Carbonomics

Carbonomics

How the new Carbon Credit market allows everyone to benefit from large companies going green

I’ve said for nearly two decades that the path to wealth is not accomplished by changing the system. It does not matter who is in office – from a wealth building perspective – you can build wealth. The key is to learn and understand the rules.

Where do you look for these rules? Follow the money. You look at the tax code and look at policy.

Tax Code

Government leaders learned a long time ago that the tax codes could be used to make people and businesses do what they want by utilizing the tax code.

In short, the many credits and breaks that are found in the tax code are there precisely because the government wants you to take advantage of them. For instance, the government wants cheap housing. Because of this, there are many tax credits for affordable housing that developers and investors can take advantage of that minimize their tax liability, put more money in their pocket, and in turn, create affordable housing. Everyone wins.

There are many scenarios like this in the tax code that incentivize investors and entrepreneurs to do activities the government is looking for.

Policy

I write about the tax code regularly but rarely get into the policy aspect. Give me a little extra room to explain this using the new “green” policies. This is a policy Marin Katusa from Katusa Research explained to me.

In July 2021 democrats agreed on 3.5 trillion-dollar domestic spending plans, highlighting considerable spending to fight climate change. Companies can choose to embrace this movements or they can suffer. Whether you agree with this direction of government policy does not matter. What matters is that when you understand the rules, you can profit.

Full disclosure as you read on. I am about to explain the Carbon Credit Market below. Marin Katusa is my brilliant friend and I have invested a lot of money with Marin in this Carbon Credit Market.

The government has created a “green bond market”. This green market has trillions of dollars in it. Why does this matter? If a company can meet the requirements of this bond market, they can borrow money at extremely low prices. It is almost free money.

In order to get access to this cheap money; huge companies have to make commitments to reduce their pollution. The problem is few of those companies actually have a plan to reduce their carbon emissions.

Marin Katusa explained that Shell, one of the biggest oil producers in the world, lost a court ruling and must now legally be responsible to cut their greenhouse emissions by 45% by 2030. This means that Shell needs to buy (and/or create) over 100 million carbon credits a year for the next decade. Let’s put that in perspective…

A carbon credit is a permit that allows the company that holds it to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of a mass equal to one ton of carbon dioxide. - Investopedia

In 2020, 223 million voluntary carbon market credits were issued. To meet target emission cuts, Shell would need to buy 45% of ALL the voluntary carbon market credits issued last year. EVERY YEAR until 2030.

You can see immediately how the Shell ruling will have implications for climate cases around the world. And Shell is just the ONE oil giant. Both Exxon and Chevron have changes happening there as well.

All of these companies, and so many more will be in desperate need of Carbon Credits. Companies in the power, steel, textile, fertilizer, etc. using any fossil fuels – such as coal, oil and natural gas will all need these carbon credits. And Shell – just one company – just took 45% of those available. Do you see the incredible demand? There is a huge carbon credit demand and not nearly enough to meet that demand.

Many think this is unfair for these companies but ultimately these changes will benefit these companies. Marin Katusa showed me how this does not have to be “unfair”. For the first time, the oil and metal miners can tap into the low-cost source of capital available in the green bond market. This means that as long as they stay “green” they can borrow money at a greatly reduced interest rate.

Companies who lower their carbon footprint will attract new investors - who have avoided the extraction industries, that create a large carbon footprint relative to their share price. This will increase the demand for their shares.

So, these companies receive two benefits by reducing their carbon footprint:

  1. The have access to “cheap money”. Money loaned out at incredibly low interest rates.

  2. The increase price of their shares.

This means there is an opportunity for these companies to make a lot of money from this movement. But first, they need to get their carbon footprint down, or buy enough carbon credits to make them eligible.

So, what are carbon credits? 

Remember, a carbon credit is a permit that allows the company that holds it to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of a mass equal to one ton of carbon dioxide. - Investopedia

What this definition does not say is that by reducing their footprint, a few corporations can make money other than the cheap money (lowering of their capital) and gaining more shareholders.

How you ask?

The Carbon Credit market. The Carbon Credit market is the market where companies go to buy Carbon Credits from companies that have produced extra credits. Take Tesla for example, because they are a green company, they are awarded a very large amount of Carbon Credit. Tesla can then sell any extra Carbon Credits that they did not use. And because these credits are in such high demand, they can sell their credits at a very high price.

The selling and buying of these Carbon Credits is done on the Carbon Credit Market. This is where the investor, like you and me, have the opportunity to profit. By investing in Carbon Credit brokers, we get a percentage from every transaction. Since there are already so many credits in demand, the profit from percentage is not small. Now add to that, the fact that hundreds and thousands of companies will soon be required to buy credits and you can see the potential. That is why, as I said in the beginning, I invest with Marin Katusa to profit from the opportunity created by learning the rules of the game.

Robert's final words

Most of the world’s citizens complain about their tax code and government policies. But I have a different suggestion: rather than get mad, get smart. Figure out how you can be someone who either grows the economy, creates jobs, follows the government’s political agendas…or all three. By doing so you will benefit from the very behaviors the tax code and policies are designed to reward. The economy and your wallet will be better off for it.

Full disclosure, I have invested a lot of money with Marin in this Carbon Credit Market.

Companies who lower their carbon footprint will attract new investors - who have avoided the extraction industries, that create a large carbon footprint relative to their share price. This will increase the demand for their shares.

Original publish date: September 03, 2021