8 min read

Time To Suck It Up

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Hi there,

It’s been a week packed full of economic reports, earnings releases, shareholder meetings, and chatter about a brand-new Apple product for the Metaverse, giving markets plenty to chew on. The overarching concern at this point is the US defaulting on its debt next week if lawmakers don’t raise the debt ceiling. Economists at Goldman Sachs say one-tenth of all economic activity would stop if the federal government ran out of cash in this scary scenario.

Here are some of the big stories we’ve been watching:

  • Good news on the economic front: Factories are humming, and Americans are still spending (but carefully). Last month, industrial output was up, and retail sales grew, but Americans are cutting back on things they don’t need (a.k.a. discretionary items). This was reflected in Home Depot’s disappointing Q1 with a drop in big home-improvement projects and fewer big-ticket items (patio sets, grills) being sold.
  • Solar projects won’t be delayed: President Biden has vetoed a bill that would have brought back tariffs on Chinese solar panels made in four Southeast Asian nations. China is accused of unfair trade practices, but a supply chain shortage would slow US renewable energy growth. The New York Times has a fascinating new piece about China also dominating each stage of lithium-ion battery production.
  • Tesla’s annual shareholder meeting: On Tuesday, the biggest EV manufacturer in the world announced it will deliver the first Cybertrucks this year, teased two new models, and mentioned it may finally start advertising (you know, like every other car company). It’s working on a new drive unit that will use no rare earth elements and promised audits to ensure no child labor in its cobalt supply chain. CEO Elon Musk doesn’t plan on stepping down and says he’ll spend less time at Twitter. Tesla stock, which has halved in value since April 2022, climbed in response.

Lastly, it’s not just in your (heavy, achy) head — allergy seasons are getting longer and more intense, and they’re affecting more adults for the first time due to climate change. Yet another reason to aim for sustainable choices in all areas of your life, including investing, which we’re here to help you with. Keep reading to learn about carbon capture, a technology the government may push power companies to use.

News you can use

Graphic of news publication with headline of "News"
  • Job satisfaction is at a 40-year high, according to a new survey, leading many to ask “Are employers doing something right?” The Conference Board says the tight labor market gave American workers better work-life balance and compensation. Of course, continued layoffs are a concern with a looming recession, and they can cost shareholders too. A new study from Gartner found that the forecasted savings tend to be offset by unforeseen consequences like low morale, high turnover, and customer loss.
  • Earth is likely to cross a climate-change threshold — a global temperature rise of 1.5 degrees Celsius — within the next five years. That’s according to the World Meteorological Organization, which says there’s a 66% chance the mercury will reach that tipping point. While the warming trend may be temporary, it underscores how quickly climate change is accelerating.
  • New exchange-traded fund for gender-based investing just launched. The BNY Mellon Women's Opportunities ETF includes companies that have gender-equitable practices or sell products and services that “enhance the ability of women to meet their work or other personal life responsibilities and needs.” Holdings include tech giants like Microsoft, Amazon, The Cooper Companies, and Progyny.

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Figure in Focus: 8.3%

Graphic of a credit card running down the middle “8.3%”

That’s how much of the credit card debt belonging to Americans aged 18 to 29 fell into serious delinquency (overdue by more than 90 days) in this year’s first quarter, per the New York Fed. Unfortunately, this number has shot up from 5.1% a year ago as young borrowers struggle with rising costs and interest rates. One pretty shocking chart provides an eye-opening perspective. There are real worries that this could get worse when student-debt payments restart.

For better or worse, borrowing and debt are the American way, but many fall into what’s known as the “debt spiral” and find it hard to get out. Besides hurting your mental health, debt can affect your credit score and derail your long-term financial goals. Expensive loan payments can keep you from building your all-important retirement nest egg. If you’re ready to attack your debt, start by learning about the simple first steps.

Asking for a friend….

We know there is a lot to think about these days, and it can sometimes be a bit overwhelming. To help with those nagging questions, and so you have useful resources at your fingertips, here are a few links to resources and recent stories relevant in these turbulent times:

A vacuum for the sky

Graphic of a vacuum cleaners sucking dark clouds out of the sky.

With so much talk about the need to decarbonize our economy, wouldn’t it be great if there was a way to just suck the carbon dioxide out of the air, kind of like a giant vacuum? Wait, there is.

It’s called carbon capture technology, and it’s getting more attention as time runs out to reduce carbon emissions before the planet heats up to the point of no return. You’ll already find this tech in surprising places, like the basements of New York City skyscrapers and vending machines in Tokyo, but the big potential lies in reducing emissions from electricity production and industrial plants.

How does carbon capture work, is it a panacea for air pollution, and how can investors capitalize on the hype? Let’s dive in.

