Clean energy is the key to the world’s climate challenge

by | Jun 17, 2021

Dr Chris Mellor, CFA, Head of EMEA Equity and Commodity ETF Product Management, Invesco

The last couple of years have seen an increased focus on ESG, particularly the urgency of tackling environmental challenges. Climate issues have progressed from polite conversation to genuine, tangible actions and the establishment of long-term plans by major economies across the globe. Developments over the next decade are likely to happen quickly and be significant, offering investors a wide range of long-term growth opportunities.

Anyone who remembers the “clean energy boom” in the years leading up to the global financial crisis may question what’s different now. Short answer: a lot! In the past few years, we have borne witness to an unprecedented combination of political, economic and financial factors that, together, has thrust clean energy to the forefront of ESG agendas. In the fight against climate change, reducing emissions from the energy sector, which accounts for nearly three-quarters of greenhouse gas emissions, has become mission critical.

Economically speaking, it makes sense

Major advances in the field of clean energy has been one of the most significant industrial developments of the past decade. These are energy sources that are naturally replenished and produce renewable energy such as wind and solar power. A game changer for this industry has been a profound improvement in economics. Once considered expensive to produce, 56% of additional renewable power in 2019 achieved a lower electricity cost than the cheapest new coal plant1. New solar and wind installations reached record levels in the US last year, despite limited federal support.

The days when governments could only encourage the adoption of clean energy through heavy subsidies seem to be over. Solar energy is a case in point, with the cost of solar energy falling by 82% between 2010 and 20191. According to the International Agency for Renewable Energies (IRENA), over the long term, renewable energy like solar and wind will become even cheaper than oil, natural gas, and coal thermal power well before 2040.

There is an unprecedented consensus among the vast majority of countries, including the most polluting, China and the US, which account for 28% and 15% of emissions, respectively2. They are all working on action plans that they will present in November at COP26, plans that will translate the commitments made in 2015 at COP21 in Paris to limit global warming by 2050.

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