Comparing Canadian Carbon Credit ETFs
While several carbon credit funds exist in the US, this post will compare three Canadian carbon credit ETFs. We’ll help readers determine whether investing in carbon credits is a good strategy for your portfolio and if so, which ETF is the best.
What are Carbon Credits?
Carbon credits are a tradable permit that allows organizations, governments, or individuals to emit a specific amount of greenhouse gases, such as carbon dioxide, into the atmosphere. The concept behind carbon credits is to create a financial incentive for reducing greenhouse gas emissions, by putting a price on carbon pollution.
Currently, the largest carbon offset markets are in the EU & California.
Do Carbon Credits support ESG investing?
Maybe. Investors need to agree that pricing carbon is an effective way to incentivize emitters. On its face, a higher price for carbon gives emitters a greater financial incentive to reduce their emissions. So, investing in carbon credits drives up their price and supports a low carbon transition.
But, whether investing in carbon credits is profitable or not will depend a lot on government regulation. Changes in policy will impact the price for carbon credits, and therefore, the incentives for producers and the outcomes for investors.
Overall, the market for carbon credits is expected to grow and investors are pouring more money into this space. So, investors should expect the value of carbon credits to grow over time.
How to invest in Carbon Credits?
For Canadians, there are three carbon credit ETFs available:
All three carbon credit ETFs provide long exposure to the carbon credit markets. They do this by purchasing futures contracts. Therefore, investors in these funds benefit when the price of carbon goes up and lose when it falls.
None of these funds pays distributions as investing in carbon credits does not generate income directly.
Its also worth noting that each of these ETFs is relatively small. This means that wealthy investors will have a tough time buying and selling blocks of shares in the millions of dollars. In fact, even trading a few hundred thousand at a time will require a bit of “finesse”. This lack of liquidity makes carbon credit ETFs unsuitable for more wealthy investors.
| MER | Markets | Symbol | |
| Horizons Carbon Credit ETF | 0.94% | EUA | CARB |
| TD Global Carbon Credit Index ETF | 0.71% | EUA, CCA | TCBN |
| Ninepoint Carbon Credit ETF | 0.75% | EUA, CCA, RGGI, UKA | CBON |
Overall, carbon credit investing is an interesting and emerging investing trend. But, for wealthy investors, carbon credit ETFs should not be an area of focus. There may be better ways for wealthy investors to generate returns from the carbon credit market. This could include generating income by selling carbon credits from cultivating forestland.
Thinking Differently
Investors who support environmental sustainability have a variety of investment strategies to consider. And, our family office can do the work required to meet sustainability goals by structuring investments tailored to your specific needs. We work with experts from a variety of backgrounds who can custom structure investment vehicles to match your sustainably goals. Please contact us to learn more about our services that support ESG investors.
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