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Carbon Streaming looks set for long term revenue growth from trading carbon credits and pursues a listing on a major exchange

The carbon credits market has been doing very well the past year. The world’s first and largest market for trading carbon credits is the European Union Emissions Trading System (EU ETS). Under the EU ETS, regulated entities buy or receive emissions allowances, which they can trade with one another as needed. The EU ETS works on the ‘cap and trade’ principle as you can read here. The key is that emitters can purchase carbon credits and if they exceed their emissions caps they are fined heavily. Meanwhile, companies that reduce carbon emissions (renewable energy, forestry etc) can earn money by selling their carbon credits. The idea is that by placing a cost on carbon it helps motivate emitters to reduce emissions.

Reports have indicated that a carbon price in excess of US$100/t may be needed by 2030 in order to stay below the temperature goals contained in the Paris Agreement.

Today’s company aims to accelerate the world’s transition to a net-zero carbon future by bringing capital to projects that might not otherwise be developed. In return for the capital, the company receives their carbon credits.

EU Carbon permits prices have risen 162% over the past year

EU Carbon permits 1 year price chart

Source: Trading Economics

Note: Carbon credit pricing varies globally and by market. In the voluntary market prices are closer to only an average of US$12/t CO2e as of December 2021.

Carbon Streaming Corporation (NEO: NETZ | OTCQB: OFSTF) offers a way for investors to invest into the growth of the carbon credit market. It acts as an investment vehicle, purchasing carbon credit revenue streams in return for an upfront payment. If the value of the carbon credits goes up or can be sold later at a profit then the stream becomes more valuable, thereby potentially boosting the value of the carbon streaming acquirer. Revenues and profits will also depend on quality and return on investment of the streaming deals that are made.

Carbon Streaming currently has a portfolio of 3 to 4 global carbon credits projects which are:

  • Rimba Raya (Borneo, Indonesia)
  • MarVivo Blue Carbon (Baja California Sur, Mexico)
  • Cerrado Biome (Cerrado, Brazil)
  • Bonobo Peace Forest (DRC, Africa) – Subject to FS results.

Carbon Streaming Corp.’s current portfolio of 3 to 4 carbon credit projects

Source: Carbon Streaming Corporation company presentation

Note: Carbon Streaming Corporation has only made an initial investment in the Bonobo Peace Forest, which will be directed to prepare Feasibility Studies and establish initial project activities. Hence why the chart says “3 to 4” projects.

Catalysts and strategy in 2022 for Carbon Streaming Corporation

In 2022 Carbon Streaming intend to achieve the following:

  • Acquiring additional carbon credit stream and royalty investments to grow the portfolio. The Company has a pipeline of potential opportunities of $200 million near term (<12 months), out of a total pipeline of $700 million.
  • Achieving revenue from the sale of carbon credits (see image below).
  • Executing on a US listing on a major U.S. stock exchange, targeted within H1, 2022.

2022 estimated carbon credits to be received by Carbon Streaming Corporation from Rimba Raya and Cerrado Biome

Source: Carbon Streaming news release January 18, 2022

CEO Justin Cochrane stated in January 2022: “Moving into 2022, we anticipate the delivery of approximately 7.0 million carbon credits from our existing stream investments, announcing new carbon project investments around the globe and deepening relationships with our growing community of carbon project developers. We will continue to invest in building the best team in the carbon markets industry and progressing our plans for a proposed U.S. Listing.”

Note: Bold emphasis by the author. Also, the “attributable credits” to Carbon Streaming Corp. are quoted in the table above as 5 to 5.6 million.

Closing remarks

Carbon Streaming Corporation offers investors a growing portfolio (currently 3 to 4 projects) of carbon credit streams for ongoing revenue and potential long-term appreciation.

2022 should be a very good year for the Company as they achieve first revenues from about 5 to 5.6 million attributable carbon credits and pursue more project deals and a U.S listing on a major U.S exchange.

Carbon Streaming Corporation trades on a market cap of C$605M after a strong 2021 with their stock moving up from ~C$7.55 a year ago to now trade at C$13.00. Stay tuned in 2022.




