Canada’s forthcoming climate taxonomy, which puts forth standards for identifying green investments, does a good job of a delicate balancing act.Michael Dwyer/The Associated Press
Jonathan Arnold is research lead for clean growth at the Canadian Climate Institute. Jim Leech is the advisory board chair at the Institute for Sustainable Finance and is chancellor emeritus of Queen’s University.
The race to attract global capital to finance Canada’s net-zero transition is accelerating faster than anyone expected. To keep up with the global shift to clean energy sources in response to climate change, Canada’s transition requires more than $80-billion each year in new investments, most of which needs to come from the private sector. Yet financing this transition is now more challenging for Canada with the passage of the U.S. Inflation Reduction Act, which is poised to offer investors juicy returns south of the border.
A newly announced climate investment taxonomy – a system that will create standardized labels for different types of investment – will soon be released. Developed and supported by Canada’s 25 largest financial institutions through the federal Sustainable Finance Action Council, it is a major step toward shoring up Canada’s competitiveness. The framework would specify what investments are – and are not – aligned with global climate objectives. The initial taxonomy, developed with research support from the Canadian Climate Institute and the Institute for Sustainable Finance, not only defines “green” investments but also the more controversial “transition” investments.
Canada is among the last of the countries in the G7 and G20 to develop this type of taxonomy. However, it’s making up for lost time by providing a concrete framework to categorize transition activities: the parts of Canada’s emissions-intensive economy that can successfully be transitioned to align with a net-zero future.
Defining this transition category is admittedly harder than identifying green investments and requires a delicate balancing act, as identifying high-polluting activities that have viable, credible transition pathways is more complex. Yet the proposed taxonomy for Canada walks the line well.
Successfully landing a climate investment taxonomy in Canada will be crucial to securing the country’s energy transition and future prosperity. It will not only help mobilize private finance toward new, green growth, but it will help Canada decarbonize and transition its existing, emissions-intensive engines of growthto cleaner alternatives. If it’s done well, the Canadian framework could be adopted by countries around the world that will be watching closely.
Climate taxonomies act like a gigantic sorting hat for the financial system, offering a standardized and science-based way to determine whether specific projects align or don’t align with climate goals. In doing so, taxonomies can help clear up the avalanche of misinformation and greenwashing that currently plagues climate finance globally. At the same time, taxonomies ensure that investment dollars flow to the projects most urgently needed to drive the energy transition, such as renewables, batteries and storage, or clean hydrogen. Critically, taxonomies are an essential complement to other climate policies, such as regulations and carbon pricing (and not a substitute).
Fundamentally, the new taxonomy is designed to build and maintain the confidence of global capital markets seeking to align investments with net-zero pathways. This is why the whole framework is grounded in climate science and the Paris Agreement goal of keeping the rise in global temperature below 1.5 degrees relative to preindustrial levels. Anything less than this ambitious goal would undermine the taxonomy’s credibility.
Take, for example, how the framework treats oil and gas projects. It recognizes that reducing emissions from existing production iscrucial in the short term, and transition-labelled investments could fund technologies that have value long into the future (for example, carbon sequestration infrastructure). New oil and gas projects, or expansions of existing projects, would be ineligible for taxonomy financing. And existing projects would only be eligible if the investment makes significant and transformational reductions in the emissions associated with producing oil and gas.
The framework could also unlock transition capital for other heavy-emitting sectors. Efforts to electrify Canada’s steel and auto manufacturing sectors, for example, could qualify as transition investments, as could other important projects, such as making low-carbon hydrogen from natural gas or low-carbon chemicals to fuel hard-to-decarbonize sectors.
Successfully defining transition activities in this way could have huge benefits for Canada’s entire economy. Decarbonizing Canada’s most energy-intensive and export-oriented sectors is fundamental to the country’s economic prosperity: They directly employ over 800,000 workers. The more these sectors can reduce emissions, the more competitive they will be in a global low-carbon economy.
Time is of the essence. Regulators and government, in collaboration with the financial sector, must move quickly to turn this framework into a practical, independent and science-based tool to evaluate projects and portfolios. As the race for global capital accelerates, demonstrating credible and transition-aligned investment pathways in Canada has never been more important.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
