I see a lot of buzz on the exchange about people trying to get into the Carbon trade.
I mean look at EUA futures; after hearing Raoul saying that it looks like a crypto, what reasonable minded gambler wouldn't want to get on this?
And listening to Lawson Steele (https://www.realvision.com/shows/live/videos/a-closer-look-at-the-carbon-emissions-trade-live-with-lawson-steele-and-raoul-pal) say that this thing could easily 2x from here by the end of the year and maybe even further in a better case scenario, I can easily see why people want to ride this thing.
What's more, ETFs such as GRN (Which holds a portfolio of differing maturity EUA futures, and is thus a pure play on European carbon credits) and KRBN (Which holds, EUA, CCA and RGGI, thus giving exposure to Europe, California and Eastern US), getting into this carbon trade is easier than ever.
But like 2 -4x? What is that? Ant returns?
Wtf am I going to do with a measly 2-4x return within 6 months? Waste it on a lousy trip to Maldives?
Give me the leveraged exposure, I want to be warming my hands next to my Swarovski crystal fireplace, burning 100 CAD bills in a Swiss villa.
But wait, how can you get leveraged exposure to Carbon credits? Isn't leverage risky?
Well, yeah, leverage is risky, but what I mean is accentuated returns on the carbon trade, not trading on margin financed by borrowed cash. (Don't margin trade kids, margin trading is dangerous mmmk?)
How is this possible?
Think about it, this thing essentially trades like a commodity, when you want leveraged exposure to a commodity, what do you do?
You don't go long oil, you go long oil companies
You don't go long gold, you go long gold miners.
Likewise, real degenerate gamblers go long Carbon Credit Royalties.
What is a carbon credit royalty?
Well, unlike other commodities, carbon offset credits can be created out of thin air, by just sequestering carbon and earning credits for taking carbon out of the air. Those credits can then be sold to companies who need them to survive.
Essentially, your carbon credit miner looks like this:
A carbon royalty/streamer basically has a portfolio of assets (Read as forests and shit) that earns carbon offset credits which they can sell back onto the open market.
You pay up a fixed cost in order to earn carbon credits.
If carbon credits go up in price, you're basically making leveraged returns.
An aside: Don't know why this is leveraged returns? Follow the math below:
As an example, pretend 1 carbon credit = 10USD.
It costs 5 USD for a company to produce 1 carbon credit. Thus the company makes 5 USD revenue per 1 credit sold .
Price of 1 Carbon credit goes to 40 USD
The price of carbon credit has gone up 4x.
However, the company now makes 35 USD of revenue (40 USD price of carbon credit - 5 USD cost to produce credit), which means that the revenue of the company has gone up 7x!!!
So what companies are there?
Two companies I have found are:
Star Royalties (STRR)
Carbon Streaming Corp (MXVDF)
Incidentally, STRR also has gold royalties, so if you're bullish gold, you got a potential double whammy here.
Having said that though, I have not had the time to do a deep dive on either or find other companies (Cause I have a non-finance day job that keeps me busy nearly every waking hour).
So this is where my request comes.
If you want to play the carbon game, but with proper size, not just measly GRN/KRBN ETF returns, here is your chance to start digging around and get your valuation hats on. Key metrics to try get a ballpark estimate for include:
What price of carbon offset credit would be needed for this company to make returns?
Is the carbon streamer based in a country that has cap-and-trade system of carbon credits? What is the schedule for that country in terms of reducing the supply of those carbon credits?
How much is the price of those carbon credits likely to appreciate over time? What are some baseline scenarios?
Given those baseline scenarios, and even a worst-case scenario, what would you expect the revenue of this carbon credit royalty to be like over time?
You don't hear many people in the media talking about this, which means while people are scrambling over bonds, meme-stocks or crypto, we have a chance to get the hivemind early into this potential monster of a trade.
Share your ideas here, or just do some extra inspection on the two companies I've suggested.