Carbon Capture Stocks Capture Investor Interest

 The Paris Agreement, an international treaty that addresses climate change, asks participating countries to reduce carbon emissions to net zero by 2050. The goal is to ensure that Earth temperatures do not rise 2 degrees Celsius (35.6 Fahrenheit) above pre-industrial levels, with a desire to reduce the increase to a maximum of 1.5 degrees Celsius (34.7 Fahrenheit). The goal to decrease environmental carbon emissions presents an opportunity for investing.

The world has a lot of work to do in reducing carbon emissions. An October 2022 Time article reported that businesses and individuals release 51 billion tons of greenhouse gases into the air annually. Of that number, about 76.1 percent is carbon dioxide, and in 2021, carbon dioxide levels set a record, reaching 414.72 parts per million. The same article reported that, while it is critical to reduce carbon in the air, meeting climate goals in 2050 is unlikely.

A January 2023 Morgan Stanley article stated that carbon capture ventures were trending. Carbon capture is part of a process called “carbon capture, utilization, and storage,” where businesses capture carbon dioxide and use it to make building materials, among other things, or store it thousands of feet below the surface.

Analysts and strategists say it will take 10 years for carbon capture to scale, but in the meantime, they predict that 2023 will be a breakout year for the technology. In the United States, this is because of the Inflation Reduction Act, which raises the tax credit from $50 to $85 per ton and encourages businesses to decarbonize their operations. At the same time, it has opened new investment opportunities.

Companies primarily capture carbon in two ways: tree restoration and direct air capture. Tree restoration is low maintenance but requires a lot of land. In addition, trees are vulnerable to wildfires. Direct air capture (DAC), the other method, uses ventilators to absorb carbon dioxide from the sky, and while it does take up less space, it requires a lot more energy.

Of the two types of carbon capture methods, DAC is attracting investors. A May 2022 article in the energy publication iSphere says that this interest in carbon capture is well founded because these ventures are profitable, or at least some entrepreneurs believe so.

Oxy Low Carbon Ventures and Enterprise Products Operating LLC have partnered to launch carbon capture services within their business platform. They plan to develop carbon capture hubs along the Gulf Coast in the next 13 years, through 70 plants that have yet to be built but are in the works. The two enterprises plan to use these facilities to extract 1 million tons of carbon dioxide for industrial gases used in enhanced oil recovery for upstream oil and gas firms.

Moreover, in May 2022, Climeworks, a Switzerland-based carbon capture venture, raised $650 million in equity, the most a carbon capture company has ever raised. As of December 2022, Climeworks was the leader in DAC innovation, creating Orca, a facility that removes 4,000 metric tons of carbon dioxide a year. The company started by selling carbon dioxide to greenhouse and beverage companies but has expanded to provide carbon storage. In collaboration with Iceland-based Carbfix, the company has created a way to store carbon dioxide in rocks.

These are just two of several ventures that have developed carbon capture technology. Even with criticisms that the technology is too costly and uses too many resources, along with the potential impacts that carbon capture might have on local communities, investors are interested in seeing where this technology might go.

Investing in Bonds in 2023

 

At the end of 2022, investors faced volatile financial markets and high inflation. Even with the bumpy ride, financial experts report that 2023 will be a good year for investing. Among the trends this year, the bond market appears to be promising, according to articles published in December 2022 by Forbes and Money Week.

Investors in bonds are essentially lending money to an issuer, for instance, the government, for a certain amount of time. When the time ends, the issuer repays the principal (initial) amount plus interest. Investors can purchase US Treasuries, municipal, high-yield, corporate, and investment bonds.

Bonds are attractive because, for the most part, they provide investors with a steady stream of income. In a portfolio, bonds can tamp down volatility in stocks while generating a return on investment. Some experts consider bonds a good option for people who live off their investment income.

Another advantage of investing in bonds is they hold onto the value of the initial amount invested, which works well for people who need access to their capital in the near future, such as those approaching retirement or preparing to pay for college. The stock market, conversely, experiences volatility, with stock values spiking and then plummeting. In the long term, this activity is not a negative, but in the short term, it may be.

Bond investors also benefit from tax breaks, which helps minimize tax liabilities. Typically, investors are liable for income generated from money market accounts and equities. Municipal bond investors are exempt from paying taxes at the state and federal levels, and US Treasuries investors are exempt from paying taxes on the state and local levels.

As with all investments, bonds carry risks. There is always the risk that a creditor will default on a bond, that interest rates will fluctuate (affecting the bond’s value), and that the bond will be retired before it matures or when investors can cash out. Because bonds have a maturity date, investors cannot cash out until the term ends, making bonds non-liquidity.

Even with these caveats, a December 2022 issue of Money Week reported that 2022 saw higher bond yields (more return on investment), making government bonds attractive, and bank-issued bonds had solid earnings and stability. Forbes mentioned Series I savings bonds being attractive because they protect the principal from inflation. As of November 2022, the savings bond interest rate was 6.89 percent until April 2023. Even with this rate slipping from 9.62 percent in October 2022, it is better than any rate at a bank, brokerage, and many other sources.

Finally, a November 2022 Morgan Stanley article added that while corporate bonds are attractive, they may not be worth the risk in a potentially tight credit market. However, some experts point to other bonds that show promise for those interested in investing in the bond market. A strategist with the financial services company predicted returns in the high single digits through 2023 from German Bunds (bonds secured by the German government), municipal bonds, Italian government bonds, investment-grade bonds (low-risk municipal or corporate bonds), mortgage-backed securities, and European investment-grade bonds.