Avoiding a climate crisis presents significant challenges, especially in transitioning power and transportation systems to renewable and clean energy. This transition will vastly increase copper demand, surpassing current production levels, and giving major stocks a big lift.
Copper’s exceptional conductivity makes it crucial for the energy transition. Copper is found in most appliances like toasters, air conditioners, microchips, cars, and homes.
Interesting fact: The average car contains 65 pounds of copper, while a typical home has over 400 pounds.
Constructing advanced grids for decentralized renewable sources and stabilizing their supply requires extensive copper wiring. Solar and wind farms, which cover large areas, demand more copper per power unit than centralized coal and gas plants. Electric vehicles (EVs) use over twice as much copper as gasoline cars.
Meeting net zero carbon emission targets by 2035 may require doubling annual copper demand to 50 million metric tons. Even conservative estimates foresee a one-third demand increase over the next decade.
What more is the recent surge in copper prices starting early this year as you can see below. In May 2024, it reached almost $5 per pound in LME.
So, there could be no wiser move than investing in copper to ride along this rising demand. We believe so, too, that’s why we have considered some of the best copper stocks in 2024. Here are the top three copper stocks that would be worthy to add to your investment portfolio this 2024.
The World’s Largest Copper Reserve Holder: Southern Copper
Market Cap: US$85.24 billion
For investors seeking substantial exposure to copper, Southern Copper Corporation’s reliance on this metal can be appealing. The prominent Mexican mining company primarily focuses on copper production, boasting the largest reserves of the metal globally.
However, its operations extend beyond copper, producing valuable by-products such as silver, zinc, and molybdenum. This diversification, while significant, doesn’t overshadow its primary reliance on copper, which accounted for about 79% of the company’s net sales over the 3 years ending December 31, 2022.
Southern Copper’s stock has experienced notable volatility over the past few years. After a stellar performance in 2020, where the share price surged over 50%, the company saw a decline of more than 7% over the subsequent 2 years.
However, 2023 marked a recovery, with the share price climbing nearly 25% in the first nine months. And it further skyrocketed in the beginning of 2024 and reached the first-time high in May.
The recent uptick in copper prices has not only bolstered the company’s market performance but also enabled it to increase dividend payments significantly. At its current share price, the stock offers an attractive dividend yield of 5.4%, making it appealing to income-focused investors.
Strategic Investments and Project Development
Holding the largest copper reserves globally, Southern Copper is also operating top-tier assets in investment-grade countries like Mexico and Peru.
The company’s commitment to expanding its portfolio and reserves is evident through its significant capital investment program, exceeding $15 billion, planned for this decade. It aims to enhance and expand its operations across several high-potential projects, including:
Buenavista Zinc, Pilares, El Pilar, and El Arco Projects in Mexico: These projects are crucial for the company’s growth strategy. El Arco, in particular, benefits from significant infrastructure investments aimed at enhancing its competitiveness.
Tia Maria, Los Chancas, and Michiquillay Projects in Peru: These projects further diversify the company’s portfolio and strengthen its position in the global copper market.
From Southern Copper website
Southern Copper’s operations in Mexico and Peru provide a strategic advantage due to the stability and investment-grade ratings of these countries. This geographical diversification into regions with favorable mining regulations and robust infrastructure supports the company’s long-term growth and sustainability.
BHP Group: Casting A Wide Net in Copper
Market Cap: US$142.99 billion
BHP Group is a world-leading resources company engaged in the extraction and processing of minerals, oil, and gas. As a major player in the global copper market, the Australian miner is committed to innovative practices and sustainability, aiming to supply essential resources efficiently and responsibly.
BHP owns and operates several copper mines in Chile and the Olympic Dam in South Australia.
Copper is BHP’s second-largest revenue generator after iron ore. This mineral segment plowed over US$16 billion into the company’s income in 2023, with 1,716.5 kilotons of copper production.
The world’s largest mining company seeks to cast a wide net in copper with its exploration project in the high Arctic known as Camelot Project.
BHP launched this program early this year, covering the Queen Elizabeth Islands in the Northwest Territories and Nunavut. The project aims to assess the potential for copper across six locations, spanning thousands of square kilometers. Exploration sites include Ellesmere Island, approximately 800 kilometers from the North Pole, Melville Island, Ellef Ringnes Island, and Axel Heiberg Island.
In response to the surge in copper prices, mining companies are scrambling to increase supply including BHP. The Australian mining giant recently announced a strategic partnership with Ivanhoe Electric to explore copper and other essential minerals.
Their collaboration aims to identify new sources of these critical resources, driven by the global shift towards clean energy and the electrification of various industries.
The exploration agreement with Ivanhoe Electric is structured in two stages. The first phase focuses on project generation, involving exploratory activities by both companies. If successful, the subsequent phase could lead to the formation of joint ventures to develop and operate mining projects.
More recently, BHP has made a bold move to expand its copper exposure by making a $39 billion bid for Anglo American. However, the offer was put off the table, delaying the company’s aim to cement its dominance in the copper market. Still, the Australian miner continues to explore significant copper projects and find ways to deepen its involvement in the sector.
Coppernico Metal: Pioneering Copper-Gold Exploration in South America
Coppernico Metals Inc. is an exploration company dedicated to generating value for its shareholders and stakeholders through meticulous project evaluation and exploration excellence. The company aims to discover world-class copper-gold and nickel deposits in South America, leveraging its experienced management and technical teams’ proven track record in raising capital, discovery, and monetization of exploration successes.
Coppernico is currently centered on two primary projects in Peru: the Sombrero and Takana projects. The company either owns or has the right to purchase up to 100% control of the concessions.
The Sombrero district, in particular, is a major focus due to its promising geological prospects. It features significant copper-gold values from surface samples and historical drilling, targeting skarn, porphyry, and epithermal deposits.
Takana hosts high-grade copper-nickel occurrences with multi-kilometer mineralization trends. Initial dialogues have already started with communities near the Takana project, showing promising signs for future access agreements in the coming months.
Strategic Expansion, Evaluation, and Listing Plans
In its quest to offer diversified upside for shareholders, Coppernico has evaluated numerous exploration opportunities across South America. The company has narrowed its focus to 15 priority projects, aiming to identify additional assets that complement the discovery potential of Sombrero.
Beyond Peru, Coppernico is also concentrating on exploration opportunities in Ecuador. The region has seen considerable success with several companies, including Solaris Resources, SolGold, Cornerstone, Dundee Precious Metals, and Lundin Mining.
The junior exploration company is an unlisted reporting issuer actively seeking listings on Canadian and U.S. stock exchanges. It plans to pursue a stock exchange listing application once it fulfills the requirements, a move that’s part of Coppernico’s broader strategy to enhance its visibility and attract a broader investor base.
In May this year, the company successfully closed its $19.37 million private placement financing. The financing included participation from Teck Resources Limited, a prominent Canadian mining company, under a subscription agreement.
With its robust project pipeline, strategic evaluations, and plans for stock exchange listings, Coppernico is well-positioned to capitalize on its exploration successes and deliver substantial value to its shareholders.
What Comes Next for Copper?
Copper’s pivotal role in achieving net zero emissions is increasingly recognized, especially in renewable energy technologies and electric vehicles (EVs). However, projections indicate a potential supply-demand gap, necessitating substantial investments in production and recycling to meet growing demand and sustainability goals.
Key industries driving copper consumption include equipment manufacturing, construction, infrastructure, and emerging sectors like EVs and green technologies. With the rising adoption of EVs, solar panels, and other clean energy technologies, copper demand is expected to double by 2035.
In light of ambitious net zero targets for 2035, industry estimates suggest that annual copper demand may need to reach 50 million metric tons. Even conservative projections anticipate a one-third increase in demand over the next decade, propelled by significant investments in decarbonization initiatives from both public and private entities.
Meeting this escalating demand presents challenges, such as declining ore grades and environmental concerns around mining. Addressing these requires significant investments, potentially driving copper prices higher.
Analysts predict continued price growth due to supply-demand imbalances and increasing demand from the green energy sector.
Uncertainties surrounding China’s economic recovery and the US Federal Reserve’s monetary policy add complexity to future copper price trajectories. However, analysts remain optimistic about copper’s long-term prospects, driven by the energy transition and increasing demand from sectors like EVs and renewable power.
As nations compete for limited future copper supplies, securing domestic or friendly sourcing and refining capabilities becomes a strategic imperative. Strategic investments in copper production and recycling are crucial to meet growing demand and achieve net zero emissions amidst the expanding renewable energy infrastructure and EV adoption.
Verra, a leading non-profit VCM registry in the US has recently released its Verified Carbon Standard (VCS) modular methodology VM0049 for carbon capture and storage (CCS). Carbon dioxide removals play a crucial role in corporate net-zero strategies. Thus, VM0049 is a global framework for tech-based CCS activities that generate carbon dioxide removals (CDRs) and emission reductions.
Unlocking the Future of Carbon Capture: VM0049’s Modular Approach
CCS involves CO2 capture directly from the atmosphere or from high-emission industrial sources. It is then transported or permanently stored underground. CCS is a highly efficient technique to combat CO2 emissions in tough sectors like industrial manufacturing (e.g., cement), oil and natural gas, and power generation.
VM0049 underscores the key requirements essential for CCS projects. Verra’s press release describes that these projects can choose from various modules for CO2 capture, transport, and storage activities to quantify their CDRs and emission reductions. Furthermore, the modules are customizable to fit a project’s design and technological needs. The unique modular format adapts to project expansions, shared infrastructure development, and future innovations.
Verra is set to launch the initial modules in the upcoming months, encompassing the following activities:
Direct air capture
CO2 transportation
CO2 storage in saline aquifers and depleted oil and gas reservoirs
At present, multiple additional modules are under development to encompass a wide range of activities supported by VM0049.
Image: An overview of Verra’s CCS and Transport Model
Pre-requisites for Carbon Capture from Ambient Air
This module governs projects that capture CO2 from ambient air using the latest VM00XX Methodology for Carbon Capture and Storage. Verra’s draft highlights that these projects must meet the following conditions:
Capture activities must extract atmospheric CO2, potentially alongside CO2 from on-site point sources such as oxy-fuel combustion. Methods may include chemical or physical absorption/adsorption with solvents or sorbents (e.g., amines), membrane processes, electrochemical processes, or cryogenic processes.
The primary capture fluid or media must be regenerated to prevent one-time use. It should yield a concentrated CO2 stream available for subsequent transport and storage.
Capture facilities must either be new, expand existing ones, or refurbish those that would otherwise be decommissioned at the project’s start.
Both existing and new capture facilities can share auxiliary equipment like utilities.
Notably, this framework ensures that CO2 capture from ambient air meets rigorous standards, facilitating effective carbon storage and utilization. The draft is yet to be finalized.
The methodology is evolving in stages using a modular approach. The initial phase will emphasize storing carbon in saline aquifers and depleted oil and natural gas reservoirs. Later phases will focus on using captured carbon, storing it, and carbon mineralization in geological formations. Each type of GCS project (CCS, GCM, or CCUS) will have specific requirements. Verra has outlined all the rules applicable to GCS projects under the VCS Program.
Verra examines two approaches to managing risks in GCS projects. Regulatory measures establish eligibility criteria, operational requirements, and closure obligations outlined in the VCS Standard and GCS Requirements. The Geologic Carbon Storage Non-Permanence Risk Tool assesses project risks. It allocates funds to the GCS pooled buffer account to protect the validity of all issued Verified Carbon Units (VCUs) from possible reversals.
