In the wake of the conclusion of this year’s global climate summit, investors and regulators are keenly aware of the importance of emissions with the creation of a global carbon market. The energy infrastructure sector has been working to reduce emissions, with midstream companies tackling reduction in a variety of ways.
Major pipeline operator Plains All American (PAA) has transitioned from generators to using the main electrical grid, eliminating the need for 44 natural gas and diesel-powered generators; it’s a move that increasingly more midstream companies are making, bringing down their overall emissions.
Other companies are taking the technology route, using innovations to reduce emissions and improve costs. Enterprise Products Partners (EPD) announced in their third-quarter press release that they are working to modify the heater design for one of the propane dehydrogenation plants so that it can run off of co-produced hydrogen versus natural gas. This transition is expected to reduce emissions by 90% and save capital costs by $50 million.
Many midstream companies are incorporating a greater amount of renewable energy; it’s a key component for most to reach net-zero emissions by 2050. Kinder Morgan’s 2020 Sustainability Report found that solar energy provided an excellent power source for facilities that were further away from the grid, and several companies already incorporate solar energy into their operations.
Renewably sourced energy that companies aren’t generating for themselves is being acquired through agreements with outside sources, mainly solar-based or wind. Major midstream companies are signing long-term contracts with solar providers to meet their energy needs while reducing emissions and costs.
Investing in Midstream Companies Reducing Emissions
The Alerian MLP ETF (AMLP) offers exposure to major midstream companies that reduce emissions and improve costs. The fund seeks to track the Alerian MLP Infrastructure Index, a rules-based index that is float-adjusted and modified cap-weighted.
The index comprises energy infrastructure MLPs that derive most of their cash flow from storage, transportation, and processing of energy commodities. AMLP invests at least 90% of its assets into the securities within the underlying index and is classified as a C-Corp for tax purposes, utilizing a 1099 for tax reporting.
Recent tax legislation means that individuals and some non-corporate investors qualify for a 20% deduction against the taxable income from direct investment into MLPs.
Plains All American Pipeline LP is carried at a 10.36% weight in the fund, and Enterprise Products LP is carried at 9.65%.
AMLP carries an expense ratio of 0.90% and has total net assets of $5.5 billion.
For more news, information, and strategy, visit the Energy Infrastructure Channel.