Brad’s Note: Today, I am once again passing the reins over to my analyst, Justin Law.
For those reading his work for the first time, Justin has a Ph.D. in Chemistry and has worked in nanomaterials, metal organic compounds, and cancer research.
He is also an avid dividend investor and manages a database of all the companies with the longest dividend growth streaks.
Justin has been with Wide Moat Research from the beginning and has been working behind the scenes to help produce the articles you read here every week at Intelligent Income Daily.
Today, Justin breaks down where government money is flowing to next and how profits can be made if you know where to look…
By Justin Law, Analyst, Intelligent Income Daily
Have you ever watched a conjuror pull a coin out of thin air?
Imagine if you could keep the money… and have them do it over and over again.
That would be an easy way to get rich.
It sounds too good to be true.
But right now, major companies are trying to do just that – pull money out of the air.
It’s not magic or sleight of hand. It’s science… and generous tax credits from the government.
There’s a little-known part of the U.S. tax code called Section 45Q. It allows companies to get tax credits for storing carbon dioxide gas underground.
When Section 45Q was first enacted in 2008, the credit was just $20 for every ton of carbon dioxide a company stored.
But, in 2018, the Bipartisan Budget Act increased the credit over time to reach $50 a ton.
And last year, the Inflation Reduction Act increased the credit again. This allowed companies to collect up to $180 for every ton of carbon dioxide they store underground.
That amount of money may be enough to make carbon capture a profitable business.
But the highest tax credits can be unlocked only by using new technology to pull carbon dioxide out of the atmosphere. It’s a process known as Direct Air Capture (DAC).
Today, I’ll show you how carbon capture works and why companies are racing to master this technology. Plus, I’ll give you one way to profit from this new industry.
Direct Air Capture (DAC)
How hard can it be to pull carbon dioxide out of the air?
Just 1 out of 2,500 molecules floating around in the atmosphere is carbon dioxide.
So, you have to go through a lot of air to get a decent amount of carbon dioxide.
Carbon Engineering is one of the leading companies developing DAC technology. As you can see from this photo, they have to use a lot of fans to get the air they need for carbon capture.
Source: Science.org
These fans push air through chemicals that react with carbon dioxide. About 75% of the carbon dioxide is absorbed. Then the chemicals are heated up to release pure carbon dioxide. That is pumped into underground storage.
Running hundreds of fans, pumping chemicals around, and using heat to release the carbon dioxide uses a lot of energy.
The World Resources Institute is a research firm that focuses on environmental issues. It says running a DAC facility costs $250 to $600 for every ton of carbon captured. But Carbon Engineering says it can do it for $94 to $232 per ton using their technology.
With the new Section 45Q tax credits of $180 a ton, DAC is close to breaking even. The cost to capture carbon could drop below $100 a ton as the technology improves. That would make it profitable to pull carbon dioxide out of the air.
But the story doesn’t end there…
Sustainable Aviation Fuel (SAF)
What if instead of storing carbon dioxide underground, you turned it into something useful?
The Fischer-Tropsch process is a set of chemical reactions that can convert carbon dioxide into gasoline, diesel, or jet fuel.
Jet fuel is particularly interesting because when it is produced from low carbon sources such as DAC, it qualifies as a sustainable aviation fuel (SAF).
The Section 45Q tax credit drops from $180 to $130 a ton if the captured carbon is used instead of stored underground. But the profits from turning it into SAF could more than make up for that.
Each ton of carbon dioxide could be turned into about 90 gallons of SAF. SAF qualifies for up to $1.75 per gallon in tax credits. Plus, SAF sells for about $9 a gallon. That’s about 50% more than regular jet fuel.
So instead of the $180 a ton for storing carbon dioxide underground, turning it into SAF could bring in about $1,100 a ton.
The technology works. And there’s money to be made. But profits will depend on how well companies can reduce the costs of running DAC facilities.
And big oil companies are betting they can pull it off.
How You Can Profit
Occidental Petroleum is one of the world’s largest oil producers.
And last month, it bought Carbon Engineering for $1.1 billion. So growth opportunities are already happening.
One way to profit from the growing carbon capture industry is through the Global X MLP & Energy Infrastructure ETF (MLPX). This exchange-traded fund (ETF) owns a collection of the top pipeline companies.
Pipelines will be needed to transport captured carbon from DAC facilities to underground storage sites. Or – if it’s turned into jet fuel – pipelines will be needed to transport SAF to the airports where it will be used.
That means pipeline companies will collect steady profits that they can return to shareholders through dividends.
MLPX yields 5.3% and has produced 111% returns over the past three years. That’s 3 times better than the S&P 500.
For the past three months, the Wide Moat team and I have been researching a deal that represents a multitrillion-dollar opportunity.
It’s a patented breakthrough technology that is poised to usher in a new era of energy and revolutionize the oil and gas pipeline industry. And it will change the game for the transition from fossil fuels to renewables.
Analyst Adam Galas has gathered all the details in his “One Deal” special report…
To find out more, read on here.
Happy investing,
Justin Law
Analyst, Intelligent Income Daily