CO2 Transport Module Boundary
The CO2 transport module covers all processes in the CO2 transport value chain. Key processes include CO2 conditioning (like dehydration and cooling), compression, and loading/unloading from ships, trains, and trucks. It also provides for the propulsion of these transport modes, maintaining CO2 conditions in pressure vessels, and reconditioning CO2 for different transport modes or delivery conditions.
Verra signifies defining module and segment boundaries crucial for projects with diverse ownership. For now, the activities are divided into intermediate storage sites and transport segments within the transport module. Intermediate storage sites handle temporary CO2 storage during transfer, while transport segments involve equipment and processes for moving CO2 through a consistent transportation system. All documents are currently in their draft stage.
Figure: Verra’s Module boundary for CO2 transport (for public consultation)
source: Verra
Overall, Verra’s framework supports various capture, transport, and storage technologies. They ensure real, additional, and high-integrity emission reductions and removals (ERRs) globally. Deploying CCS and engineered CDR technologies is crucial to limit global warming to 1.5℃. These technologies complement emission reduction efforts, offset residual emissions, and provide a net negative CO2 option.
H&M (Hennes & Mauritz) Group is partnering with Rondo Energy to explore heat storage technologies to decarbonize its textile supply chain. The global fashion retailer, a sensation among all age groups for its chic, street style, and edgy designs, believes in sustainability. They are committed to making fashion and design eco-friendly. Will this partnership help H&M take bigger strides to achieve net zero?
Let’s discover how this partnership can transform their textile operations.
The Partnership is Weaving Sustainability into Style!
According to the press release rolled out on June 19, H&M is joining Rondo’s Strategic Investor Advisory Board (SIAB). The former would invest to support the expansion of Rondo’s operations and storage projects. Furthermore, the collaboration aims to replace fossil fuels with Rondo’s Heat Batteries. These energy-efficient batteries can transform renewable electricity into continuous, high-temperature heat and power essential for large-scale textile production.
In May, Rondo and SCG Cleanergy launched Southeast Asia’s first heat battery and the world’s first heat battery for a cement plant. They have established large-scale production in Thailand and plan to scale up to 90 GWh annually.
Notably, Southeast Asia is a global textile industry hub, where companies like H&M Group strive to impact people, economies, and our planet positively. Rondo, with its growing presence and expertise in the region, is well-positioned to support H&M Group’s efforts.
Eric Trusiewicz, CEO of Rondo Energy, said
“Rondo is thrilled to be working in partnership with H&M Group to explore how our technology can be of use in their supply chain, and to have H&M as an investor and member of our Strategic Investor Advisory Board.”
Rondo’s Heat Battery- the “Brave Little Toaster” Revolutionizing Textile Decarbonization
The Rondo Heat Battery is described as a “brave little toaster”. Essentially the battery is a pile of bricks with insane power to decarbonize the expansive textile sector. It is an innovative fusion of age-old techniques and modern automation to convert renewable energy into power. This approach can drastically reduce the carbon footprint of fabric production by offering a clean alternative to fossil fuels. H&M Group’s involvement in Rondo’s advisory board aligns them with other global titans like Rio Tinto, Aramco Ventures, SABIC, SCG, TITAN, and SEEIT, committed to low-cost, zero-carbon energy solutions.
Here’s the image of the battery:
source: Rondo Energy
Can this Innovative Battery Slash Global CO2 Emissions by 15%?
The answer is yes! Rondo Energy, the California-based renewable energy semiconductor manufacturing firm claims to eliminate 15% of global CO2 emissions in the next 15 years. The Rondo Heat Battery offers the lowest-cost energy storage and reduces energy price volatility. It provides 24/7 zero-carbon heat and eliminates scope 1 and 2 emissions. The battery ensures sustainability by nullifying NOx, SOx, and other particulate matter.
Additionally, its modular and scalable design allows easy integration as a drop-in replacement. The battery has proven highly profitable for consumers.
John O’Donnell, Founder & Chief Innovation Officer of Rondo Energy has further made an assertive statement, noting:
“Producing and finishing fabrics requires large amounts of low-cost energy, which makes our brick batteries a perfect fit. Today, coal delivers most of the heat and most of the carbon pollution making fabrics, because it’s always been cheap and simple to burn. But the world is changing. Region by region around the world, wind and solar power are becoming cheaper than fossil fuels. At Rondo, we’ve created a simple, practical tool to harness these new energy sources.”
H&M, Designing its Sustainable Path to Net Zero
Laura Coppen, Sustainability Investments at H&M Group Ventures has expressed her thoughts on this deal. She said,
“Rondo is H&M Group Venure’s first investment in decarbonization technology. The company’s thermal battery energy storage has the potential to help factories electrify, which is key to achieving our climate targets. We look forward to working closely with Rondo and the broader ecosystem in scaling decarb tech.”
The fashion industry faces challenges in decarbonization due to its reliance on low-cost energy. Currently, clothing production contributes approximately 5% of global GHG emissions, with annual increases.
Image: H&M GHG emissions
source: H&M
H&M aims to achieve net-zero emissions by 2024. For this, the company has strategically planned to reduce its GHG emissions by at least 90%. They also promise to offset residual emissions with permanent CO2 removal technology.
Their climate transition plan, as defined in their latest sustainability report primarily outlines strategies to achieve these targets. It focuses on:
Energy efficiency, reducing energy use across their operations, logistics, and supply chain.
Sourcing 100% renewable electricity and engaging partners and suppliers to increase its renewable energy usage.
Scaling up circular systems to reduce dependency on virgin materials and decouple revenue from resource use.
Overall, the partnership between H&M and Rondo Energy shows promise in tackling the challenges of decarbonizing the textile industry. Their collaboration can make significant strides towards sustainability in fashion.
The press release from Japan Climate Transition Bonds Framework under the Ministry of Finance (MoF) states that on July 2, 2024, Japan will launch its inaugural JPY1.6 trillion (USD 11 billion) Climate Transition Bond, dedicated to funding the nation’s extensive Green Transformation (GX) program.
The GX Plan aims to mobilize JPY150 trillion (USD 1 trillion) in public and private investments over the next decade, targeting cutting-edge, sustainable technologies to mitigate domestic emissions. This initiative aligns with Japan’s commitment to achieving its 46% greenhouse gas (GHG) reduction targets by 2030 and becoming carbon neutral by 2050.
Key Initiatives in Japan’s GX Promotion Strategy
As per the Climate Transition Bond Framework, In FY 2021, Japan’s energy self-sufficiency rate was 13.3%. It has been heavily reliant on imported oil, coal, and liquefied natural gas since the Great East Japan Earthquake occurred in 2011.
Achieving Green Transformation (GX) necessitates addressing high-emission sectors.
Emission reduction efforts are crucial for energy transformation in the following sectors:
Heavy industries like steel and chemicals, significantly contribute to emissions after distribution.
Everyday life sectors include households, transportation, commercial, and educational facilities.
Priority will be given to technologies that efficiently and effectively reduce emissions in each sector. The prime focus will be on those that forge industrial competitiveness and drive economic growth.
Japan’s GX promotion strategy establishes two key initiatives to meet international commitments, ensure a stable energy supply, and realize economic growth.
1. Stable Energy Supply and Decarbonization:
Promote energy conservation measures.
Transition power sources to improve energy self-sufficiency, focusing on renewable energy and nuclear power.
2. Growth-Oriented Carbon Pricing Concept:
Implement and execute bold upfront investment support using instruments such as GX Economy Transition Bonds.
Provide incentives for GX investment through carbon pricing.
Utilize new financial mechanisms to support the transition.
These initiatives ensure a stable energy supply while advancing toward decarbonization and economic growth.
Japan’s Climate Transition Bonds Set New Standards in Sustainable Finance
The press release discreetly mentions that Japan’s Climate Transition Bonds are certified under the Climate Bonds Standard. It assures investors’ adherence to global best practices in environmental objectives.
Sean Kidney, CEO, of Climate Bonds Initiative, said:
“Transition is the theme for the year: corporates, cities and countries need to do transition plans in line with global emission reduction targets; under the Paris Climate Agreement countries are working on ambitious new Nationally Determined Contributions (NDCs) – transition plans – to be tabled at next year’s COP. “This bond shows clearly how governments, and others, can raise funds to invest in that transition. It marks a significant milestone in transition finance.”
The First 55.5% Share
A substantial 55.5% of the bond’s proceeds will fund R&D initiatives. It would focus on renewable energy and hydrogen utilization in steelmaking, to help limit global temperature increases to 1.5°C.
The Second 44.5% Share
The remaining 44.5% will support subsidies for activities like manufacturing electricity storage batteries and implementing energy-efficiency measures in buildings. Notably, the bond explicitly excludes funding for gas-fired power generation or ammonia co-firing in coal-fired plants.
The independent verification report, prepared by the Japan Credit Rating Agency (JCRA), a Climate Bonds Approved Verifier, reinforces the bond’s credibility.
Atsuko Kajiwara, Managing Executive Officer and head of the Sustainable Finance Evaluation Group at JCRA, said:
“Since 2020, JCR has been contributing to the government’s efforts to develop Japan’s transition pathway toward net zero by 2050 and alignment with the Paris Agreement. JCRA hopes the government’s strong initiative will help various Japanese corporates that struggle to find a way to attain both carbon neutrality and business expansion in the coming decades.”
We shall elaborate on the history and additional details of this bond in the next paragraphs.
The development of Climate Transition Bonds (JCTBs) in Japan, IEA Reports
In February 2024, Japan made history by issuing the world’s first sovereign transition bonds—Japan Climate Transition Bonds (JCTBs). The issuance included two tranches of JPY 800 billion (USD 5 billion) each, with tenors of 5 and 10 years. Certified by the Climate Bonds Initiative, these bonds are grounded in Japan’s national transition strategy.
source: IEA Report 2024
Unlocking the Key Features of JCTBs
Investment Plan
Japan’s Basic Policy for the Realization of Green Transformation, published in February 2023, outlines a detailed investment plan for 22 industrial sectors to achieve carbon neutrality by 2050.
Envisions JPY 20 trillion (USD 130 billion) of public capital
Aims to generate over JPY 150 trillion (USD 1 trillion) in investment through public and private financing by 2050
Includes sector-specific transition roadmaps developed by expert committees
Focus on Nascent Technologies
Over half of the proceeds from JCTBs will be allocated to emerging technologies crucial for the transition.
Innovative Carbon Pricing Approach:
Utilizes future carbon pricing revenue for immediate bond repayment
Allows for immediate deployment of capital based on assumed future revenue from carbon taxes
Potential for Emerging Markets and Developing Economies (EMDE):
Credit Intermediary Role: The government acts as a credit intermediary, enhancing the creditworthiness of corporates and simplifying financing for small-scale projects.
Credit Enhancements: For countries with sub-investment-grade credit ratings, additional credit enhancements such as guarantees from Development Finance Institutions (DFIs) may facilitate access to international capital markets.
Japan’s climate transition bonds set a new standard for sovereign transition bonds. This model can guide other nations, especially in emerging markets. Consequently leveraging future carbon pricing revenues and attract significant investment for green transformations.
Lithium, hailed as the ‘white gold‘ of modern times, is reshaping battery technology. Known for its lightweight nature, unparalleled electrochemical potential, and high energy density, lithium stands at the forefront of energy storage, driving the global transition to renewable energy. Its journey from a basic mineral to a crucial battery component highlights its pivotal role in technological advancement and sustainable energy solutions.
Amid the push for net zero emissions by 2050, lithium assumes paramount importance. The soaring demand necessitates ramped-up production, urging advancements in mining, refining, and sustainable extraction and processing technologies.
As nations and industries align towards a greener future, lithium emerges as a linchpin in driving technical innovation and sustainability efforts. But before lithium turns out to be this important, it’s interesting that this unique element has a fascinating origin story.
