People who say the government can’t pick winners often point to Solyndra, a thin-film solar-cell company that went bust in 2011 after receiving $535 million in funds from the Obama administration. But they’re often tongue-tied when challenged to name a second example.
Not unlike venture capital, where some startups that once seemed promising don’t make it while others can be spectacularly successful, the government certainly can’t pick ’em all. Yet over the years, it has plowed taxpayer funds into ideas that have been spectacularly successful and changed the way Americans live. To name but three: GPS, robotics and perhaps the biggest thing ever: the internet. It’s my understanding that the internet has been associated with a fair degree of wealth creation over the past quarter-century.
So perhaps we shouldn’t scoff when President Biden talks big about moving the U.S. away from fossil fuels and toward solar and wind energy. He thinks these industries are winners that will not only wean the U.S. off fossil fuels, but generate long-term wealth and jobs along the way. (They already have.)
Clean energy
Where is the money to be made today? One of the more popular investments in the renewables space is iShares’ Global Clean Energy ETF ICLN. Even after a drop of about 27% this year, it has still tripled from the market lows of March 2020. If you think that renewable energy will continue to grow its share of the overall U.S. energy mix in the years ahead, then ICLN’s first-quarter plunge could represent an entry point for anyone looking for a well-diversified, long-term holding.
You can follow the money other ways, too. When cell phones began to take off, some entrepreneurs raked in cash by leasing land for cellphone towers. Similar models exist today for solar and wind farms. One of the biggest onshore wind farms in the world, for example, happens to be in Texas, where there’s plenty of land and wind. Your investment play here could be a real estate investment trust. One REIT in this space is Hannon Armstrong Sustainable Infrastructure Capital Inc. HASI, which has also pulled back this year after a very sharp 2020 runup.
Fossil-fuel companies
Meantime, we don’t think of the oil and gas industry as being full of tree-hugging greenies, but this is changing, and could be opportunistic. Royal Dutch Shell RDS, for example, has begun to transition away from fossil fuels, announcing it will close seven of its 13 refineries, part of its plan to slash production of gasoline and diesel fuel by 55% over the next decade.
U.S. fossil fuel giants ExxonMobil Corp. XOM, Chevron Corp. CVX and NRG Energy NRGInc. aren’t getting out of oil and gas, but they, too, understand there is money to be made fighting carbon, and are plunging into the carbon capture and sequestration (CCS) space.
CCS works by trapping CO2 at its emission source and storing it, often deep underground, to keep it from getting into the atmosphere. Maarten Wetselaar, director of integrated gas, renewables and energy solutions at Shell, has called this more than merely a solution but an actual business. ExxonMobil’s CEO, Darren Woods, even puts a price on it: $2 trillion by 2040 — nearly 8.4 times the size of the company’s market cap.
And jobs? Woods thinks that a major CCS effort “could generate tens of thousands of new jobs needed to make and install the equipment to capture the CO2 and transport it via a pipeline for storage.” It would also, he claims, “protect thousands of existing jobs in industries seeking to reduce emissions. In short, large-scale CCS would reduce emissions while protecting the economy.”
There’s more to this than just environmental altruism. The Irving, Texas-based company wants tax breaks or putting a price on carbon to help drive its effort. The former would put Biden in the awkward position of lending a hand to one of the country’s polluters, a move that environmentalists flat out oppose. What’s needed, they say, is a lights-out approach to fossil fuels. As for a price on carbon, so far this is an approach that the president so far has shied away from.
Industry push
It’s not just the fossil fuel industry that’s seeing green. More than 400 major corporations, which represent seven million workers in all 50 states and have more than $4 trillion in annual revenue, are on board as well.
In a letter to the president, the group, which calls itself the “We Mean Business Coalition,” says slashing greenhouse gas emissions will spur a robust economic recovery, create millions of well-paying jobs, and allow the U.S. to “build back better” from the pandemic.
The group includes auto giants like General Motors GM and Ford F, retail behemoths Walmart WMT and Amazon AMZN, tech giants Apple AAPL, Alphabet GOOG and Facebook FB, conglomerates like General Electric GE, restaurant chains like McDonald’s MCD and dozens of asset-management firms.
Some of them aren’t waiting for the feds. Microsoft CEO Satya Nadella, who says a corporation’s purpose is “to find profitable solutions to the problems of people and planet,” has accelerated the software and cloud-computing giant’s decade-long effort to mitigate carbon. It is investing $1 billion over four years into developing technology that will be needed to remove greenhouse gasses from both the atmosphere and elsewhere; CFO Amy Hood calls being carbon negative a “good return on investment.”
Housing market
Where else can money be made here? I wrote last week that soaring real estate prices have priced millions of Americans out of the market for single-family homes. Aside from being too pricey, they’re also horrible for the environment.
“Among the varieties of residential housing, single-family houses are by far the most environmentally destructive,” says a Georgetown University study. One way of achieving two things at once — more affordable housing and less carbon output — could be to tweak zoning laws that typically encourage construction of single-family homes, often at the expense of multifamily housing units.
Between environmental damage caused by single-family homes, and the massive housing shortage in this country, there could be a spurt of development of multifamily housing units. Two publicly-traded firms to consider in this area could be Equity Residential EQR and AvalonBay Communities AVB.