United and ambitious
The turnaround in climate policy announced by the Biden administration is of global significance. Along with China, the US is the biggest climate polluter. Together, the two world powers are responsible for more than 40 percent of global carbon emissions. In addition to re-joining the Paris Climate Agreement, President Biden has announced investments in infrastructure renewal amounting to around USD 2 trillion.
As part of the plan, four million commercial buildings will be upgraded with state-of-the-art, energy-efficient technologies. In addition, investments will be devoted to further electrification based on renewable energy sources. The goal of completely decarbonizing electricity generation by 2035 is particularly ambitious. By 2050, the entire energy supply in the US is to be carbon neutral – on par with Europe and China’s ambitions.
Energy consumption set to rise
Despite increasing global efforts towards energy efficiency, in the immediate future, energy demand will continue to increase. The two biggest drivers are the unchecked rise in global populations and GDP growth, led by the Asia-Pacific region. With appropriate measures, however, it is entirely possible that the level of global energy consumption will first plateau before reaching a point of slow decline by 2030 (see Figure 1).
But to do this, three measures are required simultaneously: 1) the electrification of fossil-fuel dependent heating and transport sectors, 2) stricter energy efficiency measures for other end-use sectors, and 3) substantial expansion of the share of solar and wind energy in electric power grids.
Despite optimism, our own estimates don’t see us achieving the 1.5°C scenario by 2050 – a scenario that would require complete carbon neutrality. It seems more likely that energy-related carbon emissions will be halved from today’s level to slightly below 20 gigatons per year by 2050 (see Figure 1). Even this, however, will only be possible if the percentage of electricity making up the global energy supply increases from its current share of 20% to 50%. In parallel, the ‘renewable share’ of electricity must rise from its current 30% share to 85%. According to our calculations, this would mean that electricity generation, driven by solar and wind, would have to increase by a factor of about six by 2050 – an entirely realistic scenario.
Figure 1 | The target scenario of 1.5°C by 2050 is barely achievable
Source: Robeco, Global Carbon Project
Transport in transition
The transport sector, in particular, has shown the highest growth rates in energy demand. With a share of almost 30% of global energy consumption, and a heavy dependence on oil, it is one of the biggest carbon polluting sectors, driven not only by vehicles but also by air traffic.
The automotive industry is increasingly seeing that its carbon footprint can only be reduced sustainably through comprehensive electrification – encompassing both electric vehicles and the renewably generated electricity that powers them. Some automakers have already formulated self-imposed goals as a means of decarbonizing the automotive value chain starting with vehicle production, continuing through use and maintenance, and ending with vehicle recycling. What started with passenger vehicles will continue to spread to other transport subsectors, such that the entire sector will be electrified sustainably over time.
Green hydrogen – a developing solution
Hydrogen will also provide storage capacity to complement batteries, particularly in areas with high demands on weight and energy density. This will enable the comprehensive electrification of heavy-duty vehicles, ships and even aircraft (where promising pilot projects have already been announced). Despite its potential for energy storage, hydrogen fuel as an energy source only makes sense if it is produced in a carbon-neutral manner— only ‘green hydrogen’ meets that criteria. It is produced in an electrolyzer using a carbon-free process consisting of water, electrolysis and renewable electricity. However, current electrolyzer units are unable to produce the volumes of hydrogen needed for large-scale, industrial demand; broader market penetration is still years away
As with batteries, advances in electrolyzer technologies will surmount present barriers to make green hydrogen competitive (relative to current carbon-based hydrogen production methods) by 2030 at the latest. An abundance of green hydrogen would enable the large-volume and seasonal storage of renewable energy which could then be used not only to decarbonize transportation, but also other energy-dependent industrial processes (like heat generation for buildings, fertilizer for crops, semiconductor manufacturing, and steel production).
With the world united in the fight against climate change, the global movement towards a sustainable energy supply is gaining considerable momentum.
No sector left behind – diversified long-term growth
With the election of Joe Biden, the international community appears united in its quest for a sustainable global energy economy. With firm government commitments worldwide, momentum is accelerating towards a cost-effective and sustainable energy transition that includes low-cost renewable energy, smart energy grids, adaptable energy storage, and energy-efficient technologies that help reduce energy consumption.
The future of energy is renewable, electric and efficient providing abundant investment opportunities across a diverse set of industry value chains. The RobecoSAM Smart Energy and Smart Mobility strategies offer investors exposure to these exciting trends in ‘decarbonization’ and ‘sustainable mobility’ that are driving us towards a clean energy future!
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong. This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions. The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.