Carbon capture basics

Carbon capture and storage (CCS) refers to technology and processes that separate CO2 from other gasses (like nitrogen and oxygen) and then store the gas (usually underground) to keep it out of the atmosphere. CCS typically pulls carbon dioxide from the emissions stream of a power plant or factory, rather than directly from the air. The technology isn’t in use in any US power plants today, but it has been used in industries like fertilizer production and natural gas processing for decades.

Some companies use the sequestered CO2 for things like enhanced oil recovery or the manufacturing of products (hey, the bubbles in your sparkling water have to come from somewhere). When that happens, we add a U to the acronym to make CCUS, meaning carbon capture, utilization, and sequestration. There are also machines that pull greenhouse gas emissions from the atmosphere, known as direct air capture (DAC).

Behind the hype

You may have seen carbon capture in headlines over the last week because it plays a big role in President Biden’s new proposal to cut CO2 emissions from power plants. The plan, which aims to reduce 90% of electricity-generation emissions by 2035, relies heavily on CCS, along with cleaner fuels like hydrogen.

The proposal is still just that — a proposal — and will inevitably face legal and political challenges. But it’s spurring more conversations about the role of CCS in reducing emissions, which was already a hot topic since the Inflation Reduction Act raised the main CCS tax credit to $85 per metric ton of CO2, up from $50. Direct air capture projects, which are typically more costly, can earn a credit of up to $180 per metric ton. These credits go a long way toward making such projects economical.

Many experts say CCS is essential to curb climate change. The International Energy Agency says the world can’t limit Earth’s warming to 1.5C by 2050 without capturing about 6.2 billion metric tons of carbon by then. The United Nations Intergovernmental Panel on Climate Change echoed that sentiment in its 2022 report, saying that even if emissions fall significantly, the world would still need to remove between around 10 to 20 billion tons of CO2 every year.

Skeptics and critics raise concerns

For every ounce of excitement about carbon capture, there seems to be an equal amount of skepticism. Power industry insiders point to the fact that it’s still extremely expensive, even with federal incentives. One BNEF analyst says that even with the expanded tax credit, “retrofitting a coal plant is more expensive than just building a new coal plant with CCUS.”

Meanwhile, some environmentalists dislike the technology for a different reason — it doesn’t do anything to reduce our dependence on fossil fuels. According to an attorney with the Center for Biological Diversity, more than 70% of captured carbon from CCS projects is used to extract more fossil fuels, adding to the climate crisis.

CCS is still largely untested at scale, so companies building projects are also running into concerns from communities about the safety of storing mass quantities of CO2 underground. In Louisiana, residents are pushing back on Air Products’ plans for a $4.5 billion facility that has the potential to become the world’s biggest carbon sequestration operation.

Great, but what can the average investor do?

Despite the debate, carbon capture is still attracting capital as companies explore how to make projects economical. Bloomberg New Energy Finance (BNEF) reported in February that investment in CCS has more than doubled since last year to hit a record high of $6.4 billion.

Investing in CCS as an individual investor isn’t a straightforward proposition. Many project developers are startups, although Aker Carbon Capture is a rare publicly traded pure-play carbon capture company. Several clean energy companies count CCS among their offerings, like Brookfield Renewable Partners, FuelCell Energy, Drax Group, Horisont Energi, and Delta Cleantech. In all cases, please remember to do your own research before you make any financial decisions.

For more indirect exposure, experts note investing opportunities in the makers of CCS technology and companies that plan to reduce their environmental footprints by capturing CO2 from their operations. Of course, that means (in most cases) investing in traditionally dirty industries. Examples include:

  • Honeywell and Mitsubishi Heavy Industries are two big conglomerates that produce CCS equipment alongside other industrial products.
  • All of the major oil companies, including ExxonMobil, Shell, Chevron, and Occidental Petroleum, include carbon capture in their sustainability plans.
  • Many electric power companies have also been testing the technology. For example, NRG Energy started its first CCS pilot in 2011, and Calpine Corporation has identified 11 plants for carbon capture and is working on plans to retrofit four more.
  • Concrete maker Heidelberg Materials is studying the feasibility of CCS at a new cement plant in Mitchell, Indiana that could capture 95% of its carbon dioxide emissions by 2028. Holcim, another concrete manufacturer, is involved in several pilot projects around the world.

Carbon capture is no silver bullet, but it could be one part of the solution to the world’s climate woes — just like it might be one of many factors you consider as you evaluate which companies align with your sustainability values. A number of companies are dipping a toe into carbon capture (ok, some are in farther than others). If climate change is an important issue to you, or if you are looking to invest early in areas where innovation and sustainability come together, this is a sector that experts say you should keep an eye on.

If you’re curious about other technologies being used to clean up the earth, check out the FWIW Guide to Cleantech Investing.

Before you go -

And the award for best legal argument of the year goes to: “To deprive anyone of saying ‘Taco Tuesday’… is like depriving the world of sunshine itself.”

** FWIW team members own shares of Apple, Amazon, ExxonMobil, and Microsoft.

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