Humanity’s interaction with lithium spans just over 200 years. In the 1790s, Brazilian scientist José Bonefácio de Andrada e Silva discovered two new minerals, petalite and spodumene, on the Swedish island of Utö.
Later, in 1817, Swedish scientist Johan August Arfwedson identified a new element in these minerals. Working in the lab of chemist Baron Jöns Jacob Berzelius, Arfwedson isolated a sulfate that did not contain any known alkali or alkaline earth metals. He named this new element lithium, derived from the Greek word “lithos,” meaning stone, due to its grey, stone-like appearance.
Where Does Lithium Come From?
Some of the lithium found in the rechargeable batteries of our smartphones, laptops, and EVs dates back almost 14 billion years ago.
The lithium cycle begins with magma that contains lithium rising to the Earth’s crust during volcanic activity. This magma cools and crystallizes into rocks such as granites or pegmatites. Over thousands of years, weathering breaks down these rocks, releasing lithium salts that flow into rivers. Most of this dissolved lithium ends up in the oceans.
However, in some high mountainous regions like the South American Andes, rivers terminate in closed basins. Here, water evaporation leaves behind lithium-enriched brine in salt flats, known as salars.
Besides these natural deposits, lithium can also be sourced from oilfield brines, geothermal brines, and clays. Although lithium is not rare, it is highly reactive and never found in its pure form in nature. It ranks as the 33rd most abundant element in the Earth’s crust, with an estimated 98 million tonnes.
What Are The Applications and Uses of Lithium?
Lithium stands out for its extraordinary properties. It is the lightest and least dense solid element on the periodic table, with a standard atomic weight of 6.94. Highly reactive, lithium metal ignites on contact with water, a familiar demonstration in chemistry labs.
Consequently, it is only found in mineral or salt forms in nature. In its metallic form, lithium is a soft, silvery-grey metal with excellent heat and electric conductivity, making it ideal for storing and transmitting energy.
Lithium is so soft it can be cut with a knife and has one of the lowest melting points (180.5 °C) and boiling points (1,347°C) among metals. Its high electrode potential and low atomic mass provide a high charge and power-to-weight ratio, which makes lithium especially suitable for use in rechargeable batteries.
Lithium Batteries: Powering the Future
A critical element in the production of rechargeable batteries, lithium is vital for electric vehicles (EVs), hybrids, laptops, and mobile phones. Lithium-ion batteries are favored by car manufacturers for their ability to store significant energy in compact spaces and quick recharge capabilities.
Notably, lithium iron phosphate batteries are esteemed for their safety and durability, making them ideal for stationary storage and secure EV applications.
In the realm of EVs and lithium-ion batteries, two primary types of lithium, lithium carbonate, and lithium hydroxide, dominate. Major lithium producers often supply both variants to meet the demands of EV manufacturers, alongside catering to other industries requiring diverse lithium applications.
Conversely, smaller lithium companies typically specialize in the production of a single lithium type.
Diverse Applications Beyond Batteries
The versatility of lithium goes beyond battery technology, impacting various sectors that leverage its unique properties. In aerospace, lithium’s lightweight yet robust characteristics enhance fuel efficiency and performance in aircraft and spacecraft.
Incorporating lithium into glass and ceramics yields stronger, more durable products with enhanced thermal resistance, ideal for sturdier and more efficient cookware, tiles, and household items.
Furthermore, lithium compounds serve as high-temperature lubricants, enduring extreme conditions to ensure smooth operation for heavy machinery and vehicles under intense stress and temperature. This wide array of applications underscores lithium’s pivotal role, not only in driving cleaner energy solutions like electric vehicles but also in propelling manufacturing processes and product functionalities across diverse industries.
The breadth of its applications underscores global dependence on lithium for technological advancements and sustainability initiatives. But how exactly is lithium produced or mined?
How is Lithium Mined?
Various ways are available to extract lithium, but two major ones exist to produce industrial lithium.
Conventional Lithium Brine Extraction
The majority of commercial lithium production today comes from extracting lithium from underground brine reservoirs, primarily located in the Lithium Triangle of the Andes (Bolivia, Argentina, and Chile) and in China.
Lithium brine recovery is a straightforward but time-consuming process. Salt-rich water is pumped to the surface and into evaporation ponds. Over months, water evaporates, precipitating various salts and increasing lithium concentration in the remaining brine.
During evaporation, hydrated lime (Ca(OH)2) is added to remove unwanted elements like magnesium and boron. Once lithium concentration is sufficient, the brine is pumped to a recovery facility where the following steps occur:
Brine purification to remove contaminants.
Chemical treatment to precipitate desirable products and byproducts.
Filtration to remove solids.
Treatment with soda ash (Na2CO3) to precipitate lithium carbonate (Li2CO3).
Washing and drying of lithium carbonate to produce the final product.
2. Hard Rock Mining
Hard rock mining, more complex and energy-intensive than brine extraction, involves extracting lithium from minerals such as spodumene, lepidolite, petalite, amblygonite, and eucryptite. Spodumene is the most abundant, providing most of the world’s mineral-derived lithium.
Australia leads in spodumene production, with operations also in Brazil, Portugal, southern Africa, and China. New mines are expected in North America and Finland by 2025. The process involves:
Mining and crushing the ore.
Roasting at 2012°F (1100°C), cooling to 140°F (65°C), milling, and roasting again with sulfuric acid at 482°F (250°C) (acid leaching).
During acid leaching, lithium ions replace hydrogen in the acid, forming lithium sulfate and insoluble residue.
Adding lime to remove magnesium.
Using soda ash to precipitate lithium carbonate.
Lime slurry may adjust pH to neutralize excess acid.
3. New Lithium Production Methods
In the US, commercial-scale lithium production mainly comes from a brine operation in Nevada. However, there’s growing pressure to increase domestic production to secure lithium supplies.
Opportunities for new methods include:
Direct lithium extraction from geothermal brines (e.g., Salton Sea, CA) and produced water from shale gas fracking (Texas).
Extraction from lithium-bearing clays in Nevada.
Various production methods are being tested, including:
Acid leaching with sulfuric and hydrochloric acid.
Using hydrated lime to remove impurities and neutralize waste before returning it to the environment.
These innovations aim to enhance domestic lithium production and ensure a stable supply of this critical metal.
What is The Current State of the Lithium Market?
In the rapidly evolving landscape of the lithium market, competition is fierce and dynamics are swiftly changing. With the price of lithium batteries constituting 40% of an electric vehicle’s production costs, major EV manufacturers like Tesla, Ford, and BYD are actively seeking cost-effective alternatives.
As global aspirations for emission-free transportation by 2050 intensify, about 30 nations have committed to phasing out the sale of new fuel-engine cars, driving demand for critical EV minerals.
China currently leads the lithium battery production market, but the United States and latecomer South Korea are aiming to challenge its dominance. Amid this dynamic environment, understanding the nuances of lithium is crucial. The next sections explore market and price dynamics, the key players, and the outlook associated with the burgeoning lithium industry.
Asia-Pacific’s Dominance and Its Global Impact
The global lithium market has been significantly shaped by the commanding influence of the Asia-Pacific region, spearheaded by economic powerhouses such as China, Japan, and Korea. Recognizing the transformative potential of lithium, especially in battery technology, these nations swiftly invested in the industry, initially targeting consumer electronics and later expanding into EVs.
Their strategic vision included not only production and processing but also the entire lithium supply chain, from extraction to advanced battery manufacturing. This comprehensive approach has granted them considerable leverage over global battery technology trends and pricing dynamics.
In contrast, North America has struggled to keep pace with this rapid progress. Hindered by a fragmented approach and a lack of cohesive strategy and investment, the region’s lithium industry lags behind its Asia-Pacific counterparts.
This disparity has hindered the development of a robust domestic lithium market in North America. This leaves the region vulnerable to supply fluctuations and pricing determinations driven by Asia-Pacific leaders.
China’s stronghold extends beyond LFP batteries, encompassing lithium-ion battery, cathode, and anode production, as well as lithium, cobalt, and graphite processing and refining.
Despite efforts by governments in Europe, the United States, and South Korea to develop domestic battery supply chains, the majority of the EV battery supply chain is expected to remain concentrated in China for the foreseeable future, maintaining its lead in global battery production capacity until 2030, as projected by the International Energy Agency (IEA).
The Shifting Trend in Lithium Batteries
Tesla and Ford Motor, along with other major automakers, have embraced lithium iron phosphate (LFP) batteries as a cost-effective alternative for some of their EVs, moving away from cobalt-based and nickel-based lithium-ion batteries prevalent in Europe and the US. LFP batteries, identified as the most economical lithium-ion battery type in 2022, now constitute around 40% of global EV production. Demand for this battery is projected to rise substantially in the coming years.
Tesla’s shift to LFP batteries at its Shanghai plant since October 2022 signals a broader industry trend. Its peers like Mercedes-Benz Group AG, Volkswagen AG, and Rivian Automotive Inc. also commit to integrating LFPs into their vehicles.
This shift is largely facilitated by Chinese manufacturers like Contemporary Amperex Technology (CATL) and BYD, which dominate the LFP market, accounting for 99% of global LFP battery production. CATL, in particular, stands as the world’s largest EV battery maker, supplying batteries to Tesla and various other automakers.
Understanding Lithium Prices: Key Factors and Trends
The global appetite for lithium has surged, propelled by the burgeoning battery industry and the widespread adoption of lithium-ion batteries in electric vehicles (EVs). This surge in demand casts a glaring spotlight on the current state of lithium supply, underscoring the escalating consumption rates worldwide.
In this segment, we delve into the intricate dynamics of various factors driving the market, examining how the industry is responding to this mounting need. Key factors such as supply and demand dynamics, mining capacities, geopolitical influences, and technological advancements play pivotal roles in shaping the delicate balance between supply and demand.
Understanding these factors is crucial for stakeholders in the lithium industry, from miners to battery manufacturers and investors. Here are the primary elements that impact lithium prices:
Navigating the Supply-Demand Dynamics
The lithium market exhibits characteristics of an immature market. The supply swings between deficit and surplus due to strong growth and infrastructure development challenges.
With rechargeable batteries constituting around 85% of global demand, the surge in EV uptake has led to soaring demand.
However, the slow pace of infrastructure development has hindered supply growth, resulting in price spikes in 2022. As EV subsidies decrease and prices normalize, we anticipate a controlled decline, settling around $20,000 per tonne by the decade’s end.
Therefore, any imbalance in the supply and demand equation directly affects prices. Any oversupply can depress prices until demand catches up.
Conversely, a surge in demand, driven by the EV boom, can outpace supply, pushing prices up. This is exactly what happened in November 2022 when a record-breaking lithium price rally happened, reaching over five-fold increase.
Unraveling Geopolitical Influences
Geopolitical factors significantly influence the lithium market due to the concentration of lithium reserves in specific regions. Countries like Australia, Chile, and Argentina hold substantial lithium reserves and are major players in the global supply chain. Political stability in these countries is crucial. Any political unrest or policy changes can disrupt supply and affect global prices.
Moreover, government policies regarding mining operations, environmental standards, and export regulations can also impact lithium production and prices. Favorable policies can boost production, while restrictive regulations can hinder it.
International trade policies, including tariffs and trade agreements, further influence the flow of lithium across borders. For example, trade tensions between major economies can lead to tariffs on lithium products, affecting global supply chains and prices.
This is what happen recently with the United States announcing its plan to increase tariffs on Chinese imports, including EVs, batteries, and solar cells.
Advancements in technology have a dual impact on lithium prices by affecting both demand and supply.
