Decarbonizing the economy in the face of climate change involves more than just electrifying transportation and using more solar- and wind-generated energy. It will also take sustainable agricultural practices, low-carbon manufacturing, green construction and other climate-friendly solutions.
One of those is carbon dioxide removal, where plants or technology remove carbon dioxide from the atmosphere. This method will be “a crucial part of the effort to achieve net-zero emissions” in addition to carbon reduction strategies, according to consultancy McKinsey & Co.
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Investing in pure-play industrial carbon capture companies is mostly done in private markets. But that doesn’t mean everyday investors are completely shut out from getting exposure to carbon-related investments. Here’s a look at seven ways to do that:
— Carbon credit futures fund: KraneShares Global Carbon ETF (ticker: KRBN)
— Carbon reduction stock: Carbon Streaming Corp. (OFSTF)
— Carbon capture stock: Aker Carbon Capture ASA (AKCCF)
— Carbon capture technology stock: Occidental Petroleum Corp. (OXY)
— Carbon capture services stock: Quanta Services Inc. (PWR)
— Clean energy fund: VanEck Low Carbon Energy ETF (SMOG)
— Green bond fund: iShares USD Green Bond ETF (BGRN)
Carbon Credit Futures Fund: KraneShares Global Carbon ETF (KRBN)
Carbon reduction projects produce carbon credits, with each credit representing one metric ton of carbon dioxide saved. Those credits can form the basis for carbon credit futures, which can function as bets on carbon price movements.
You can buy those futures contracts via the CME Group or Intercontinental Exchange, but an easier way to go is through exchange-traded funds, or ETFs, that invest in carbon credit futures. Those include KraneShares Global Carbon ETF, which has holdings from the major carbon-compliance markets in California, the northeastern U.S. and the European Union.
“These funds will rise in price as the price of carbon rises,” says Mike Adams, vice president of capital markets at 8 Rivers. “Keep in mind that as carbon capture technology expands in adoption, these funds may actually fall in value as the market will have more CO2 credits in circulation, lowering the price of compliance.”
Carbon Reduction Stock: Carbon Streaming Corp. (OFSTF)
This company makes upfront payments to carbon reduction projects in exchange for future carbon credits those projects generate. It’s invested in projects around the world including biochar, reforestation and methane avoidance with rice farming.
“Carbon credits are seen as a complementary tool to be used alongside broader decarbonization efforts of corporations, organizations and individuals as they pursue their net-zero or carbon-neutral goals,” the company says.
Carbon Capture Stock: Aker Carbon Capture ASA (AKCCF)
This pure-play carbon capture company was previously a unit of energy infrastructure company Aker Solutions ASA (AKRYY) and is more than 40% owned by the Aker Group, giving the smaller company potential stability.
The company’s technology uses water and solvents to absorb carbon dioxide in a process that can be applied to emissions from gas, coal and cement industries and refineries.
The technology has been offered commercially since 2009, giving Aker Carbon Capture an important foothold in a developing industry that is set to become more important as time goes by.
“The world is increasingly turning to technologies that can help combat climate change, and carbon capture stands out as a pivotal player,” says Andrew Latham, a certified financial planner and director of content with SuperMoney.com. “Governments and corporations are stepping up commitments to reduce carbon emissions, and this should boost the demand for carbon capture technology.”
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Carbon Capture Technology Stock: Occidental Petroleum Corp. (OXY)
Most of the carbon capture and storage projects have been completed by the incumbent oil and gas supermajors, says Craig Golinowski, managing partner at Carbon Infrastructure Partners.
“If regular investors are patient enough, the big integrated oil companies should inevitably pivot to invest in or develop technologies that advance carbon capture in order to survive,” says Blaine Townsend, director of Bailard Wealth Management’s sustainable, responsible and impact investing group. “If not for their outsized influence on a political system that subsidizes their aging business model, they would be there already. The carbon capture business will be the fossil fuel giants’ bridge to becoming renewable energy companies.”
While not a supermajor, Occidental Petroleum is an incumbent oil and gas company with substantial backing from Warren Buffett’sBerkshire Hathaway Inc. (BRK.A, BRK.B) that has gained a reputation as a pioneer of carbon capture technology.
“For infrastructure, forward-thinking incumbents such as Occidental Petroleum or Mitsubishi are moving fast to make sure they are central players in the carbon capture industry,” Adams says.
The company is involved in a study in Colorado involving a carbon capture and storage system that would capture and store underground 725,000 metric tons of carbon dioxide per year. It is also working on industrial-scale direct-air capture technology and a project that will remove 700,000 metric tons of carbon dioxide each year from West Texas ethanol plants.
Occidental says large-scale carbon capture, utilization and storage is essential for near-term emissions reductions.
While the oil industry supports carbon capture, and the technology features in government decarbonization efforts, critics say it delays the transition away from coal, oil and natural gas, creates its own set of environmental problems and isn’t as proven as solar and wind farms.
That social resistance could be a risk to oil companies developing carbon capture facilities.
Carbon Capture Services Stock: Quanta Services Inc. (PWR)
Another problem with trying to get exposure to carbon capture through oil and gas companies is that their development of that technology is only a small part of their business, which remains supported by hydrocarbon sales.
While oil and gas investors will want to watch to see how much big fossil fuel companies adopt carbon capture and whether it becomes a meaningful part of their revenue stream, investing in smaller companies is another option.
This contracting services company designs, installs, repairs and maintains infrastructure for the electric power, energy and communications industries.
While it has a diverse income stream, its renewable services offerings include carbon capture solar and wind power engineering, battery energy storage systems and biofuel plant construction.
Clean Energy Fund: VanEck Low Carbon Energy ETF (SMOG)
Another approach for carbon-conscious investors is to put money into funds or ETFs that invest in clean energy companies, such as SMOG.
“These funds will give more exposure to the energy transition broadly, but today are mostly weighted toward renewables,” Adams says. “Direct carbon capture exposure will increase as we get more of those specific companies into public markets.”
This fund tracks an index of renewable energy companies that can include wind, solar, hydro, hydrogen, biofuel or geothermal technologies. It also invests in companies involved with building or industrial materials that reduce carbon emissions or energy consumption.
Green Bond Fund: iShares USD Green Bond ETF (BGRN)
Moving outside of the equities market, green bond funds are also an option for carbon-conscious investors. Green bond funds in general are part of the trend toward environmental, social and governance, or ESG, investing and are intended to back certain green projects.
This ETF aims to track an index of U.S.-dollar-denominated investment-grade bonds that fund environmental projects. It’s been around since November 2018 and has 316 holdings.
“Green bonds offer a lower-risk investment, but returns are generally modest,” Latham says. The ETF is up 2.4% year to date as of June 29, compared with the S&P 500’s return of 14.5%.
The good news is that BGRN’s expense ratio is also modest, at 0.20%.
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7 Best Carbon Capture and Decarbonization Investments originally appeared on usnews.com
