Friday, October 28, 2022
Welcome to the “Net-Zero economy.”
That’s my term for a key part of the green-energy revolution. The goal here is to cut emissions of greenhouse gases to as close to zero as possible.
Initiatives around this goal will soon be worth a whopping $1.9 trillion…
But as China’s growing use of coal makes clear, it will be impossible to get to net-zero with wind, solar, and EVs alone.
That’s why fossil fuels like coal will be with us for years to come…
And that’s why the market for “carbon credits” — essentially, permits that allow an operator to offset its fossil footprint — is so valuable.
Today, I’ll share a way to play this opportunity with a single investment…
A recent analysis by S&P Global Commodity Insights found that China is currently building, or planning to build, a number of coal-fired power plants.
These plants are expected to have total new capacity of at least 100 gigawatts. That’s enough electricity to supply some 77 million homes!
And China isn’t alone. India and several African nations are adding coal capacity to boost their economies, too.
Irony abounds. These moves come as the fight to curb climate change by slashing carbon emissions has gone global.
Consider that the European Union has pledged to reach Net Zero — where it emits no more carbon than it puts back in the ground — by 2050.
Several European countries have even more ambitious goals, such as Sweden and Germany’s 2045, or Finland’s drive to get there by 2035.
For its part, the U.S. has committed to Net Zero by 2050.
Despite being a huge source of emissions, China has pledged to achieve Net Zero by 2060. Even oil-rich Saudi Arabia has announced it wants to get there on the same time frame as China.
Aware that their massive data centers suck tons of energy, tech leaders including Alphabet, Microsoft, and Salesforce are already on board.
Shifting to renewables will help. That’s why Allied Market Research expects the market for green energy to be worth more than $1.9 trillion by the end of this decade, more than double the level from 2020.
But on its own, that won’t be enough.
Enter carbon removal — technology designed to suck carbon from the atmosphere.
I believe carbon removal is a very promising field, with plenty of growth ahead.
Consider a recent analysis by the Wall Street Journal that found businesses have committed roughly $1.5 billion to carbon removal this year alone. Before that, they had pledged just $50 million.
But as promising as this field is, it’s still in its earliest stages. At the moment, there’s no way to make a direct investment in it.
That’s why I recommend investing in carbon credits…
And that’s where the KraneShares Global Carbon ETF (KRBN) comes into the picture…
KRBN is focused on the thriving “cap and trade” market in carbon credits.
The market is too opaque and complicated for individual investors to trade themselves.
Fortunately, we don’t have to. This fund does all the heavy lifting for us.
It invests in three major carbon cap and trade programs: the EU’s, California’s, and the regional programs run by states in New England and the Northeast.
KRBN’s investment thesis is simple: the U.S. and other countries are pushing hard to cut carbon emissions and promote carbon removal.
In fact, in order to meet their Net Zero goals, they have to push hard. That’s driving up the price of carbon credits. So KRBN buys and holds carbon-credit futures in those three markets, making money as they go up in price.
As I’m writing this, a credit for one ton of carbon dioxide goes for about $76 in Europe, and $28.50 in California.
According to sources including the U.N., the Bank of England, the White House, and Bloomberg New Energy Finance, that price will have to go up a lot more to achieve Net Zero by 2050.
Their estimates for the required price ranges from $100 to $147 per ton of carbon dioxide. Whoever is right, KRBN’s strategy of betting on higher carbon credit prices will likely pay off big.
As the global economies continue to recover from the pandemic shutdowns, demand for fossil fuels is also on the rebound.
And that means the demand for carbon cap and trade will be robust for many years to come.
Wall Street is waking up to the story here…
Since it hit bottom on September 26, KRBN has gained roughly 14.5%, more than double the S&P 500’s 6.2% gain over the same period.
Strictly speaking, this isn’t high-tech.
It’s more like the flip side of high-tech, since it provides a vital service to high-tech businesses and tech-driven economies around the world.
It’s also an indirect way to bet on carbon removal, as that industry is likely to get paid for its efforts through carbon markets like the ones in which KRBN invests.
In my opinion, this could be a great time to get in…
Especially if you’re planning to dollar-cost-average your way in, and invest in this unstoppable trend for the long haul.