Betting On The Price Of Carbon

July 7th, 2021

My partner Albert shared this article yesterday which suggests that the price of carbon will have to reach $150/ton by 2030 in order to create the conditions for the world to get to zero carbon by 2050. The current price of a ton of carbon on the EU’s Emission Trading System is about $60/ton and you can buy carbon offsets for much less than that although you may be purchasing junk credits if you are not careful.

If you bought carbon today at $60/ton and held it until 2030 and sold it at $150/ton, you would get 2.5x on your money and a roughly 11.4% annual rate of return. If you can figure out how to buy carbon for a lot less than $60/ton, then your returns could be a lot higher.

It is increasingly obvious that the world will need to get off its addiction to carbon in order to stave off very serious climate impacts. The path to doing so is fairly clear but will be expensive. This chart from our portfolio company Wren’s website shows how we might get there:

The bet on the price of carbon is a belief that the world will choose to eliminate its addiction to carbon over the next thirty years and that one way or another carbon emissions will become very costly and carbon capture will become very profitable.

If you believe that will happen, you can profit from it by investing in the price of carbon. There are many ways to do that and some will be more profitable than others. But a “macro bet” on the price of carbon feels like one of the strongest ones out there right now.

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