The world is on the verge of a new industrial revolution that will be powered by renewable energy sources.
This crisis has several causes, but it is mainly the result of the desire of European governments to reduce their dependence on Russia for fuel supplies. The recent hot summer showed how climate change can exacerbate energy problems. Low water levels hampered hydroelectric power generation and made cooling of nuclear reactors problematic, while a lack of wind limited the output of wind farms.
The magnitude of the crisis demanded a rapid response from governments and required the mobilization of all energy sources, including fossil fuels, to meet the energy needs of the coming winter. This does not mean a capitulation in the fight against climate change and could even accelerate the transition to clean energy sources.
THE CRISIS FAVORS THE ENERGY TRANSITION
First, the crisis has forced even climate skeptics to recognize the urgent need for diversified and renewable sources of energy, and the world now has a better understanding of the strategic implications of one country’s energy dependence on another. Second, the crisis has led governments, businesses and households to take stock of their consumption. The energy transition is not just about using cleaner energy sources, but also about increasing energy efficiency and reducing overall consumption.
Europe has been at the forefront of the fight against climate change. Its ‘Adjustment to Target 55’ action plan aims to reduce dependence on fossil fuels, expand the use of renewable energy sources, accelerate the development of electric cars and encourage clean energy for aviation and shipping.
However, the Russian invasion of Ukraine has made it necessary to adopt a new energy strategy, called ‘RePowerEU’. It should enable Europe to reduce and eventually end its dependence on Russian fossil fuels. The strategy is based on three pillars: energy savings, diversification of supply sources and accelerating the transition to clean energy. While the plan includes a significant component devoted to renewable energy, it also includes the construction of new liquefied natural gas (LNG) infrastructure.
WILL THE U.S. TAKE THE LEAD IN THE MANEUVER?
The new U.S. Inflation Reduction Act is expected to give a boost to the U.S. energy transition. Considered the largest piece of climate legislation in the nation’s history, the $369 billion plan aims to boost green energy supplies, decarbonize agriculture and industry, increase investment in clean technology, expand investment in energy efficiency and help disadvantaged communities adapt to climate change. By 2030, these measures are estimated to reduce net greenhouse gas emissions by 31% to 44% from 2005 levels.
This law can rightly be considered a turning point. Indeed, in addition to being timely in the context of current energy security concerns, this initiative allows the United States to once again become a credible partner in the fight against climate change by taking center stage internationally, for example at COP27.
CHINA: NEW AMBITIONS AND NEW CHALLENGES ?
While China is largely immune to supply problems related to Russia, the extreme weather conditions of the summer have had an impact on the country’s energy security. In particular, it has led to an increase in coal consumption for power generation. It also led to the closure of many plants. In terms of the fight against global warming, China has also discontinued its collaboration with the United States, which was announced last year at COP26. Nevertheless, it seems willing to honor its commitments to decarbonization. The carbon peak is planned for 2030 and carbon neutrality for 2060.
The task is enormous, as carbon emissions are expected to peak much higher than in the United States and carbon neutrality is expected to be achieved just 30 years later. But investment in critical green technologies has been substantial, and by 2025, the country expects to generate one-third of all its energy from renewable sources.
The energy transition is at a critical juncture. Yet investors can play a key role in decarbonization efforts by focusing on climate-friendly investment strategies. A comprehensive analytical approach should help identify companies with the potential to win in this long-term effort.
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Source: Allnews | 6 dec 2022 | Edward Lees, BNP Paribas Asset Management.
Link to the online article (FR)
Edward Lees, Co-leader of the Environmental Strategies Group and Portfolio Managers for the funds Energy Transition et EARTH.
Prior to joining BNPP AM in 2019, he was CEO of North Shore and then Duet. His career began in 1994 in investment banking and private equity at Morgan Stanley, then in 2000 at Goldman Sachs as a managing director. He holds an MBA from Wharton and a BA from Amherst College (450 signs).