Battery Technology: Breakthroughs in battery technology can significantly influence lithium demand. The development of alternative battery chemistries, such as solid-state batteries or sodium-ion batteries, could reduce reliance on lithium, potentially decreasing its demand and price. On the other hand, innovations that enhance lithium-ion battery performance can boost demand.
Extraction and Processing Technologies: Technological improvements in lithium extraction and processing can increase supply efficiency and reduce production costs. For example, advancements in direct lithium extraction (DLE) techniques can make it easier and more cost-effective to extract lithium from brine resources, positively impacting prices.
Disentangling Environmental Regulations
Environmental considerations are increasingly shaping the lithium market today.
Stricter environmental regulations on mining practices can limit lithium supply and drive up prices. Mining operations must comply with environmental standards to mitigate their impact on ecosystems and water resources, which can increase operational costs.
Furthermore, the growing emphasis on reducing the environmental footprint of lithium extraction is prompting the industry to adopt greener practices. These sustainable techniques, such as using renewable energy in mining operations and recycling water, may initially increase costs. However, they are expected to lead to long-term sustainability and potentially stabilize prices.
There is also rising pressure from consumers and investors for companies to adhere to environmental, social, and governance (ESG) criteria. Companies that prioritize sustainable and ethical practices may gain a competitive edge, influencing market dynamics and prices.
Quality Challenges in Battery-Grade Lithium Production
As lithium increasingly powers rechargeable batteries, ensuring high-quality lithium products for battery use becomes paramount. Producing battery-grade lithium involves intricate refining processes to meet stringent quality and purity standards.
New refineries typically start with lower-quality technical-grade lithium, necessitating refining improvements to achieve battery-grade purity. Consequently, despite an overall supply surplus, the battery-grade lithium market may face short-term constraints until refining operations are optimized.
What are the Top Lithium Producing Countries?
In 2023, three countries – Australia, Chile, and China – dominated global lithium production, collectively accounting for 88% of the total output.
Australia: Leading the Charge
Australia stands as the world’s top lithium producer, sourcing the mineral directly from hard-rock mines, particularly spodumene. Over the past decade, Australia witnessed a remarkable surge in production. In 2013, output stood at 13,000 metric tons, soaring to an impressive 86,000 metric tons by 2023.
Chile: Brine Extraction Expert
Chile follows closely behind Australia in lithium production, albeit with more modest growth. The South American nation primarily extracts lithium from brine sources, with production climbing from 13,500 tonnes in 2013 to 44,000 metric tons in 2023.
China: Closing the Gap
China, also harnessing lithium from brine, has been steadily approaching Chile’s production levels. From a modest 4,000 metric tons in 2013, China ramped up domestic production to 33,000 metric tons in 2023.
Additionally, Chinese companies have expanded their influence in the global lithium market, with three of them ranking among the top lithium mining entities. Tianqi Lithium, the largest among them, holds a significant stake in Greenbushes, the world’s largest hard-rock lithium mine in Australia.
Argentina: A Rising Contender
Argentina emerges as the fourth-largest lithium producer, tripling its output over the past decade. With increased investments from international players, Argentina aims to further enhance its lithium production capacity.
With major producers scaling up to meet the surging demand, particularly from the clean energy sector like electric vehicle batteries, the lithium market recently experienced a surplus. This oversupply led to a significant price collapse of over 80% from the record highs witnessed in late 2022.
How to Invest in Lithium? Stocks, ETFs, and Derivatives
Due to the nascent stage of the lithium market, the range of investment products available is relatively limited compared to other commodities. Nevertheless, investors can still tap into this dynamic market through two primary avenues: lithium stocks and lithium ETFs.
Lithium Stocks:
Investing in individual stocks remains one of the most direct ways to gain exposure to the lithium industry. However, it’s crucial to recognize that stocks serve as proxies for the market’s performance.
The soaring costs of lithium don’t always translate into corresponding increases in lithium stock prices. Establishing new mining operations can be capital-intensive, and ultimately, a stock’s valuation hinges on the company’s financial health. Despite this caveat, lithium stocks have demonstrated robust performance over the past five years.
Investing in lithium stocks offers several benefits. Firstly, individual lithium stocks provide significant earning potential if the company performs well. Additionally, many lithium stocks pay dividends, offering investors regular income that can be reinvested to bolster portfolio growth.
Moreover, some lithium producers have alternative revenue streams, which can help mitigate the volatility associated with lithium prices. However, investing in lithium stocks also entails certain risks. For instance, putting all investments into one or two lithium stocks can result in a lack of diversification in the portfolio.
Furthermore, the return on lithium stocks is heavily dependent on the financial health of the company, necessitating regular updates on the company’s fundamentals and thorough research.
Lithium ETFs
For investors seeking exposure to the lithium market without the time-intensive task of researching individual stocks, lithium exchange-traded funds (ETFs) offer a convenient option. These ETFs track an index composed of a diversified collection of lithium stocks, providing you with instant access to a broad portfolio that includes both lithium producers and manufacturers.
Here are two prominent lithium ETFs:
Global X Lithium & Battery Tech ETF (LIT): LIT comprises 39 different lithium and battery stocks. With $4.5 billion in assets under management, this ETF charges an annual fee of 0.75%.
Amplify Lithium & Battery Technology ETF (BATT): BATT is solely focused on lithium battery providers. Holding $194 million in assets, this ETF charges an annual fee of 0.59%.
Investing in lithium ETFs presents its own set of benefits. ETFs provide instant diversification across a broad range of lithium-focused stocks, thereby reducing the risk associated with individual stock selection. Also, ETFs spread investment risk across a large portfolio of stocks, making them less risky than individual stocks.
Furthermore, similar to individual stocks, some lithium ETFs offer dividend schemes, providing investors with the opportunity for positive cash flow. Nevertheless, there are risks associated with investing in lithium ETFs as well.
For example, during upward trends in the lithium market, returns from ETFs may not be as substantial as those from individual stocks. And take note, ETFs are not free products; providers charge investors a percentage fee for operating and maintaining the ETF.
Direct Investment Through Commodities Market
For those interested in direct investment, lithium can be traded in the commodities market through futures and options. These derivatives allow you to buy and sell access to lithium as a material, though they come with significant risk and volatility, making them unsuitable for inexperienced investors.
Futures Contracts
A futures contract is an agreement to buy or sell a commodity at a future date for a specified price. There are two types:
Standard Futures Contracts: You commit to buying the actual commodity. If you hold the contract until expiration, you must purchase the physical lithium.
Cash Settlement Futures Contracts: Instead of exchanging the physical commodity, the parties settle the contract’s value in cash.
Options Contracts
Options contracts allow you to trade the value of an asset, with the added flexibility of choosing whether to execute the contract at expiration. This differs from futures contracts, which must be executed regardless of market conditions. When buying an options contract, you pay an upfront fee known as a “premium.”
Investing in lithium offers several pathways, including stocks of lithium producers or users, funds that aggregate lithium-related equities, and direct commodity trading through futures and options. Each method carries different levels of risk and complexity, catering to various investor preferences and experience levels.
Who are the Major Lithium Companies?
1. ALBEMARLE: Market cap: US$14 billion
Albemarle, based in North Carolina, stands as the largest lithium company by market cap and the world’s leading lithium producer, boasting over 7,000 global employees. Following a 2022 realignment, Albemarle now operates two primary business units, with a particular focus on lithium-ion battery and energy transition markets under its Albemarle Energy Storage unit. This division oversees lithium carbonate, hydroxide, and metal production.
With operations spanning Chile, Australia, and the US, Albemarle holds a diverse portfolio of lithium mines and facilities. In Chile, the company produces lithium carbonate at its La Negra conversion plants, leveraging brine from the Salar de Atacama.
In the US, Albemarle aims to bolster domestic production in line with the Inflation Reduction Act. It owns the Silver Peak lithium brine operations in Nevada’s Clayton Valley, set to double lithium production by 2025. Albemarle received a $90 million critical materials award from the US Department of Defense in September 2023 to enhance domestic lithium production and support the EV battery supply chain.
Additionally, the company plans to revive the Kings Mountain lithium mine in North Carolina, backed by US government funding. Albemarle also plans to develop the Albemarle Technology Park in North Carolina for advanced R&D in lithium innovation.
2. SQM: Market cap: US$12.07 billion
SQM, a chemicals giant operates in over 20 countries, serving customers across 110 nations. The company’s diverse business areas span lithium, potassium, and specialty plant nutrition.
Primarily operating in Chile, SQM extracts brine from the Salar de Atacama and processes lithium chloride into lithium carbonate and hydroxide at its Salar del Carmen lithium plants near Antofagasta. The company is expanding production at Salar del Carmen from 180,000 MT to 210,000 MT, initiating this year.
To mitigate environmental impact, SQM announced a $1.5 billion investment in the Salar Futuro project, focusing on advanced evaporation technologies, direct lithium extraction, and a seawater desalination plant.
Despite uncertainty stemming from Chile’s National Lithium Strategy, SQM’s existing contracts, extending through 2030, are expected to be respected by the government. In early 2024, a partnership formed between SQM and state-owned mining company CODELCO, with CODELCO holding a majority control stake.
In Australia, SQM is developing the Mount Holland lithium project, recognized as one of the world’s largest hard-rock deposits, in partnership with Wesfarmers. Anticipating lithium hydroxide production to commence by H1 2025, SQM’s lithium carbonate capacity was projected to reach 210,000 tons by the beginning of 2024.
3. Tianqi Lithium: Market cap: US$10.43 billion
Tianqi Lithium is a subsidiary of Chengdu Tianqi Industry Group based in China. As the world’s largest hard-rock lithium producer, Tianqi Lithium operates assets in Australia, Chile, and China. The company holds a notable stake in SQM, having acquired a 2.1% share in 2016, later increasing it to 23.77%.
In Australia, Tianqi owns the Greenbushes mine, acquired in 2012 through the purchase of Talison Lithium. The company also developed a lithium hydroxide plant in Western Australia’s Kwinana Industrial Area, commencing production in Q3 2019. Subsequent output began in mid-2021.
Rising lithium prices and its Hong Kong listing in 2022, which raised approximately US$1.7 billion, contributed to Tianqi’s buoyancy. Commercial production at Kwinana’s Train 1 commenced in December 2022, with Train 2 anticipated to start in 2024. Once operational, the hydroxide plant is projected to produce 48,000 MT per year, utilizing lithium from Greenbushes.
In February of the current year, Tianqi Lithium updated its total mineral reserves at Greenbushes to 447 million tonnes, with an average lithium oxide grade of 1.5%, equivalent to about 16 million tonnes of lithium carbonate.
What is In Store for Lithium?
Forecasting lithium supply beyond the end of the decade presents challenges due to limited visibility into existing, planned, and potential projects. While projections until 2030 can be reasonably accurate, the landscape becomes murkier.
On the demand side, projections suggest that it will tremendously to almost 4 million tonnes, as shown below. But of course, as discussed earlier, various trends impact this demand trajectory.
Incentive pricing becomes a critical factor in determining the attractiveness of new projects. With an estimated 1.5 million tonnes of supply, the fully allocated cost of lithium would be around $15,000 per tonne, suggesting market pricing would exceed this threshold.
Navigating the Immaturity of the Lithium Market
Forecasting the future of the lithium market is hindered by its relative immaturity. Lack of globally accepted specifications and pricing anchors complicates pricing dynamics.
Lithium products, akin to specialty chemicals, require precise specifications, yet the industry’s growth trajectory impedes standardization efforts. While greater standardization is anticipated in the future, it will evolve gradually.
