With COP26’s conclusion, I thought it might be a good time to talk about the opportunity Canada and Canadian companies have when it comes to trading carbon credits.

 Generally, when two different countries or provinces trade, they both should benefit in one way or another, whether it be their unique circumstances and/or expertise. To illustrate, let’s say 100 workers in Saskatchewan can produce 100 units of wheat, but in Alberta, the same amount of workers produce 50 units over the same time frame. Inversely, 100 workers in Alberta can produce 100 units of energy, but in Saskatchewan, the same amount only produce 50 units of energy. In this example, Saskatchewan is twice as good at producing wheat and Alberta is twice good at producing energy. Now, if each of the provinces would focuses on what they're good at, then 200 Alberta workers will produce 200 units of energy and the 200 Saskatchewan workers will produce 200 units of wheat. If the two provinces decide to trade 100 units of energy for 100 units of wheat, each province will be left with 50 units more than if they did it themselves. This is the magic of trading.

Like it or not, a global trading scheme was agreed upon in Glasgow at COP26. Countries and companies that have the unique circumstances and expertise to create projects that produce carbon credits will be able to trade them with countries and companies that need to offset carbon emissions. In Canada, the price of carbon will go up every year until it hits $170 per ton in 2030. If a company in Canada can buy a carbon credit for less than the carbon tax that’s payable at that time, then they will do that trade. The size of this market has the potential to be bigger than most people can imagine. Hopefully Canada, and Canadian companies, will use our competitive advantage (carbon sequestration comes to mind) to take part in what might be one of the biggest markets in the world.

Regardless of what Canada does, we will be looking for companies to invest in that which will benefit from a carbon credit trading system.

I've also included a piece from our CIBC Economics Team entitled “The climate is the business climate?’”.

If you have any questions please feel free to give us a call.

Have a great weekend

Milan