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Clean energy investing: One analyst's key area not to overlook

As companies prioritize clean energy initiatives, Tortoise Senior Portfolio Manager & Managing Director Rob Thummel and Citi Director of US Equity Strategy Drew Pettit join Yahoo Finance Live to discuss investments in the clean energy transition.

Pettit advises investors to consider the value chain and "invest in the infrastructure build" before energy companies themselves. Infrastructure will always be needed first, he explains. The Inflation Reduction Act (IRA) should be seen as a tailwind for these companies, Pettit adds.

Thummel highlights that energy companies themselves are taking the initiative on decarbonization through a variety of strategies. ExxonMobil (XOM), he highlights, has invested in infrastructure by acquiring Dinberry, gaining access to their CO2 pipelines; now, ExxonMobil is positioned to transport and sequester Gulf Coast carbon dioxide.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.


Editor's note: This article was written by Angel Smith

Video Transcript


JULIE HYMAN: Amid talk of decarbonization and the clean energy push the question remains, is the energy transition a smart investment right now? We're looking at how to navigate that big picture with the Yahoo Finance playbook.

I'm joined by Rob Thummel tortoise Senior Portfolio Manager and Managing Director and Drew Pettit, Citi Director of US Equity Strategy. Guys, thanks so much for being here. First of all, really appreciate it.

ROB THUMMEL: Rob, I want to start with you. Because when we talk about the energy transition here, there are a lot of different ways to get into it. But broadly speaking, is it something that investors should be looking at right now as an infeasible field?

ROB THUMMEL: Well, I think, Julie, good to see you. And good to see Josh as well. So I think ESG is fading a bit. But decarbonization globally is not. And it will continue.

And I think decarbonizing the world is something that's important to all of us, no matter what our age. And so as a result of that, yeah, I do think that the companies are looking to decarbonize. And when you're looking for companies that are decarbonizing, really it's the energy companies themselves that are really making significant strides in decarbonizing through a variety of ways, some of which you've already highlighted.

JULIE HYMAN: I want to come back to that in a minute. But first, I want to get Drew's view on this as well. Because it's not just about the energy companies when you're talking about the transition or at least not just oil and gas companies, specifically, it's also about solar, it's about wind, it's about other types of energy sources. So how should investors be thinking about it right now?

DREW PETTIT: I'll actually take you a step further back here. I think we have to think about the value chain first. When we're thinking about this thematically, a lot of the pure plays, they're having a little bit of a difficult time proving out their business models.

But I think if you go back in the value chain, we have to build the infrastructure first. I always find this a little bit quippy, but it's interesting. There are wind farms that don't really make a ton of money.

But I can almost guarantee you the company pouring the cement at the base of that windmill probably didn't lose on that contract. So I think from an investment standpoint, we want to move back in the value chain. We want to invest in the infrastructure build for energy transition right now.

JULIE HYMAN: And Drew, let me just extend that a little bit. Have we seen those types of businesses also get an added boost from the Inflation Reduction Act? Because there has been new investment in that industry. And how have they maybe taken advantage of that?

DREW PETTIT: So a lot of people talked about this. But I don't think a lot of the street and analysts put it into their numbers. So, honestly, yes, it should be a tailwind. IRA should be a tailwind for these companies.

But I think there is a lot of skepticism around it because a lot of again politically driven. We're in an election year. There's a lot of uncertainty there.

But the structural trend regardless of politics is still in place for energy transition. And infrastructure build out across energy and just infrastructure in the United States more broadly.

JULIE HYMAN: I want to come back to you for some names there. But first, I want to go back to Rob. Because here are, too, of course, the IRA is important.

Actually, investment. When you're talking about this decarbonization push because of credits-- because of increasing basically the value of carbon credits that these energy companies are trying to get a hold of. That said, the business doesn't really exist yet.

I mean, these build outs are very early on, Rob. So if I'm buying an ExxonMobil for its carbon capture business, I mean, when am I going to see profits from that?

ROB THUMMEL: Yeah, well, it's a little ways out. And obviously, ExxonMobil in its carbon capture business, it's going to take a little while for it to make a meaningful impact. But think about this, Julie.

And it kind of dovetails into a little bit what Drew's saying. Last year, ExxonMobil bought Denbury. Well, you say, well, what does that mean? Well, Denbury actually had the largest network of CO2 or carbon dioxide pipelines in the US.

And so Exxon paid $5 billion to buy a company like Denbury. So, now, Exxon is the largest really operator of infrastructure for carbon dioxide. So what Exxon can now do is take a lot of carbon dioxide off of the Industrial plants in the Gulf Coast, transport it in the pipelines, and actually ultimately sequester it like you were talking about earlier.

But you need that infrastructure in place to really reduce the cost. So it's examples like that of opportunities. Occidental is another example. That's doing direct air capture.

They're going to take advantage of to the IRA. Get some of the opportunities for the 45Q, the tax credit that people were referring to earlier. That business could grow.

And they expect it to be as large potentially and a significant provider of cash flow. Maybe as significant as his chemicals business, which is a billions of billions of dollar business for Occidental.