According to Bloomberg estimates, demand for lithium-ion batteries will increase tenfold over the next decade. This surge in demand is largely driven by the global commitment of over 100 countries to achieve net zero emissions within the coming decades.
As part of this commitment, many nations are turning to the electrification of transportation as a crucial solution to reduce GHG emissions and combat climate change. This shift towards electrification underscores the growing importance of lithium-ion batteries in powering EVs and other clean energy technologies.
The Role of Partnerships in Shaping the Lithium Industry
In 2022, a significant portion of lithium supply was dominated by a handful of companies. However, future industry dynamics are expected to witness a decline in their market share, as smaller firms expand and new ventures emerge.
While horizontal integration may not be a prevailing trend, vertical integration is poised to play a pivotal role. Partnerships between miners and refiners offer mutual benefits, enabling risk-sharing and capital investment in new projects.
Collaborative efforts between upstream and downstream operations enhance expertise, improve margins, and capture a larger market share. Such partnerships, exemplified by ventures like Pilbara Minerals and POSCO in South Korea and SQM and Wesfarmers in Western Australia, are anticipated to become increasingly common in the industry’s future landscape.
Conclusion
The evolution of lithium, from its discovery over two centuries ago to its pivotal role in powering modern technology, underscores its significance in shaping our present and future. As the world accelerates towards a sustainable energy paradigm, lithium emerges as the linchpin of this transition, fueling advancements in battery technology and driving the proliferation of electric vehicles and renewable energy storage solutions.
Neustark, the Swizz-based carbon removal solution provider, has raised US$69 M from Decarbonization Partners BlackRock and Temasek. The company intends to use the funds to expand its portfolio of global CDR projects and the overall growth of its team.
Let’s deep dive into the deal in the upcoming content.
Decarbonization Partners: The Investment Catalyst for Neustark
Decarbonization Partners, a collaboration between Singapore-based Temasek and the world’s largest asset manager company BlackRock was launched in 2022. They focus on late-stage venture capital and early-growth private equity. They invest in companies developing technologies to accelerate the global transition to a net zero economy by 2050. Sectors like Carbon Capture, Bio Products, Energy Innovation, Mobility, and Digital Transformation are their major investment partners.
Their press release from April revealed.
“The final closure of $1.40B for its inaugural late-stage venture capital and growth private equity investment fund. The Decarbonization Partners Fund I, surpassed its $1 billion fundraising target.”
Noteworthy, Decarbonization Partners led Neustark’s growth equity round, with participation from climate tech investor Blume Equity. Subsequently, new investors joined Neustark’s existing chain of investors. For instance, UBS, Holcim, Siemens, Verve Ventures, and ACE Ventures are continuing their support.
Meghan Sharp, Global Head & Chief Investment Officer of Decarbonization Partners, said:
“With carbon capture, utilization, and storage being one of our key investment focuses, we believe that we have found a perfect partner to help scale the industry – and ultimately its decarbonization impact – in the years to come. Neustark not only helps organizations integrate carbon removal to address their hard-to-abate emissions, but their solution also contributes to decarbonizing the construction industry.”
Neustark is a pioneer in the carbon removal industry. It offers unique solutions to permanently store CO₂ in recycled mineral waste, such as demolished concrete.
IP-protected Carbon Removal Technology
Scientifically speaking, their IP-protected technology captures biogenic CO2 primarily from biogas plants. It is then liquified and transported to recycling sites for construction waste. There, CO2 is injected into concrete granulates or other mineral waste. Consequently, it triggers the mineralization process that permanently binds CO2 to the surfaces and pores of the granules. The carbonated aggregate can then be used for road construction or to produce recycled building materials. This mineralization process securely stores CO2 for hundreds of thousands of years, with minimal risk of reversal.
Moving on, the company is already capturing and storing tons of CO₂ daily with its initial deployments in Switzerland and Europe. Now, the company is ramping up its operations globally.
The funding from BlackRock and Temasek fuels its ambitious plans of permanently removing 1MT of CO₂ by 2030 and soaring higher.
Notably, Neustark currently has 40 plants under construction across Europe and has already sold nearly 120,000 tons of carbon removal to date. Their key clients include Microsoft, UBS, and NextGen. All projects receive certification under the Gold Standard, ensuring credible third-party assessment and transparency in performance.
Johannes Tiefenthaler, Co-CEO and Founder at Neustark said:
“We turn the world’s largest waste stream – demolition concrete – into a carbon sink. In the last year, we have already deployed our unique solution at 19 sites. This growth investment will take us into the next exciting phase of our mission, helping us to further scale our impact across Europe, enter new markets in North America and Asia Pacific, and develop new solutions to store even more CO2 in mineral waste streams.”
Neustark stores around 10kg of CO₂ per ton of demolished concrete. They claim, “One site can do in one hour what 50 trees do in one year.” This is how they make negative emissions.
An example of a remarkable achievement is the large-scale storage plant constructed at a demolition site in Biberist, Switzerland. It’s a collaboration with Alluvia and Vigier Beton Seeland Jura. This plant, with a yearly storage capacity of 1000T of CO₂, has been operational since May 2023.
Financial and Sustainability Highlights of BlackRock and Temasek
BlackRock proudly attributes its success to the trust of its clients and the strong partnerships forged with them.
source: BlackRock
It pursues a sustainability strategy to reduce GHG emissions from its facilities, data centers, and upstream value chains. In 2023, BlackRock made progress by:
Employing energy efficiency strategies
Achieving 100% renewable electricity match
Enhancing SAF and carbon credit procurement processes
Establishing a Supplier Sustainability Program
BlackRock’s emissions reduction goals (relative to 2019 baseline):
67% reduction of Scope 1 and 2 emissions by 2030
40% reduction in Scope 3 business travel emissions by 2030
Engaging suppliers representing 67% of emissions to set science-aligned goals by 2025
On the other side, Temasek’s S$382b portfolio, as of 31 March 2023, is primarily concentrated in Singapore and the broader Asia region. It spans diverse industries including financial services, transportation & industrials, telecommunications, media & technology, consumer & real estate, and life sciences & agri-food.
It has implemented an internal carbon price of US$50 per tonne of carbon dioxide equivalent (tCO2e), with plans to increase this to $100 tCO2e by 2030. This initiative aims to deepen climate considerations in investment evaluations.
source: Temasek
Apart from BlackRock, Temasek has also partnered with GenZero, Climate Impact X, Pentagreen Capital, etc. It has formed a dedicated investment platform with an initial capital commitment of S$5 billion. This platform is designed to accelerate and expand global decarbonization solutions.
Overall, we can infer that with support from BlackRock and Temasek, Neustark can make significant strides in carbon removal through innovative solutions.
A carbon market allows investors and corporations to trade both carbon credits and carbon offsets simultaneously. This mitigates the environmental crisis, while also creating new market opportunities.
New challenges nearly always produce new markets, and the ongoing climate crisis and rising global emissions are no exception.
The renewed interest in carbon markets is relatively new. International carbon trading markets have been around since the 1997 Kyoto Protocols, but the emergence of new regional markets have prompted a surge of investment.
In the United States, no national carbon market exists, and only one state – California – has a formal cap-and-trade program.
The advent of new mandatory emissions trading programs and growing consumer pressure have driven companies to turn to the voluntary market for carbon offsets. Changing public attitudes on climate change and carbon emissions have added a public policy incentive. Despite an ever-shifting background of state, federal, and international regulations, there’s more need than ever for companies and investors to understand carbon credits.
This guide will introduce you to carbon credits and outline the current state of the market. It will also explain how credits and offsets work in currently existing frameworks and highlight the potential for growth.
1. Carbon Credits, Offsets and Markets – An Introduction
The Kyoto Protocol of 1997 and the Paris Agreement of 2015 were international accords that laid out international CO2 emissions goals. With the latter ratified by all but six countries, they have given rise to national emissions targets and the regulations to back them.
With these new regulations in force, the pressure on businesses to find ways to reduce their carbon footprint is growing. Most of today’s interim solutions involve the use of the carbon markets.
What the carbon markets do is turn CO2 emissions into a commodity by giving it a price.
These emissions fall into one of two categories: Carbon credits or carbon offsets, and they can both be bought and sold on a carbon market. It’s a simple idea that provides a market-based solution to a thorny problem.
2. What are carbon credits and carbon offsets?
The terms are frequently used interchangeably, but carbon credits and carbon offsets operate on different mechanisms.
Carbon credits, also known as carbon allowances, work like permission slips for emissions. When a company buys a carbon credit, usually from the government, they gain permission to generate one ton of CO2 emissions. With carbon credits, carbon revenue flows vertically from companies to regulators, though companies who end up with excess credits can sell them to other companies.
Offsets flow horizontally, trading carbon revenue between companies. When one company removes a unit of carbon from the atmosphere as part of their normal business activity, they can generate a carbon offset. Other companies can then purchase that carbon offset to reduce their own carbon footprint.
Note that the two terms are sometimes used interchangeably, and carbon offsets are often referred to as “offset credits”. Still, this distinction between regulatory compliance credits and voluntary offsets should be kept in mind.
3. How are carbon credits and offsets created?
Credits and offsets form two slightly different markets, although the basic unit traded is the same – the equivalent of one ton of carbon emissions, also known as CO2e.
It’s worth noting that a ton of CO2 does refer to a literal measurement of weight. Just how much CO2 is in a ton?
The average American generates 16 tons of CO2e a year through driving, shopping, using electricity and gas at home, and generally going through the motions of everyday life.
To further put that emission in perspective, you would generate one ton of CO2e by driving your average 22 mpg car from New York to Las Vegas.
Carbon credits are issued by national or international governmental organizations. We’ve already mentioned the Kyoto and Paris agreements which created the first international carbon markets.
In the U.S., California operates its own carbon market and issues credits to residents for gas and electricity consumption.
The number of credits issued each year is typically based on emissions targets. Credits are frequently issued under what’s known as a “cap-and-trade” program. Regulators set a limit on carbon emissions – the cap. That cap slowly decreases over time, making it harder and harder for businesses to stay within that cap.
You can think of carbon credits as a “permission slip” for a company to emit up to a certain set amount of CO2e that year.
Around the world, cap-and-trade programs exist in some form in Canada, the EU, the UK, China, New Zealand, Japan, and South Korea, with many more countries and states considering implementation.
Companies are thus incentivized to reduce the emissions their business operations produce to stay under their caps.
In essence, a cap-and-trade program lessens the burden for companies trying to meet emissions targets in the short term, and adds market incentives to reduce carbon emissions faster.
Carbon offsets work slightly differently…
Organizations with operations that reduce the amount of carbon already in the atmosphere, say by planting more trees or investing in renewable energy, have the ability to issue carbon offsets. The purchase of these offsets is voluntary, which is why carbon offsets form what’s known as the “Voluntary Carbon Market”. However, by buying these carbon offsets, companies can measurably decrease the amount of CO2e they emit even further.
4. What is the carbon marketplace?
When it comes to the sale of carbon credits within the carbon marketplace, there are two significant, separate markets to choose from.
One is a regulated market, set by “cap-and-trade” regulations at the regional and state levels.
The other is a voluntary market where businesses and individuals buy credits (of their own accord) to offset their carbon emissions.
Think of it this way: the regulatory market is mandated, while the voluntary market is optional.
When it comes to the regulatory market, each company operating under a cap-and-trade program is issued a certain number of carbon credits each year. Some of these companies produce less emissions than the number of credits they’re allotted, giving them a surplus of carbon credits.
On the flip side, some companies (particularly those with older and less efficient operations) produce more emissions than the number of credits they receive each year can cover. These businesses are looking to purchase carbon credits to offset their emissions because they must.
