Have you seen the hype in the media over carbon capture stocks? Have you ever wondered what they are and why they seem to be a BIG thing at the moment?
Carbon capture and storage is the process of capturing waste carbon dioxide (CO2) from large point sources, such as power plants and industrial facilities. The CO2 is then hidden away to prevent its release into the atmosphere.
Scientists associate rising atmospheric CO2 levels with rising global temperatures. So, investing in carbon capture stocks could be a great way to help deal with global warming and make a profit at the same time. And with technologies continually developing, there are plenty of opportunities for growth in this area.
Read on to find out more.
What are carbon capture stocks?
Carbon capture stocks are shares of companies involved with carbon capture technology. This technology is also known as carbon capture, utilisation and storage (CCUS) technology. CCUS is a mix of technologies that play a varied role in meeting global climate and energy goals. They all involve capturing CO2 from point sources, such as industrial or power generation operations, that use fossil fuels or biomass as fuel.
CO2 is often used on the same site where it is captured. However, it can also be compressed and then transported by a pipeline or another form of transportation and used elsewhere. Alternatively, CO2 is injected into deep geological formations such as depleted oil and gas reserves. Once there, it is permanently trapped and prevented from escaping back into the atmosphere. It’s also possible to remove CO2 from the atmosphere directly, known as direct air capture (DAC), to reduce ‘negative emissions’.
Despite the recent associations with combatting global warming, CCUS technologies have been around for a long time. For example, many oil companies successfully use a technique known as enhanced oil recovery. This activity involves using streams of CO2 acquired from gas processing facilities to boost oil production from the ground. It works really well.
Why is investing in carbon capture stocks a good idea for green investors?
Investing in carbon capture stocks could be a great opportunity for you if you are a ‘green investor’. Or, perhaps, you are someone who wants to make a positive contribution to tackling global warming.
Many climate-sensitive investors are excited about carbon capture as it can remove CO2 from the atmosphere. It can also stop carbon emissions coming out of smokestacks. This is necessary if we are to limit global warming to 1.5 degrees Celsius.
The International Energy Agency (IEA) estimates that there are around 35 facilities using CCUS techniques within their operations. These facilities capture around 45 megatonnes (Mt) of CO2 per year. This means the carbon capture industry has loads of growth potential.
The good news is that the agency is heavily promoting CCUS. It wants at least 300 facilities operating by 2030 in order to achieve its Net Zero targets. Over the last year, the planned capacity for carbon capture and storage grew to 244Mt a year. This is a 44% increase over the last 12 months! This is great growth.
Growth is also expected over the next few years as an expanding number of companies invest in carbon capture technology. This should provide more opportunities for investment as more and more firms commit to net zero, boosting carbon capture stocks.
That is why carbon capture stocks are becoming more popular with investors. And, of course, as stocks gain in popularity, they often gain in price.
How can you invest in carbon capture stocks?
One way to invest in carbon capture stocks is to find companies actively developing carbon capture technology infrastructure. To the best of my knowledge, there are very few ‘pure-play’ carbon capture stocks. These are companies that only focus on carbon capture and nothing else. This is because carbon capture technology is relatively new and VERY expensive.
Consequently, many companies involved with carbon capture have complementary mainstream businesses, such as oil and gas, to feed the investment. Oil majors, like Exxon and Shell, are increasing investment in CCS projects due to social and political pressure.
Incumbent firms may have an advantage over carbon storage start-ups for investors. This is because they have long, sound financial and reputable histories and are generally well-run. This is really important when you are looking to permanently store a substance and minimise leakages!
You can also buy carbon capture stocks directly by buying exchange-traded funds (ETFs). These funds track the performance of carbon capture stocks.
Which carbon capture companies are publicly traded?
Publicly traded carbon capture stocks include ExxonMobil, BP, Shell, Aker Carbon Capture, and DeltaCleanTech, among others.
Who is leading in carbon capture?
It can be a good idea to invest in companies trying to help reduce emissions. But as a retail investor, you’ll also need steady returns. So, let’s look at some offerings.
Aker Carbon Capture
Norwegian firm Aker Carbon Capture is a pure-play carbon capture company and a pioneer in this field. It used to be part of Aker Solutions. In the 1990s, Aker Solutions was involved in helping Statoil to inject CO2 into oil wells to lower emissions. This led to further research and development into carbon capture technology.
Aker boasts revenues of NOK524 million (Norwegian Krona) between January and September 2022. However, it’s yet to make a profit. This means no dividends will be on the cards for a while. Any positive returns will be from share price fluctuations and based on investor optimism in its products.
Delta CleanTech is another pure-play carbon capture company, based in Canada, that provides clean energy engineering services and technology. It was launched on the Canadian Securities Exchange (CSE) in 2021.
