Aggressive targets and increased spending
The European Union has led the way with its Green Deal launched at the end of 2019, which has made carbon neutrality by 2050 a priority, with an intermediate target of reducing CO2 emissions by 55% from 2030 (compared to the 40% initially planned). This target implies a 40% increase in the share of clean energy in the European energy mix (compared to 32% initially).
China, for its part, is aiming for carbon neutrality by 2060, an objective included in the 14th five-year plan (2021-25) which was presented on 5 March and provides for an 18% reduction in carbon intensity as well as a growth in the share of non-fossil fuels in the energy mix from 16% in 2020 to around 20% in 2025.
As for the US, which rejoined the Paris Agreement on 20 January 2021, it has committed to having a 100% clean energy and zero CO2 emission economy by 2050 at the latest, with an intermediate target of decarbonising all energy production plants by 2035. Symbolic of this shift in US policy were the halting of the Keystone XL pipeline extension to bring crude oil from North Dakota and the cancellation of the Alaskan Arctic drilling project.
Compelling opportunities for investors
This growth in clean energy will require substantial investment and innovation both from governments and the private sector, opening up compelling opportunities for investors. According to the IRENA, cumulative investment in the energy system between 2015 and 2050 will need to increase around 30%, from $93 trillion according to current and planned policies, to $120 trillion to meet globally agreed targets.
Under its Green Deal, the EU will need to invest €350 billion more annually between 2021-2030 than it did between 2011-2020. This is an increase of around €90 billion per annum compared to the investments needed to achieve current 2030 climate and energy targets. A lot of investment will go into technologies and companies that contribute to at least one of six pre-defined environmental objectives as defined by the EU.
Investors attracted to the clean energy theme have an increasingly wide choice of funds and ETFs to invest in, including highly concentrated approaches in terms of either number of stocks or a specific part of the clean energy space, such as solar or wind energy companies. For investors who prefer a broader strategy that captures a more diversified set of opportunities, it is important to understand whether the fund or ETF they are considering is able to adapt effectively to the changing landscape.
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