Most major companies are doing their part and will or have announced a blueprint to minimize their carbon footprint. However, the amount of carbon credits allocated to them each year (which is based on each business’s size and the efficiency of their operations relative to industry benchmarks)., may not be enough to cover their needs.
Regardless of technological advances, some companies are years away from reducing their emissions substantially. Yet, they still have to keep providing goods and services in order to generate the cash they need to improve the carbon footprint of their operations.
As such, they need to find a way to offset the amount of carbon they’re already emitting.
So, when companies meet their emissions “cap,” they look towards the regulatory market to “trade” so that they can stay under that cap.
Here’s an example:
Let’s say two companies, Company 1 and Company 2, are only allowed to emit 300 tons of carbon.
However, Company 1 is on track to emit 400 tons of carbon this year, while Company 2 will only be emitting 200 tons.
To avoid a penalty comprised of fines and extra taxes, Company 1 can make up for emitting 100 extra tons of CO2e by purchasing credits from Company 2, who has extra emissions room to spare due to producing 100 tons less carbon this year than they were allowed to.
The Difference between the Voluntary and Compliance Markets
The voluntary market works a bit differently. Companies in this marketplace have the opportunity to work with businesses and individuals who are environmentally conscious and are choosing to offset their carbon emissions because they want to. There is nothing mandated here.
It might be an environmentally conscious company that wants to demonstrate that they’re doing their part to protect the environment. Or it can be an environmentally conscious person who wants to offset the amount of carbon they’re putting into the air when they travel.
For example: in 2021, the oil giant Shell announced the company aims to offset 120 million tonnes of emissions by 2030
Regardless of their reasoning, companies are looking for ways to participate – and the voluntary carbon market is a way for them to do just that.
Both the regulatory and voluntary marketplaces complement one another in the professional (and the personal) world. They also make the pool of buyers more accessible to farmers, ranchers, and landowners – those whose operations can often generate carbon offsets for sale.
The voluntary carbon market is difficult to measure. The cost of carbon credits varies, particularly for carbon offsets, since the value is linked closely to the perceived quality of the issuing company. Third-party validators add a level of control to the process, guaranteeing that each carbon offset actually results from real-world emissions reductions, but even so there’s often disparities between different types of carbon offsets.
While the voluntary carbon market was estimated to be worth about $400 million last year, forecasts place the value of the sector between $10-25 billion by 2030, depending on how aggressively countries around the world pursue their climate change targets.
Despite the difficulties, analysts agree that participation in the voluntary carbon market is growing rapidly. Even at the rate of growth depicted above, the voluntary carbon market would still fall significantly short of the amount of investment required for the world to fully meet the targets set out by the Paris Agreement.
6. How to produce carbon credits
Many different types of businesses can create and sell carbon credits by reducing, capturing, and storing emissions through different processes.
Some of the most popular types of carbon offsetting projects include:
Renewable energy projects,
Improving energy efficiency,
Carbon and methane capture and sequestration
Land use and reforestation.
Renewable energy projects have already existed long before carbon credit markets came into vogue. Many countries in the world are blessed with a natural wealth of renewable energy resources. Countries such as Brazil or Canada that have many lakes and rivers, or nations like Denmark and Germany with lots of windy regions. For countries like these, renewable energy was already an attractive and low-cost source of power generation, and they now provide the added benefit of carbon offset creation.
Energy efficiency improvements complement renewable energy projects by reducing the energy demands of current buildings and infrastructure. Even simple everyday changes like swapping your household lights from incandescent bulbs to LED ones can benefit the environment by reducing power consumption. On a larger scale, this can involve things like renovating buildings or optimizing industrial processes to make them more efficient, or distributing more efficient appliances to the needy.
Carbon and methane capture involves implementing practices that remove CO2 and methane (which is over 20 times more harmful to the environment than CO2) from the atmosphere.
Methane is simpler to deal with, as it can simply be burned off to create CO2. While this sounds counterproductive at first, since methane is over 20 times more harmful to the atmosphere than CO2, converting one molecule of methane to one molecule of CO2 through combustion still reduces net emissions by more than 95%.
For carbon, capture often happens directly at the source, such as from chemical plants or power plants. While the injection of this captured carbon underground has been used for various purposes like enhanced oil recovery for decades already, the idea of storing this carbon long-term, treating it much like nuclear waste, is a newer concept.
Land use and reforestation projects use Mother Nature’s carbon sinks, the trees and soil, to absorb carbon from the atmosphere. This includes protecting and restoring old forests, creating new forests, and soil management.
Plants convert CO2 from the atmosphere into organic matter through photosynthesis, which eventually ends up in the ground as dead plant matter. Once absorbed, the CO2 enriched soil helps restore the soil’s natural qualities – enhancing crop production while reducing pollution.
There are countless ways for companies to offset carbon emissions.
Though not a comprehensive list, here are some popular practices that typically qualify as offset projects:
Investing in renewable energy by funding wind, hydro, geothermal, and solar power generation projects, or switching to such power sources wherever possible.
Improving energy efficiency across the world, for instance by providing more efficient cookstoves to those living in rural or more impoverished regions.
Capturing carbon from the atmosphere and using it to create biofuel, which makes it a carbon-neutral fuel source.
Returning biomass to the soil as mulch after harvest instead of removing or burning. This practice reduces evaporation from the soil surface, which helps to preserve water. The biomass also helps feed soil microbes and earthworms, allowing nutrients to cycle and strengthen soil structure.
Promoting forest regrowth through tree-planting and reforestation projects.
Switching to alternate fuel types, such as lower-carbon biofuels like corn and biomass-derived ethanol and biodiesel.
If you’re wondering how carbon offset and allotment levels are valued and determined through these processes, take a deep breath. Monitoring emissions and reductions can be a challenge for even the most experienced professional.
Know that when it comes to the regulated and voluntary markets, there are third-party auditors who verify, collect, and analyze data to confirm the validity of each offset project.
However, be careful when shopping online or directly from other businesses – not all offset projects are certified by appropriate third parties, and those that aren’t, generally tend to be of dubious quality.
8. Voluntary vs Compulsory: The biggest difference between credits and offsets
Participation in a cap-and-trade scheme typically isn’t voluntary. Your company either needs to abide by carbon credit limits set by regulators, or no such limits exist. As more and more countries adopt cap-and-trade programs, companies increasingly need to participate in carbon credit programs.
Carbon credits intentionally add an extra onus to businesses. In return, the best cap-and-trade programs provide a clear framework for reducing carbon emissions. Not all programs are created equal, of course, but at their best, carbon credits have a clear impact on total carbon emissions.
In contrast, carbon offsets are a voluntary market.
There’s no regulation that mandates companies to purchase carbon offsets. Doing so is going above and beyond, particularly for companies operating where cap-and-trade programs don’t exist yet. Precisely for that reason, offsets provide a few advantages that credits simply don’t.
9. The Two Types of Global Carbon Markets: Voluntary and Compliance
There’s one more important distinction between carbon credits and carbon offsets:
Carbon credits are generally transacted in the carbon compliance market.
Carbon offsets are generally transacted in the voluntary carbon market.
Global Compliance Market
The global compliance market for carbon credits is massive. According to Refinitiv the total market size is US$261 billion, representing 10.3Gt CO2 equivalent traded on the compliance markets in 2020. That further jumped to over US$950 billion in 2023 as seen in the chart below.
Source: Katusa Research, Refinitiv, LSEG
Mandatory schemes limiting the amount of greenhouse gases that can be emitted have proliferated—and with them, a fragmented carbon compliance market is developing. For example, the European Union has an Emissions Trading System(ETS) that enables companies to buy carbon credits from other companies.
California runs its own cap-and-trade program, and nine states on the eastern seaboard have formed their own cap-and-trade conglomerate, the Regional Greenhouse Gas Initiative.
Companies with low emissions can sell their extra allowances to larger emitters in a compliance market.
The Voluntary Carbon Market
The voluntary carbon market for offsets is smaller than the compliance market, but expected to grow much bigger in the coming years. It’s open to individuals, companies, and other organizations that want to reduce or eliminate their carbon footprint, but are not necessarily required to by law.
Consumers can purchase offsets for emissions from a specific high-emission activity, such as a long flight, or buy offsets on a regular basis to eliminate their ongoing carbon footprint.
Source: Katusa Research, Refinitiv, LSEG
10. Corporate Social Responsibility (CSR)
Consumers are increasingly aware of the importance of carbon emissions. Consequently, they’re increasingly critical of companies that don’t take climate change seriously. By contributing to carbon offset projects, companies signal to consumers and investors that they’re paying more than just lip service to combat climate change. For many companies, the CSR benefit can often outweigh the actual cost of the offset.
11. Opportunity to maximize impact
Not every carbon credit market is created equal, and it’s easy to find flaws even with tightly regulated programs like California’s. Carbon allowances in those markets might not actually be worth as much as they say on the tin, but since participation is mandatory, it’s hard for companies to control their own impact.
In theory, purchasing carbon offsets gives companies a more concrete way to reduce their carbon footprint. After all, carbon credits only deal with future emissions. But, carbon offsets let companies address even their historical emissions of CO2e right away.
Companies can also select the types of projects that provide the greatest impact – like Blue Carbon projects, for example.
Used correctly, carbon offsets are a way for companies to earn extra PR credit and achieve a more measurable reduction in carbon emissions. Since there’s no regulatory body overseeing carbon offsets, standards companies like Verra have become influential in vetting the carbon offsets market.
12. The offset advantage: New revenue streams
There’s one more big advantage of carbon offsets.
If you’re the company selling them, they can be a significant revenue stream! The best example of this is Tesla. Yes, that Tesla, the electric car maker, who sold carbon credits to legacy car manufacturers to the tune of $518 million in just the first quarter of 2021.
That’s a huge deal, and it’s single-handedly keeping Tesla out of the red. If the market for carbon credits continues to go up, and the pricing of credits keeps increasing, Tesla and other environmentally beneficial businesses could reap huge dividends.
13. Do carbon offsets actually reduce emissions?
Both offsets and credits don’t always work as intended. Voluntary carbon offsets rely on a clear link between the activity undertaken and the positive environmental impact.
Sometimes that link is obvious – companies that use carbon capture technology to remove CO2 emissions and lock them away can point to hard numbers.
Other programs, like offsets that promote green tourism or seek to offset the damage of international travel, can be more difficult to measure. The reputation of the organization issuing the credit determines the value of the offset. Reputable carbon offset organizations choose carbon projects carefully and report on them meticulously, and third-party auditors can help ensure such projects measure up to strict standards like those established by UN’s Clean Development Mechanism.
Once properly vetted, “high-quality” offsets represent tangible, measurable amounts of reductions in CO2e emissions that companies can use like they reduced their own greenhouse gas emissions themselves. Though the company has not yet actually reduced their own emissions, the world is just as well off as if the company had actually done so.
This way, the company has bought itself more time to make its operations more environmentally friendly, while as far as the atmosphere is concerned, they already have.
14. Can you purchase carbon offsets as an individual?
Unless you represent a large corporation, you’re unlikely to be able to purchase a carbon offset directly from the source company. For now.
Instead, you’ll need to turn to one of the growing number of third-party companies that function as intermediaries. While this may seem like an added step, these companies offer a few advantages.
The best ones also work as a verification mechanism. They vet and double-check to be sure that the carbon offsets you purchase are, well, actually offsetting carbon.
For example: Companies such as Galaxus, which is Switzerland’s #1 online retailer, offers consumers the ability to offset the carbon footprint of their purchase.
Carbon Footprint Calculator
Many organizations will also provide a carbon footprint calculator. You can use these calculators to determine exactly how many carbon offsets you will need in order to be carbon neutral.