The firm has developed a proprietary technology that is able to capture carbon at much lower costs than conventional methods. It also claims the captured CO2 is of better quality and has greater potential to be re-used.
DeltaCleanTech brought in revenues of CAD345,000 (Canadian Dollars) in 2021. However, like Aker, the firm is still loss-making, which means dividends are quite a way off. So, positive returns can only be made from share price movements.
US-based Occidental is one of the world’s largest oil and gas producers. It’s only partly involved in carbon capture, although pretty aggressively. The company states it spent USD1 billion on building the world’s largest DAC plant in the Permian basin in Texas. The aim of the plan is to store the carbon captured underground using existing infrastructure.
One advantage of large established players is using economies of scale to sign new deals and build capacity. This keeps costs down in large infrastructure projects
Unlike its pure-play peers, Occidental made USD 2.3 billion in profit in 2021. It also paid out USD 1.53 per share in dividends.
Norwegian firm Equinor is a petroleum refining company, although you wouldn’t know it from its website’s home page. It claims to be the first firm to use the existing technology to permanently sequester CO2 underground.
Equinor built and commissioned the first-world carbon capture and storage facility. It stores up to 1 million tons of CO2 emissions per year. This has cut Norway’s total emissions by 3% over the last 20 years.
In 2021, Equinor reported USD 88.7 billion in revenue, a net profit of USD 8.5 billion. It also paid out USD 2.63 per share in dividends.
An early leader in CCS technology, Schlumberger is now involved with more than 60 CO2 storage projects globally. The firm is a well-known technology and solutions provider to the energy industry. Its new segment, Schlumberger New Energy, is developing ways to assess, develop and operate entire CCS supply chains.
From July to September 2022, Schlumberger announced profits of USD 907 million. And a cash dividend of USD 0.175 per share.
Brookfield Renewable Partners
Brookfield doesn’t produce anything. It’s an investment platform. It claims to operate one of the world’s biggest pure-play renewable power platforms. The firm’s portfolio of investments includes hydroelectric, wind, solar and storage facilities spanning the Americas, Europe and Asia. On the plus side, you get a diversified renewable energy portfolio. On the downside, you’ll pay them for it. But it does claim to offer ‘long-term’ value. (Perhaps because many investments are still yet to make a profit…? Just a guess…)
Every man and his dog have heard of ExxonMobil. It’s one of the world’s biggest oil majors. But, it’s also the biggest investor in carbon capture and storage (CCS) among the giant oil firms.
Amazingly, Exxon boasts about 20% of the global carbon capture capacity. Allegedly, it also plans to spend billions more to increase it further. Exxon’s analysis predicts that, by 2050, around 80% of its operating cashflow will come from selling low-carbon services. CCS is likely to be a major part of this.
Exxon is focused on direct air capture (DAC). DAC is a way of removing carbon, at its source, by using solvents that absorb carbon dioxide. It wants to build an extra 69 direct air capture (DAC) facilities over the next few years. Eventually, the oil major plans to make more money from carbon capture than it does from oil and gas!
Exxon currently has a market capitalization of US$1.5 billion. Mindblowing. It’s pretty profitable, too.
Mitsubishi Heavy Industries
Mitsubishi Heavy Industries is another leader in manufacturing carbon capture equipment. Incredibly, it dominates half of the global market! Mitsubishi is an established company and invests loads of resources into carbon capture as it believes the area will grow.
Other examples of DAC companies include Climeworks, Carbfix, Global Thermostat, and Carbon Engineering. Firms such as Svante, Carbon Clean, Net Zero Solutions and Recapture offer carbon capture services.
What are the risks and rewards of trading in carbon capture stocks?
Carbon capture technology is still pretty new and very expensive. This means that for us retail investors, profits and returns will be pretty much non-existent. In addition, the huge costs of development mean that governments use taxpayer money to fund CCS firms (subsidies). If carbon capture stocks can be scaled and grow, they may end up being profitable and good for shareholders.
Many people make the point that this technology has existed for quite a while. This is true. In which case, why hasn’t it previously been exploited? CCS also uses masses and masses of heat and electricity. This means that it often creates more emissions than the carbon dioxide it is designed to capture! So, still, some way to go then…
That said, some investment firms hope that CCS companies will find ways to use the extracted carbon. This includes ideas such as selling it for use in fizzy drinks. This will help to reduce the high costs of carbon storage.
Unsurprisingly, oil and gas companies cottoned onto this a long time ago. They already use their extracted carbon to reinject into their fields.
The Bottom Line
Carbon capture stocks are a novel concept, and the technology is very exciting and not without potential. But, for me, as a retail investor, I need to make returns now. This means I’ll continue to invest in oil and gas companies to save the planet. And I’ll leave the pure-play carbon stocks to those with money to burn.
Have you invested in carbon-capture stocks? What did you choose? How are they doing?
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