Forests, Peat, and Carbon Markets: Canadian Wildfires and the Long View

In my most recent Substack post, Canadian Wildfires, A Long View & A Bear View, I consider the fires burning across parts of Canada, now in July 2026 — about 2.8 million hectares so far, on or below long-term averages — through the lens of forest ecology, carbon dynamics, and the absurdity of treating these ecosystems as reliable sinks for Net Zero accounting.

All living things breathe, and forests are no exception. Trees and vegetation take in carbon dioxide during photosynthesis — the ‘inhalation’ that builds biomass and stores carbon — while releasing oxygen as the byproduct. In turn, animals and humans inhale oxygen and exhale carbon dioxide, releasing stored carbon when we metabolise food or exercise at the same time burning fat and carbohydrates. The boreal forests of Canada do something similar on an ecosystem scale and across the millennia: they sequester carbon during growth phases but release it through respiration, decay, and especially fire — the natural ‘exhalation’ that recycles nutrients and resets the landscape.

When large areas burn, stored carbon — including in peat accumulated over centuries— returns to the atmosphere in a pulse, just as we exhale more CO2 during intense activity. This dynamic exchange has operated for millennia in the Canadia forests, but with more storage during the earlier periods of this current geological epoch known as the Holocene.

Peat itself is fundamentally soil derived from once-living matter. It consists of partially decomposed remains of plants — primarily sphagnum mosses, sedges, reeds, leaves, roots, and woody debris — that have accumulated over centuries to millennia in waterlogged, oxygen-poor conditions. In boreal forests and wetlands, this material builds up layer upon layer because cold temperatures and saturation slow the activity of decomposers (bacteria, fungi, and invertebrates) to a fraction of their normal rate. What we call ‘peat soil’ is therefore not mineral earth in the usual sense, but a vast archive of organic carbon that was once part of living vegetation. Over thousands of years, this slow transformation turns the products of photosynthesis into one of the largest long-term carbon stores on the planet — a legacy that gives boreal ecosystems their outsized role in the global carbon cycle.

These boreal forests that span such a vast expanse of the Northern Hemisphere, are also known as taiga: from the Russian ‘тайга (pronounced roughly ‘tie-ga’), which itself was borrowed from the Yakut (Sakha) people of Siberia, where it means ‘dense forest’ or ‘forest of the mountains’ (from Turkic/Mongolic roots referring to forested or mountainous wilderness). It entered scientific and popular use in the 19th–early 20th century through Russian explorers and naturalists describing the vast northern forests of Siberia.

This forest biome we see today is near its maximum extent for the current interglacial period.

During the Last Glacial Maximum some 20,000–26,000 years ago, massive ice sheets covered much of northern North America and Eurasia, restricting the extent of the forests and their component species to fragmented southern refugia. The biome was dramatically smaller — perhaps only 20% of its present area, or roughly one-fifth the size of today’s vast northern forests.

As the ice retreated at the end of the Pleistocene and the Holocene epoch began around 11,700 years ago, the tree line moved north, rapidly expanding. By the mid-Holocene, during warmer conditions, the biome had grown to something approaching or locally exceeding its modern area. The current global extent of roughly 17 million square kilometres is probably the largest the boreal forest has achieved since the previous interglacial; the Eemian, around 130,000–115,000 years ago.

This post-glacial expansion — a roughly 5-fold increase in area from the depths of the last ice age — allowed the accumulation of the deep peat and soil carbon stores that characterise many boreal regions today. Much of that carbon was fixed by vegetation over the subsequent millennia under relatively stable Holocene conditions. Understanding this history is important because it shows the boreal is not a static, ancient forest but a dynamic, migratory biome that has repeatedly contracted and expanded with natural climate cycles.

Today’s large extent and substantial carbon stocks therefore represent a relatively recent Holocene high point — one that is perhaps now in decline, as all living things have a lifecycle.

Boreal forests, like many natural ecosystems, follow a recognisable lifecycle that includes a climax phase — a mature, old-growth stage in which net carbon sequestration typically slows or approaches equilibrium. After a major disturbance such as fire, the stand regenerates vigorously, acting as a strong carbon sink for decades as young trees and vegetation grow rapidly. Over time it matures, biomass peaks, and annual uptake declines as respiration and decay balance much of the new growth. In this climax or late-successional state, the forest can still hold enormous carbon stocks (especially in soils and peat), but there is no overall net addition to this reserve.

In parts of Canada and other boreal regions, decades of fire suppression, combined with natural aging of post-glacial stands, have increased the proportion of older, mature forest. This shift toward more climax-like conditions is one reason some analyses suggest the overall carbon sink strength of managed boreal forests has weakened in recent decades — the system is moving into a new phase.

This has significant implications for the financial markets based around the notion of Net Zero and carbon sequestration to limit human-caused climate change.

1. Over-Reliance on Annual Sequestration Numbers

Carbon credits and Net Zero claims often rely on projected annual sequestration rates (e.g., the hundreds of TgC/yr cited for Canadian forests in good years). The boreal lifecycle shows these rates are highly variable over decades and centuries. Mature/climax stands sequester less per year, and episodic fires or thaw can turn sinks into sources quickly.

Bankers packaging forest offsets as reliable, long-term assets are therefore selling a product whose underlying performance is less predictable than assumed. This introduces material risk to credit integrity and market valuations.

2. Permanence and Additionality Challenges

A core requirement for high-quality carbon credits is permanence (carbon staying stored for decades to centuries) and additionality (extra sequestration beyond what would happen anyway). Boreal peat and old-growth carbon stocks represent centuries-to-millennia of accumulation, but they are vulnerable to fire, drought, and warming associated with natural climate change. When credits are issued based on avoided logging or enhanced management in fire-prone areas, the risk of reversal (e.g., a large burn releasing the credited carbon) is significant. This undermines the ‘offset’ value and exposes buyers (and the banks facilitating the trades) to accusations of greenwashing.

3. Market and Financial Risk

Wall Street has poured capital into nature-based solutions, REDD+, voluntary carbon markets, and ESG funds that lean heavily on forest sinks. If boreal (and similar high-latitude) systems are at climax or shifting toward net source behaviour, the assumed sink capacity baked into portfolios and derivatives could be overstated. This creates potential for stranded assets, repricing of carbon credits, and regulatory scrutiny. Investors betting on ‘natural climate solutions’ as a growth sector may face downward revisions when fire seasons or thaw events repeatedly demonstrate the dynamic nature of these stores.

4. Policy and Accounting Implications

Net Zero strategies assume forests and land use can reliably deliver large, ongoing removals to balance residual emissions. The longer Holocene/peat perspective suggests that in mature boreal regions, the easy sequestration gains may already have been realised, and future net removals could be smaller or negative under continued warming. For bankers structuring deals or advising governments, ignoring millennial-scale lifecycles and latitudinal realities risks building financial products on optimistic assumptions that the paleo and disturbance record do not support.

Considering the longer view, the taiga biome’s lifecycle is not as the financial markets pretend.  In fact, these forests are unsuitable for the simplified, annualised accounting that underpins carbon finance.

Wall Street’s involvement in these markets is profitable only while the narrative holds.

 

The map showing the global extent of the taiga/boreal Forests is by Mark Baldwin-Smith . The photograph is of a forest fire in British Columbia, Canada.