For many investors, carbon offsets are a way to minimize their own carbon footprint and live an environmentally friendly lifestyle. The size of the market and the growing demand for carbon offsets indicate that there’s serious potential for companies that produce carbon credits to see large-scale growth over the next decades.
15. Do I Need Carbon Offsets or Carbon Credits?
Now that you know their differences and what they have in common, here’s how carbon credits and carbon offsets work in the grand, global scheme of emissions reduction.
The government is putting heavy caps on greenhouse gas emissions, meaning that companies will have to reconfigure their operations to reduce emissions as much as possible. Those that cannot be eliminated will have to be accounted for through the purchase of carbon credits.
Ambitious organizations, corporations, and people can purchase carbon offsets to reach net zero or even nullify all previous historical emissions.
Software giant Microsoft (MSFT), for instance, has pledged to be carbon negative by 2030, and to remove all carbon they’ve emitted since their founding by 2050.
So which do you need?
If you’re a corporation, the answer might just be “both” — but it all depends on your business goals, as well as the local regulations where your company operates. If you’re a consumer, carbon credits are likely unavailable to you, but you can still do your part by purchasing carbon offsets.
Returning to the illustration from earlier, our vital, global goal is to both stop dumping chemicals into the metaphorical water supply, and to purify the existing water supply over time. In other words, we need to both drastically reduce CO2 emissions, and work to remove the CO2 currently in the atmosphere if we want to materially reduce pollution.
16. Why should I buy carbon credits?
If you’re a corporation, there are plenty of compelling reasons as to why you should be seriously considering investing in carbon credits and offsets.
If you’re an individual looking to buy carbon credits, you’re likely interested for one of two reasons:
The first reason is that you’re environmentally conscious, and looking to do your part in combatting climate change by offsetting your own greenhouse gas emissions, or those of your family.
If that’s the case, then rest assured – carbon offsets from a reputable vendor such as Native Energy are the perfect way for you to negate your own carbon footprint.
The second reason you’re interested in buying carbon credits is because you think it represents an investment opportunity. The global carbon market grew 20% last year and that strong growth is expected to continue as climate change becomes an increasingly relevant concern to the world at large.
If you fall into the latter category, then head over to our carbon investor centre, where we showcase some of the best investment opportunities in the carbon sector right now.
17. What is Blue Carbon?
Blue Carbon are special carbon credits derived from sites known as blue carbon ecosystems. These ecosystems primarily feature marine forests, such as tidal marshes, mangrove forests and seagrass beds.
Yes, forests can grow in the ocean! Examples include the mangrove forests in sea bays, such as Magdalena Bay in Baja California Sur, Mexico.
Mangroves are trees (about 70 percent underwater, 30 percent above water) that have evolved to be able to survive in flooded coastal environments where seawater meets freshwater, and the resulting lack of oxygen makes life impossible for other plants.
Key Fact: Mangroves cover just 0.1% of earth’s surface
Mangrove trees create shelter and food for numerous species such as sharks, whales, and sea turtles. And thanks to their other second-order effects such as the positive impacts on corals, algae and marine biodiversity that have been so negatively impacted by activities such as over-fishing and farming, mangroves are considered to be extremely valuable marine ecosystems.
Over the past decade scientists have discovered that blue carbon ecosystems like these mangrove forests are among the most intensive carbon sinks in the world.
According to scientific studies, pound for pound, mangroves can store up to 4x more carbon than terrestrial forests.
This means that blue carbon offsets can remove enormous amounts of greenhouse gases relative to the amount of area they occupy. On top of that, they also provide a whole slew of other side benefits to their local ecosystems.
Accordingly, a blue carbon offset project will have its carbon offsets trade at a premium.
18. Second Order Effects of Blue Carbon Credits
Other positive second-order effects of mangrove forests include:
Their importance as a pollution filter,
Reducing coastal wave energy, and
Reducing the impacts from coastal storms and extreme events.
Blue carbon systems also trap sediment, which supports root systems for more plants.
This accumulation of sediment over time can enable coastal habitats to keep pace with rising sea levels.
In addition, because the carbon is sequestered and stored below water in aquatic forests and wetlands, it’s stored for more than ten times longer than in tropical forests.
The significant positive second-order effects attributed to each blue carbon credit are why many believe they will trade at a premium to other carbon credits.
Blue Carbon and the Food Footprint
There is a land-use carbon footprint of 1,440 kg CO2e for every kilogram of beef and 1,603 kg CO2e for every kilogram of shrimp produced on lands formerly occupied by mangroves. A typical steak and shrimp cocktail dinner would potentially burden the atmosphere with 816 kg CO2e if the ingredients were to come from such sources.
It’s estimated that over 1 billion tons of CO2 is released annually from degrading coastal ecosystems.
There are around 14 million hectares of mangrove aquaforests on Earth today. And many are under attack by the deforestation practices caused by intense shrimp farming
Are the shrimp you eat part of the problem? Soon, these shrimps will be labeled, and consumers will know and be required to cover the offset costs for the environmental damage.
To put things into perspective, 14 million acres of wetlands would absorb as much carbon out of the atmosphere as if all of California and New York State were covered in tropical rainforest.
Think of blue carbon as the “high grade” gold mine at the surface.
Oceanic Blue Carbon
In addition to coastal blue carbon mentioned above, oceanic blue carbon is stored deep in the ocean within phytoplankton and other open ocean biota.
The infographic below shows the typical blue carbon ecosystem:
There are many factors that influence carbon capture by blue carbon ecosystems. These include:
Location
Depth of water
Plant species
Supply of nutrients
Improving blue carbon ecosystems can significantly improve the livelihoods and cultural practices of local and traditional communities. In addition, restoring blue carbon regions provides enormous biodiversity benefits to both marine and terrestrial species.
Conclusion
Carbon markets provide a crucial mechanism for mitigating the climate crisis by enabling the trade of carbon credits and offsets. This system, which originated with international agreements like the Kyoto Protocol and the Paris Agreement, has evolved to include both regulatory and voluntary markets, each playing a significant role in reducing global emissions.
While carbon credits function within mandatory cap-and-trade programs to control corporate emissions, voluntary carbon offsets offer an avenue for businesses and individuals to proactively reduce their carbon footprint.
The market’s potential for growth is significant, driven by increasing consumer awareness, corporate social responsibility, and innovative solutions like blue carbon projects. These markets not only help manage emissions but also create new revenue streams and investment opportunities, making them a vital component in the global effort to combat climate change.
As we edge closer towards a more sustainable world, the demand for nickel is skyrocketing. Nickel’s inherent properties such as strength, ductility, and resistance to heat and corrosion make it indispensable across various industries, notably the production of stainless steel.
But more importantly, nickel plays a pivotal role in the makeup of the lithium-ion batteries used in electric vehicles (EVs). With its key role in clean energy transition, as well as general industrial use, nickel was added to the U.S. government’s critical minerals list in 2022.
This list is the result of the Energy Act of 2020, which defined critical minerals as those:
“essential to the economic or national security of the United States; have a supply chain that is vulnerable to disruption; and serve an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economic or national security of the U.S.”
There’s a lot to chew on there, but in simple terms: critical minerals are those that the U.S. can’t function without, or those that the U.S. depends too much on antagonistic foreign powers for.
It’s not just the U.S., either – several other countries have their own critical minerals lists, such as Canada, the EU, South Korea, and Japan – and they all have nickel on them.
But despite a brief spike in early 2022 when the Russian invasion of Ukraine drove prices up on fears of a potential supply disruption, nickel prices have stayed fairly stable over most of the past decade, generally trading in the band between $10,000-$20,000.
Though nickel is indeed crucial to our net zero future, a healthy surplus of mine supply combined with a global slump in steel demand have offset the strong growth of the EV market (shown below), leading to nickel’s current weak price environment.
Still, though the near-term outlook for nickel isn’t strong, the green transition is expected to widen the gap between supply and demand.
International Energy Agency (IEA) Forecast
The International Energy Agency (IEA) has forecasted that at the current pace of development, nickel demand will outstrip supply by roughly 25% in 2030, yielding a more positive long-term nickel prices outlook.
In the meantime, here’s a close look at the top three nickel stocks that are poised to capitalize on this growing demand, with a focus on their production capabilities, market positioning, and forward-looking strategies.
As the world’s second largest producer of nickel in 2023, Vale stands out with operations spanning Brazil, Canada, Indonesia, and New Caledonia.
Notably, the company’s Long Harbour nickel processing plant in Canada set a benchmark in low-carbon nickel production, emitting about a third of the industry’s average CO2 levels.
Last year, Vale produced 164,900 tonnes of nickel, 8% lower than the year previous but in line with guidance due to ongoing development at some of its mines.
This scale, combined with its commitment to sustainability, positions Vale robustly in the face of escalating demand, especially from the EV battery sector. The company’s strategy to expand nickel output while adhering to environmental standards makes it a compelling choice for investors focusing on sustainable growth.
The main drawback with Vale lies in the fact that the company is a diversified miner that also produces iron ore and copper. In particular, nickel only represented 8.8% of the company’s operating revenue in 2023.
Still, this inclusion of other business segments isn’t necessarily a bad thing, as it does help lower the risk of the company as an investment. Those looking for a more conservative pick that still retains exposure to the growth of the nickel market can definitely consider Vale as a pick for their portfolios.
Next on our list is the world’s third-largest producer of nickel, UK-based Glencore. Like Vale, Glencore is a diversified miner that operates in several different markets.
Last year, Glencore produced 97,600 tonnes of nickel. While that only accounted for a modest 4.2% of Glencore’s total revenue for 2023, one thing that sets Glencore apart from Vale is that it’s significantly more diversified than the latter, with an energy segment on top of its metals and minerals segment.
Glencore’s broad mandate combined with its size make it a relatively safe investment, and the company has done very well since the post-COVID market lows. The company has also received positive attention for its very aggressive emissions reduction targets that include a 25% reduction in Scope 1, 2, and 3 emissions by the end of 2030 and a 50% reduction by year-end 2035 against a 2019 baseline.
Many major companies still refuse to even report Scope 3 emissions, let alone set near-term emissions reduction targets for them, so Glencore is definitely ahead of the curve with their climate action plan.
Last but not least, Glencore’s primary listing on the London Stock Exchange makes it easier for Europe-based investors looking for nickel exposure, though the company also has foreign ordinary shares and ADRs listed on the U.S. OTC market.
3. Canada Nickel Company (TSXV: CNC | OTC: CNIKF) Market Cap: US$160 Million
Finally, our last company is one for aggressive investors with a healthy appetite for risk, who are looking for more direct exposure to the growth of the nickel market compared to the diversified miners mentioned above.
Canada Nickel is a junior nickel miner based out of – you guessed it, Canada. While this may not seem like it warrants a special mention, it’s worth noting that the U.S. imports over 40% of its nickel from its northern neighbour. This makes Canada an extremely attractive jurisdiction for nickel producers, as a major buying market is only a short hop across the border.
The Crawford Nickel Project
The company has done an excellent job of consolidating nickel projects in the historically prolific Timmins mining camp in Ontario, one of the largest gold mining districts in the world. While nickel has traditionally been mined primarily as a by-product in the area, Timmins has struck proverbial gold with its flagship Crawford Nickel Project.
Right now, Crawford is actually the world’s second nickel operation by reserve size. Based on its bankable feasibility study, it’s projected to be the third largest nickel mine in the world in terms of annual production once it’s built.
Currently, Canada Nickel is still finishing the funding and permitting process for Crawford. The final decision on whether or not to build the mine is expected to happen mid next year, with first production expected by year-end 2027 if all goes according to plan.
