paper on Governmental Carbon-Pricing. Accessed Aug 5, 2021
10 Carbon Credit Capital. Value of Carbon Market Update 2021. Accessed Aug 5, 2021
11 White & Case. Voluntary Carbon Markets:A Blueprint. Accessed Aug 5, 2021

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Policymakers in the European Union are looking at carbon market reforms. The goal is to make it easier for policymakers to interfere in the system if prices climb too quickly.

The EU emissions trading system (ETS) comprises a dwindling number of carbon offset permits that emitters must purchase to offset their emissions.

In the last year, the carbon prices increased by almost 150%, recently reaching record highs of 98.49 Euros per tonne of CO2.

The proposed amendment goal is to make it easier to issue additional carbon offset purchase licenses during periods of rapid price increases.

The rationale for the modification according to German lawmaker Peter Liese is that “high carbon prices have led to concerns regarding excessive price increases and market volatility. Any intervention, however, should avoid price shocks or sudden volatility”

The current regulations of the EU ETS allow nations to add more permits under certain circumstances.  If the carbon price is 3x the average price in the 2 prior years for at least 6 months, they can add more permits.

Some policymakers are arguing that this does not reflect market realities. Their plan is to release an additional 100 million carbon permits from its “market stability reserve” if the carbon price is 2x the average price in the 2 prior years for at least 6 months.

The market stability reserve is a pool of surplus permits that have been pulled from the market to help provide stability.

Before Parliament and EU governments draft the final law, EU parliamentarians will discuss and vote on their final position in June.

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Researchers at the University of Delaware developed a way to capture 99% of carbon dioxide from the air.

This new technology involves an electrochemical system powered by hydrogen.

“It turns out our approach is very effective. We can capture 99% of the carbon dioxide out of the air in one pass if we have the right design and right configuration,” said Professor Yushan Yan who led the research.

Here’s why this new carbon capture technology is so important.

Researchers at UD  focused on Fuel Cell Energy for many years.

Simply put, this is where fuel cells convert fuel chemical energy into electricity. They can use that electricity to power hybrid or zero-emissions vehicles.

But researchers faced a bit of a problem.

When exposed to CO2, fuel cells lose efficiency.

So, Yan’s research team has been searching for a solution for more than 15 years.

And that search is what led them to this discovery.

First, researchers found a way to implant the power source for this electrochemical technology inside a separation membrane. Then, they developed a filtration membrane that could separate gases – like carbon dioxide.

Best of all, the tech is practical and affordable. So, for a vehicle, the device would only be about the size of a gallon milk container.

Long-term, researchers believe they could use this technology within planes and buildings.

“We have some ideas for a long-term roadmap that can help us get there,” said Brian Setzler, assistant professor for research in chemical and biomolecular engineering and the paper’s co-author.

The race to reduce CO2 emissions.

The world sees the effects of climate change.

Companies are working to develop new technology to reduce their carbon footprint to accomplish this. They are investing in carbon credits and carbon offsets too.

So, as carbon capture becomes more accessible, it can also be a part of the climate solution.

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