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Investing in hydrogen ETFs to combat climate change
With record-breaking temperatures sweeping across the Northeastern United States and the European continent, investors may seek exposure to companies involved in sustainable energy to combat climate change.
Anthropogenic (human-induced) climate change is no longer a distant threat. The sweltering heat is being felt across the world as record heatwaves wreak havoc on local economies, infrastructure, ecosystems and industries. Governments and the private sector are racing to come up with solutions to rectify this crisis. Among the most prominent multilateral government agreements is the Paris Climate Accord, which aims to limit global temperature rise to below 2°C. However, governments cannot do this on their own, meaning industries must step up and play their role in reducing carbon emissions.
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Can hydrogen play a role in mitigating climate change?
Hydrogen is the most common and plentiful element in the universe. Its practicality as renewable green energy is increasingly being viewed as a viable alternative to the use of fossil fuels due to its abundance and potential scalability. It does not produce CO2 (carbon dioxide) when burned. However, its production does currently use fossil fuels. The good news is green hydrogen, defined by the World Economic Forum as a process in which hydrogen technology is produced in a “climate-neutral manner,” is set to become more prominent, according to analysts and industry insiders. In fact, some analysts predict this green hydrogen could overtake less clean forms of hydrogen within the next two years.
Potential uses for hydrogen
The practical utility for hydrogen as a source of energy is promising. It can potentially replace fossil fuels in numerous industries, including transportation, buildings, and industrial processes. One Goldman Sachs executive, Michele Della Vigna, predicts hydrogen could develop into a market worth $1 trillion per year, particularly for its potential in the heavy transport and heating industry. Another promising use for hydrogen is its application in buildings. Most buildings rely on fossil fuels for heating and cooling, and cumulatively, buildings are responsible for roughly 40% of global energy consumption and 33% of CO2 output. The potential market opportunity in transforming buildings alone is massive.
3 hydrogen ETFs to watch
Most hydrogen ETFs that are traded on exchanges are relatively new, which makes them an exciting opportunity for investors who wish to gain exposure to organizations that utilize novel hydrogen technologies. Additionally, they provide diversification, which is a massive upside given that green hydrogen is still in its infancy stage at the current moment. This means investors can have ownership in multiple publicly traded companies that are liquid and transparent without the risk of owning individual stocks that could hurt your portfolio if they tank, all the while having the benefit of relatively low MER fees.
HYDR – (Global X Hydrogen ETF)
- AUM: $34.43
- Expense Ratio: 0.50%
- YTD performance: -31.13%
HJEN – (Direxion Hydrogen ETF)
- AUM: $27.26
- Expense Ratio: 0.45%
- YTD performance: -22.35%
HDRO – (Defiance Next Gen H2 ETF)
- AUM: $47.15
- Expense Ratio: 0.30%
- YTD performance: -36.14%
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