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The Green Revolution will shake sectors and markets

The Covid-19 infection has accelerated the world’s move to green energy. To aid the recovery, subsidies, taxes and regulations will direct investors to commit much more to green outcomes.

The Covid-19 infection has accelerated the world’s move to green energy. To aid the recovery, subsidies, taxes and regulations will direct investors to commit much more to green outcomes.

Charles Stanley

in Let’s talk about markets


The EU has recently published its detailed programme for its Green Deal for the next ten years. Joe Biden is planning something similar for the US should he be elected. Suddenly, the rather distant pledge to provide net-zero carbon dioxide emissions by 2050 is becoming a series of real policies which will have an impact on life, taxes and investment in the current decade.

The EU Commission has decided to increase its ambition to reduce carbon dioxide by setting a new 2030 target of getting to 55% below 1990 levels. Before the Covid-19 lockdowns, the EU reached a reduction of 25%, so the new policies have to achieve more in this decade than they achieved in the previous thirty years.

During that period, the EU concentrated on the easier wins, by shutting down much coal-powered electricity generation and pushing for lower industrial emissions through an emission-trading scheme with a penalty price for excessive carbon generation. As the Commission itself accepts, these new targets now require a serious change in the way individuals live their lives, as it will require big reductions in the carbon dioxide produced by home heating and private transport as well as industry and agriculture.

The EU estimates that it will take an additional €350 billion a year investment in decarbonising by individuals, companies and governments over this decade to transform transport, energy, industry and farming. They wish to see an EU in 2030 with "zero emission vehicles well on their way to replace conventional ones", a near doubling in renewable power to 60% from 32% of the total electricity generated, and a large improvement in buildings. The Commission thinks digital technologies "will be key (sic) part of making sure the EU reaches climate neutrality". The EU wants to change the way we heat our homes, alter our diets, get us to walk and cycle more and drive less, trade in our old cars for electric vehicles or for a better bicycle, and reduce our use of planes.

Oil and gas quandary

Meanwhile, the large oil and gas companies accept these new ambitions but puzzle over how they might be fulfilled. BP has set out three scenarios. Its business as usual forecast sees energy demand rise 25% by 2050 as the emerging countries in particular burn more oil and gas. Carbon dioxide output falls by a modest 15%. Its Rapid Transition scenario sees CO2 fall by 70% by 2050. Oil reduces from 35% to 17% of primary energy, renewables surge to 45% from 5%and coal drops away. Net-zero takes longer in its third scenario.

Shell also runs three scenarios, Mountains, Oceans and Sky. The first two do not reach net-zero, and Sky reaches it in 2070. All three Shell scenarios show oil and gas demand higher in 2030 than today, with coal down modestly in the Sky version. As with BP Shell assumes emerging economies will go through a period of development based on the oil and gas and even coal technologies that fuelled advanced country development years ago.

Some will say these oil companies are talking their own books. They argue that the transition can be fast in advanced countries if sufficient capital is applied, and emerging economies could leapfrog to the new low and no carbon technologies on offer for their development investment. It is nonetheless interesting that two oil majors who have warmly embraced the ideas of the Green movement conclude the pace of change will turn out to be slower. They understand the magnitude of the capital write-offs and new capital investments required and have to make business judgements based on their appraisals as they will be putting quite a lot of the new capital at risk in the energy sector.

EU road policy

The EU's plans for transport require the early retirement of diesel and petrol cars, the successful introduction of hydrogen propulsion for heavy goods vehicles, planes and ships, a large switch to active travel by walking and cycling, new low carbon diets with less meat and dairy produce and new forms of net-zero public transport that attract the crowds. Plans for homes are less advanced, but there is a recognition that buildings account for 40% of the total energy used.

The EU proposes extending its carbon emissions trading scheme and its carbon taxes to many more users than just industry today, to include homes and vehicles. It thinks a higher carbon price drives quicker change. It sees that could hit the poorest countries and people hardest, as they are more dependent on fossil fuel heating and cooking. It proposes transfers to those in need out of the additional revenues it will enjoy from carbon pricing and taxing.

Meanwhile, the Green revolution continues in its paradoxical way with the public. Many people buy into the idea and the aim of these policies. Their belief does not extend far enough to rush out to buy the new products of the revolution. Electric cars in 2019 were under 3% of total car sales and under 1% of the world stock of vehicles. Most people still heat their homes with a fossil fuel boiler and are not planning an early change.

Is hydrogen the answer?

In an attempt to accelerate the interest Angela Merkel and others are now proposing hydrogen as an important green technology for transport, which could act as a diversion from the electric vehicle movement. Toyota, Honda and Hyundai already have developed hydrogen cars. Germany considers hydrogen as the solution for heavier vehicles. This way forward needs green hydrogen, hydrogen generated by renewable electricity rather than coming from natural gas. All these solutions will require a concerted and major investment in additional renewable energy.

The outlook remains poor for carbon-based traditional businesses given the clear intention to use taxes and regulations as well as encouragement to get people to change their lifestyles. The aim is to write off a lot of fossil fuel investment, closing coal mines and shutting down oil and gas wells. The winning areas remain wind farms, solar power, hydropower, new heating and cooling systems for buildings and that elusive affordable popular iconic electric car. One day a manufacturer may come up with the Beetle or the Mini of the Green revolution and sell lots of them. We are still waiting, with Tesla delaying the cheaper product for three years.

All this means that subsidies, taxes and regulations will seek to direct investors to commit much more to green products and services, allowing rewards to those willing to finance the revolution.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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