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.
