The issue isn’t whether their technology will work, Jabusch said, but whether they can scale up in a cost-effective way. “If they can, they could wind up selling to all the electric vehicle makers in the world, all the stationary storage providers,” he said. “They are in the early stages and are in production hell, but it has enough potential that I’d feel a small bit of exposure would be appropriate.” The stock trades around $34.
Lucas White, portfolio manager, GMO Climate Change Fund
Biofuels already in existence are among climate solutions that Lucas White, of the GMO Climate Change Fund, invests in. “With a lot of clean energy solutions, this massive buildup needs to occur to enable those technologies to have greater penetration,” White said. “Biofuels can make an impact today, and their emissions profiles are 80% to 90% less than those of fossil fuel-based alternatives.”
To make biofuels, companies process “feedstock” such as used cooking oil, animal fat, and grease. Darling Ingredients Inc., which trades around $78, has a competitive advantage over peers, White said, because it can leverage its own waste collection business in the production of biofuels, as well as animal feed.
White views Darling as trading at a relatively cheap level, “with earnings potential and profitability potential much higher than what they’re generating now because they’re dramatically expanding production.”
A more speculative play in biofuels is Finnish company, White said. It’s an oil refining company, but White sees most of the value in its biofuel business.
“It’s a big, early mover in sustainable aviation fuel and renewable diesel, and it has the biggest research and development budget,” White said. Neste is working on next-gen feedstocks including algae and used plastics, White said. The GMO Climate Change fund has a small position in the stock, which trades around 47 euros ($55) on the Helsinki Stock Exchange.
A technology that can also have a big impact targets the steel manufacturing industry. “Traditional steel manufacturing, using blast furnaces, is a very carbon-intensive, nasty process,” White said. “It’s been one of the niches of the global economy where clean solutions have been very hard to come by.”
That’s why White’s invested heavily in GrafTech International Ltd. The company produces ultra-high-power graphite electrodes used in a type of furnace—an electric arc furnace. Those furnaces have about a 90% reduction in carbon emissions compared to blast furnaces and “all of the growth in steel-making over the next 20 to 30 years is expected to be in electric arc furnaces,” White said.
The $12.50 stock, which trades around six times forward earnings, “is an exciting opportunity,” White said. Potential risks could stem from China, both in the electric arc furnace area in general, if government crackdowns on certain industries spread through the economy, and if the electrodes China produces, which White said are now inferior, catch up to GrafTech.