Carbon Credits is the new Canadian gold rush

Startups selling CO2 credits are the next big thing hitting Canada’s stock markets, which have long attracted risky companies from volatile cannabis producers to risky mining companies.

Nearly a dozen startups are expected to list their shares on Canadian stock exchanges to fund CO2 credit purchases or invest in credit bureaus, according to bank and stock exchange officials.

These CO2 credits are in high demand. They are supposed to reduce the amount of carbon in the atmosphere by funding things like new technologies or forest conservation. Businesses and individuals buy them to effectively compensate for their own carbon emissions generated by things like operating factories or flying.

Startups are eager to meet this demand. “It’s becoming the Wild West out there,” said Philip Hardwick, chief operating officer of Base Carbon Inc., which seeks high-quality credits. “There is such a rage for CO2 credit projects that the risk is greater that you will support the wrong one who does not help the environment.”

Some recently launched Canadian ventures create CO2 credits by distributing wood-burning stoves that reduce carbon emissions or by growing new forests that store greenhouse gases. Others earn CO2 credits by preventing threatened deforestation. A new company joins a company that injects captured carbon emissions into fresh concrete.

Companies expect to sell the credits to eager buyers. A single carbon credit is created for every tonne of carbon dioxide captured or protected from endangered emissions and verified by independent experts. The credit market is now valued at hundreds of millions of dollars, but those involved see it grow to tens of thousands of dollars in the coming years.

The boom in CO2 credit companies is well-known area for Toronto markets. When Canada legalized recreational marijuana in 2018, markets took off. The total market value of five dominant Canadian cannabis companies rose to nearly $ 40 billion, but has since fallen by more than half.

Canadian exchanges have also hosted many high-profile failures, including some economic fraud. Among them were Sino-Forest Corp., which erroneously claimed rights to harvest timber in China, and Bre-X Minerals Ltd., which proclaimed a massive gold find in Indonesia that could not be proven.

There are parallels between CO2 credit providers and marijuana producers and miners. Carbon credits were designed to finance new technologies that are typically considered too risky for banks and ordinary investors.

“We need a lot of capital to develop these CO2 reduction projects, which inherently involve a lot of risks,” said Base Carbon’s founder Josh Crumb, a former commodity strategist for Goldman Sachs. “That’s why we list in Canada. You need speculators to invest.” One of the company’s largest shareholders is Robert Friedland, who supported such long-term mining prospects as Voisey’s Bay nickel mine in Newfoundland and a copper and gold project in Mongolia.

Money is a turning point in climate negotiations around the world. As economists warn that limiting global warming to 1.5 degrees Celsius will cost many more trillions than expected, the WSJ is looking at how the funds can be used and who should pay. Illustration: Preston Jessee / WSJ

Base Carbon listed on Toronto’s NEO Exchange in early March, days after Russia’s invasion of Ukraine. Since then, the share price has fallen almost 30%. The company earns carbon credits by investing in projects such as smoke-reducing stoves and reforestation.

The first CO2 credit company on NEO was Carbon Streaming Corp.

OFSTF -3.84%

, which was built in July last year. It owns rights to about 70 million carbon credits generated by a peat swamp forest on the Indonesian part of the island of Borneo. Tension over the company’s prospects sent its shares up more than 160% last year. Indonesia said this month that it is stopping new verifications of carbon credits from the peat bog and other regions, which worries investors. Carbon Streaming’s shares have fallen by 60% since December.

“We need a lot of capital to develop these CO2 reduction projects, which inherently involve a lot of risks.”


– Josh Crumb, founder of Base Carbon

The company’s CEO, Justin Cochrane, said the Indonesian government’s action will not affect the company’s plan to sell credits that were previously verified, and he expects the situation to be resolved soon. A former mining and forest product banker, Mr. Cochrane said funding projects in remote and politically unstable regions is tough and time-consuming.

“There will be carbon cowboys in this industry who believe it’s going to be easy to succeed, but I think it’s going to be a lot more challenging than I even thought it would be,” he said.

Among the supporters of new CO2 credit companies are half a dozen executives from Canopy Growth Corp., a Canadian cannabis company. They started Invert Inc. to buy CO2 credits and sell them to businesses and consumers using platforms like mobile phone apps.

Invert Executive Chairman Mark Zekulin, formerly Canopy’s co-CEO, said his experience at Canopy was good training for CO2 credits. “Cannabis was not for the faint of heart,” he said. “We learned a lot from that.”

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Invert recently formed a partnership with US cryptocurrency firm Ripple Labs Inc. to invest $ 30 million in Canada’s CarbonCure Technologies Inc. in exchange for the right to carbon credits. CarbonCure sells systems that inject captured carbon emissions into fresh cement. Its investors include Amazon.com Inc.

and Microsoft Corp.

The haste to pick up credits has led to a number of questionable offers. Critics say credits should fund the reduction of greenhouse gas emissions instead of just giving money to projects that already exist, such as forests, or that do not need funding.

Base Carbons Mr. Hardwick said a European broker specializing in CO2 credits recently tried to sell him a portfolio of CO2 credits generated in 2015 by a wind farm in China where renewable energy projects are heavily funded by the government.

“There is no way that a wind farm in China needs financial help. This is not a vanguard in terms of carbon financing,” Mr. Hardwick said.

Write to Jacquie McNish at jacquie.mcnish@wsj.com

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