Though Canada Nickel has acquired a number of other projects in the area, Crawford is definitely the main draw here. It’s expected to be a low-cost mine with robust economics and a lengthy 41-year mine life. The company’s novel approach to carbon storage, integrated into its mine plan, would also make Crawford not just a low-carbon-emission mine, but actually net carbon negative over its lifetime.
As good as all this sounds, however, it’s important to remember that as a junior miner that isn’t even producing any nickel yet, Canada Nickel is a highly speculative investment that should only be considered by investors with high risk tolerance.
While a number of major companies already have their eyes on Canada Nickel, with big names like Agnico Eagle, Samsung, and Anglo American taking significant ownership stakes, there’s no guarantee that Canada Nickel will be able to secure the funding and permits necessary to build a mine at Crawford, or that the company will succeed even if they do.
Still, if you’re looking for an investment with pure play exposure to nickel and have the right risk profile, Canada Nickel is one company you don’t want to miss.
A Brief Note on Norilsk Nickel (Nornickel)
Now, those of you who’ve looked at the companies above might be wondering something: why wasn’t the world’s largest nickel producer, Norilsk Nickel a.k.a. Nornickel, included?
Unfortunately, despite its attractiveness as the world’s largest nickel producer that’s also the closest thing you can get to a pure play major, there’s one major issue with Nornickel: it’s a Russian company.
Following the Russian invasion of Ukraine in 2022, Nornickel was one of several companies sanctioned by the West, leading to the stock getting delisted from both the American as well as the London stock markets.
As of June 2024, Nornickel is still listed on the Moscow Exchange. However, given that the Russian government has restricted foreign investors in “unfriendly” countries from buying and selling securities on the Moscow Exchange, the company is inaccessible to the average investor for the foreseeable future.
Nickel’s Importance in a Zero Emissions World
The global transition towards renewable energy and the exponential growth of the EV market are key drivers for demand growth for nickel. And lets not forget about lithium’s importance in “lithium ion” batteries along with nickel for new EVs.
RELATED: LiFT Power ($LIFFF), a fast developing North American lithium junior,is worth a look in the lithium space.
The companies listed above aren’t just mining firms – they’re also strategic players in the global shift towards sustainable energy. Investing in these stocks offers potential exposure to a critical resource that powers both today’s industries and tomorrow’s technologies.
Each company’s focus on expanding production capabilities while maintaining environmental and ethical standards provides a strong foundation for growth.
As the net zero transition continues accelerating the pace of EV adoption and hence the growth of the nickel market, make sure you keep your eyes on these three companies.
A new report from a carbon rating company, BeZero Carbon, reveals that a $100 billion carbon market could protect 150 million hectares of land, equivalent to the size of Peru, and drive $700 billion annual investments in carbon projects.
The report, “$100bn for Planet and People,” highlights the potential environmental and economic benefits of a global carbon market of this scale. BeZero also estimates that such a market could support 12.4 million jobs in forestry, nearly 3 million in sustainable agriculture, 310,000 in renewables, and 50,000 in adjacent industries.
Tommy Ricketts, CEO and co-founder of BeZero Carbon, stated:
“A $100bn project-based carbon market would deliver immense benefits for the planet and people. It means companies spending billions on new technologies and land restoration, supporting more jobs than the oil and gas sector while reducing our global footprint.”
From Forests to Farmlands: Diverse Activities Generating Carbon Credits
Today, over 50 types of activities generate carbon credits, ranging from forestry and mangroves to methane capture and soil carbon sequestration. And the number is steadily increasing.
Each carbon credit represents one tonne of carbon dioxide or another greenhouse gas equivalent (CO2e) mitigated by a specific activity over a defined period.
This expanding array of carbon credit-generating activities highlights the versatile approaches available to combat climate change. It underscores the growing importance of the voluntary carbon market (VCM) in global emission reduction efforts.
The market has seen massive growth in 2021 but concerns over carbon credit integrity impacted the market. Issuances have dropped in two consecutive years as shown in the chart below.
Still, forecasts are positive for the VCM’s growth as the world strives to mitigate climate change and cut carbon emissions.
BloombergNEF projects that the global carbon market will surpass $100 billion by the mid-2030s. The analyst also estimated demand for credits to reach 2.5 billion annually at an average price of $40.
How a $100B Market Drives Emission Reductions
The report provided several relevant insights into what the $100 billion carbon credit market could offer. Here are some key findings that the entire sector should know.
A $100B carbon credit market in the mid-2030s could finance emissions removal projects delivering about 20% of the carbon removals needed for a 1.5-degree Celsius pathway, according to the Paris Agreement. Such a market would focus on projects like reforestation, Direct Air Capture (DAC), and Bioenergy with Carbon Capture and Storage (BECCS).
The market could drive $700 billion in annual investments into carbon projects, a ratio of 7:1. The revenue from carbon credits makes these projects viable, unlocking essential institutional capital, especially for technologies that need substantial upfront and operational investments like DAC. Without carbon credits, these projects would struggle to attract the necessary funding to reduce and remove carbon emissions effectively.
The report suggests that in a $100B market, retired carbon credits will reduce or remove around 1.2 billion tonnes of CO2e emissions annually. This represents a significant environmental impact, equivalent to about 3% of current global emissions. This is equal to Japan’s annual emissions and one-and-a-half times that of the entire global aviation industry.
The $100 billion carbon credit market could finance nature-based projects covering around 150 million hectares, equivalent to 30% of global forest loss since 2000 and larger than Peru. These projects, such as afforestation in Brazil, blue carbon in Indonesia, and soil carbon initiatives in the US, support endangered species, protect coastal areas, and improve soil health.
By preserving and rebuilding diverse ecosystems, carbon credits contribute significantly to global environmental sustainability and biodiversity.
Moreover, these credits, based on conservative risk adjustments, ensure genuine emissions reductions and removals. As such, this underscores their role in mitigating climate change by effectively offsetting substantial amounts of greenhouse gas from various sectors.
Clearing The Path to Expansion
But to achieve a $100 billion market, rapid expansion is needed, addressing recent issues with carbon credit projects and enhancing verification and certification services. The report calls for integrating voluntary carbon credits into compliance markets, clear regulatory definitions, and operationalizing international carbon markets under Article 6 of the Paris Agreement.
The Science Based Targets Initiative (SBTI) is considering allowing carbon credits for companies’ Scope 3 emissions, potentially impacting six gigatonnes of CO2e. If approved, this could value the global carbon market at $100 billion annually.
The report also urges corporates to adopt internal carbon prices and project developers to enhance high-quality project delivery.
While supporters believe this approach could boost investment in carbon removal projects, critics worry it may undermine the integrity of science-based targets and reduce pressure on companies to cut supply chain emissions.
The potential of a $100 billion carbon credit market extends far beyond just economic benefits. By protecting 150 million hectares of land and creating millions of jobs across various sectors, such a market could drive substantial environmental and social progress. Addressing verification and certification challenges, integrating carbon credits into compliance markets, and enhancing high-quality project delivery are crucial steps toward realizing this vision.
Lithium prices plunged below $13,000/ton in June 2024, the lowest in 35 months, according to S&P Global Commodity Insights data. This is despite plug-in electric vehicle (PEV) sales across major markets have surged for the first 5 months.
Lithium Prices Hit New Lows
Lithium is the key element in manufacturing electric vehicles. Though lithium prices saw a slight increase in March, they declined in June 2024, driven by anticipated reductions in downstream battery production. The seaborne lithium carbonate CIF Asia price fell to a 35-month low of $12,900 per ton by June 18.
Source: S&P Global
Similarly, spodumene prices dropped by 9.5% to $1,050 per pound FOB-Australia, causing the merchant conversion margin to turn negative, averaging minus $118 per ton in June from $7,027 per ton in May.
Further decreases in spodumene prices are needed to prompt new mine-side supply cuts, last seen when prices fell below $900 per ton between mid-January and end-February.
Despite low prices, government interest in securing lithium production remains strong. Indonesia is emerging as a significant player in lithium chemicals production, integrating raw material-to-PEV supply chains. Chengxin started trial lithium chemical production in Indonesia in June, following the shipment of the first spodumene cargo from Port Hedland to Indonesia in May.
Additionally, the Serbian government is considering greenlighting the Jadar lithium project by Rio Tinto, which was previously halted in January 2022. This project would be Europe’s largest integrated lithium mine-to-refinery operation. It has a capacity of 58,000 metric tons of lithium carbonate, helping meet the EU’s battery metals demand.
And it’s not the EU, the rest of the world is vying for lithium as the global economy is ramping up electrification in transport.
Government Initiatives and Global Lithium Demand
In May 2024, PEV sales across key markets increased by 14.7% month-over-month and 25.9% year-over-year for the first five months, per S&P Global report.
China dominated, contributing nearly 90% of this growth, buoyed by new model launches and price discounts. Conversely, Germany and Norway saw declining sales, negatively impacting Europe’s top markets.
Source: S&P Global
In Europe and the US, PEV adoption is stalling due to the higher costs of battery electric vehicles (BEVs) despite brand discounts. Germany’s BEV sales dropped by 15.9% year-over-year after the environmental bonus ended in December 2023. BEV sales in the UK comprised 16% of total car sales but missed the 22% target under the 2024 zero-emissions vehicle mandate.
In the US, PEV sales have remained at 8%-10% of vehicle sales in 2024, consistent with late 2023 levels. More affordable models, especially in the $20,000 range, are needed to boost uptake in these markets.
From July 4, the EU will impose tariffs on imported BEVs from China, increasing up to 48.1% from the current 10%. The bloc aims to protect the European automotive industry and encourage local BEV production. However, this move might hinder the EV transition.
Between 2020 and 2023, BEV imports from China to the EU rose sevenfold. They’ve reached over 437,800 units in 2023, representing 28% of the 1.5 million BEVs sold in the bloc. These imports contained significant amounts of lithium carbonate equivalent (21,300 metric tons).
Accordingly, the EV revolution hinges on how the lithium market is moving forward and its forecasts.
Lithium prices have not shown signs of sustained recovery as the first half of 2024 ends. China’s reserve-buying of cobalt metal in May provided only short-lived support. Prices reached new multi-year lows in June due to summer’s downturn in battery demand and growing supply.
So, what’s in store for lithium in the coming months and years?
According to S&P Global lithium market outlook, prolonged low lithium carbonate prices are likely to pressure spodumene prices, potentially leading to further mine supply cuts and project delays.
Despite strong copper prices supporting cobalt by production and growing mine-side inventory, reduced consumer demand for PEVs has prompted many manufacturers to slow their EV targets and cancel new battery plants, like BMW’s €2 billion contract with Northvolt AB.
Higher import tariffs on China-made BEVs could slow EV transition in the EU and the US by making vehicles more expensive. The outcome of EU-China trade negotiations is crucial, as Europe balances relations with China and the US. The latter’s tax credits and funding attracting investments away from Europe, which is still building its support system.
Market surpluses for lithium would be larger in 2024, with forecasts of 38,000 metric tons LCE. Consequently, the lithium carbonate CIF Asia price forecast has been downgraded by $290/t to $14,129/t.
Source: S&P Global
A seasonal recovery in PEV sales is expected from September through year-end, which could narrow market surpluses and support prices. The long-term outlook for PEV uptake remains positive as automakers launch more affordable vehicles in the $20,000 range.
The future of the lithium market remains uncertain, with potential for further supply cuts and project delays. However, the long-term outlook for PEV uptake remains positive as automakers launch more affordable vehicles, potentially narrowing market surpluses and supporting prices.
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source: Verra
source: Rondo Energy
source: H&M
source: Japan Climate Transition Bond Framework
source: BlackRock
source: Temasek
