Could Undersea Carbon Caverns Fuel Your Funds?

What if it were possible to lower our greenhouse gas levels by siphoning carbon from industrial emissions and storing it in vast caves under the sea?

In one fell swoop, we could reduce the amount of CO2 pumped into the atmosphere when we burn the fossil fuels blamed for climate change.

Well, last month the government announced it would pour £20 billion into funding. The new (and expensive) technology is called carbon capture and storage – and ministers hope it will help Britain reach ‘net zero’ carbon emissions by 2050.

So is this an exciting new development in the fight to clean up our energy supply and protect the planet? And if so, how can you as an investor benefit from it?

What exactly is carbon capture?

Carbon dioxide is a greenhouse gas released into the atmosphere when fossil fuels are burned to produce energy.

Carbon capture works by separating CO2 from other gases produced by power plants. It is then pumped deep into underwater caverns that were once filled with oil, gas or water. The idea is that the CO2 should stay there for hundreds of years.

Last week Energy Security Secretary Grant Shapps claimed Britain could store most of the carbon dioxide produced in Europe under the North Sea for the next 250 years.

The UK is spending £20 billion to create four ‘industrial clusters’ over the next two decades. The government wants to store up to 30 million tons of CO2 by 2030.

Carbon capture can achieve 14 percent of the global reduction in greenhouse gas emissions needed by 2050, according to the Center for Climate and Energy Solutions.

Can I bet?

The technology has not yet convinced everyone. Scientists warn carbon capture has never worked on a large scale before, and some critics would rather see the £20billion being spent on renewable energy investments.

Jason Hollands of investment firm Bestinvest says the government’s decision is “a big roll of the dice”.

“CO2 capture has been under development for some time, but there have not been any successful large-scale projects,” he says. Nonetheless, the government says the project will support up to 50,000 UK jobs.

Okay, where is the best place to invest?

Companies involved in carbon capture and storage are typically the largest players in the energy industry. Last week the Government selected eight carbon capture and storage projects in Teesside and North West England and announced plans to start formal financing talks.

These included oil giant BP, Norwegian group Equinor, private company Viridor and Indian-listed conglomerate Essar Group.

One way to ensure you invest in carbon capture technology is to invest in these companies, either directly or through a fund.

Shore Financial Planning’s Ben Yearsley says, “It’s companies like BP and Shell that will benefit from carbon capture and storage, counterintuitive as it may seem.”

BP is the largest single investment in the Jupiter UK Special Situations Fund, which holds around £2.1 billion in cash from investors, representing 6 per cent of its total investments. The fund has posted net returns of 11.3 percent over the past year and 76.5 percent over the three-year period, and charges annual fees of 0.76 percent.

Mr Hollands says VH Global Energy Opportunities, a UK-listed investment fund, is another way to get involved. It is listed on the London Stock Exchange and can be invested through brokers such as Hargreaves Lansdown. It comes with an ongoing fee of 1.4 percent.

The investment company had a difficult three years, losing 14.7 percent but rising 2.3 percent last month.

“It is involved in two carbon capture projects, including one where excess CO2 is sold to the food and beverage sector,” says Hollands.

Other big oil and gas companies like UK-listed Drax and SSE were initially overlooked by the government. However, Drax has since said it has been invited to talks about a £2billion investment scheme next to a biomass power station in North Yorkshire.

Drax is listed on the FTSE 250. The share price has fallen 24.5 percent over the past year, from 805.5 pence to 608.4 pence today.

The Jupiter UK Alpha fund, which invests £642.4m in savings, is heavily invested in Drax. The energy company accounts for 4.74 per cent of the fund’s investments, which equates to a £30.5million stake. The fund returned 4.3 percent for the year to April and has returned a whopping 67.6 percent over the past three years.

A number of funds within investment group Invesco also invest in Drax, including the £1.37 billion UK Opportunities Fund, of which Drax holds 2.35 per cent. The fund has returned 6.4 percent in the year to April and 94.6 percent over three years.

Any Exciting Stocks to Consider?

If you can stomach the risks involved in investing in a new industry, there are plenty of companies to choose from alongside the big names.

Mr. Hollands points to Aker Carbon Capture, which is listed on the Oslo Stock Exchange. The share price rose 19.4 percent last year to $1.38. You can buy shares listed on the Oslo Stock Exchange through an online broker.

But beware – investments in risky ventures in small foreign companies should only ever be a small part of your portfolio.

US oil giant Occidental Petroleum is involved in carbon capture projects through its subsidiary Oxy Low Carbon Ventures. The stock price is up 8.5 percent over the past year to $65.35.

According to Hollands, Warren Buffett’s Berkshire Hathaway is a key investor with a 23 percent stake. Occidental Petroleum is listed on the New York Stock Exchange (NYSE).

You can invest in stocks listed on the NYSE through most online trading platforms or brokers.

France’s largest energy company, TotalEnergies, has allocated about 10 percent of its research and development budget to carbon capture and storage in recent years. It is included in the EURO STOXX 50 index, accessible through most brokers.

The TotalEnergies share price rose by 22.3 percent to EUR 57.30 last year.