Carbon Streaming is cashed up and ready to save the world

You may have heard numerous companies around the world talking about setting net-zero carbon emissions goals, in fact over 1,500 companies have announced plans to be carbon net-zero by 2050 or sooner. But how will they get to net-zero? In the interim, the plan is to offset the carbon they put into the atmosphere by buying carbon credits. A carbon credit represents one tonne of carbon dioxide or the carbon dioxide equivalent of another greenhouse gas (defined by the amount of heat it traps in the atmosphere) that is prevented from entering into or being absorbed from the atmosphere. Carbon credits are anticipated to be integral to meet global net-zero goals, especially in hard-to-abate sectors such as oil, aviation, steel and cement.

No matter how you slice it, the carbon credit world is big now and destined to get a lot bigger. The estimated size of the compliance/regulated market was US$261 billion in 2020, a five-fold increase from 2017. The voluntary carbon market was a much more modest US$473 million in 2020, although UN Special Envoy for Climate Action, Mark Carney, the former Governor of the Bank of England, has said that the voluntary market “needs to be $50-100 billion per annum.” And that’s where Carbon Streaming Corporation (NEO: NETZ) comes to the rescue, so to speak. Carbon Streaming is a unique, ESG principled, investment vehicle offering investors exposure to carbon credits. Its stated business model is to focus on acquiring, managing and growing a high-quality, diversified portfolio of investments in projects and/or companies that generate or are actively involved with carbon credits. The Company invests capital through carbon credit streaming arrangements, with project developers and owners, to accelerate the creation of carbon offset projects by bringing capital to projects that might not otherwise be developed.

Carbon Streaming has been raising capital and signing up projects to build up an inventory of carbon credits. In fact, in July the Company was able to raise an impressive US$104.9 million based on the momentum they had been gaining over the first half of 2021. The latest information from the website shows the Company has a near term opportunity pipeline of 16 projects around the world totaling roughly US$200 million in investments. Longer term the deal pipeline is over US$700 million and the best part is, the target IRR for these projects is greater than 15%.

Source

The value proposition at Carbon Streaming is three fold:

  1. Enter into streaming agreements with individuals, companies, and governments to stream carbon credits from their asset or property that can be sold in either the voluntary or in the compliance markets;
  2. Purchase carbon credits in the voluntary and compliance markets for long-term price appreciation with selective trading as opportunities arise; and
  3. Invest in or acquire companies, assets or properties involved in the origination, generation, monitoring or management of carbon credits (in other words M&A).

Strategy #1 is pretty straight forward, you simply sell your earned carbon credits to whatever market is willing to pay the most. Strategy #3 is probably similar to almost every publicly traded company on the planet. However, strategy #2 intrigues me the most from an upside potential. Having spent plenty of time in the trenches of commodity trading, I know that being long a commodity that is in demand can be very lucrative. If you are of the opinion that demand for carbon credits is potentially going to grow faster than supply, then having an enormous pipeline of carbon credits coming on stream (targeting 100 million per annum by 2025), can be a very good thing. A modest price swing can create huge leverage. Just look at natural gas prices over the last 4 months as an example for a much more than modest price swing.

The carbon emission contract that trades on the Intercontinental Exchange (ICE) known as EUAs (European Union Allowance) has a 52 week trading range of €23 to just under €66 on a per tonne of CO2 equivalent basis. If you have an inventory of 100 million of annual credits being generated each year, imagine if you keep 5% to float with the spot price (preferably with a floor in place to assure breakeven). A $5 move could add $25 million to your top line. That’s why I think Carbon Streaming could be in the right place at the right time, depending on how they manage their “selective trading”.

Upon the exercise of the special warrants issued to raise the above noted US$105 million, the Company will have roughly 231 million shares outstanding. Based on yesterday’s close of $2.38 that puts the market cap at $550 million with approximately $141 million (US$112) in cash at the end of August. Back of the envelope math suggests that with 20 million in carbon credits by year end, that could generate roughly $1.7 billion (US$1.36 billion) in top line revenue based on yesterday’s EUA close of €59. I don’t know what carbon price assumption Carbon Streaming is using to calculate their 15%+ IRR but it might be worth digging a little deeper to find out.