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The investment world turns greener

The UN Secretary General has told the world that more action is needed to tackle climate change. This could have a big impact on the relative fortunes of sectors and countries in the world economy.

The investment world turns greener

by
John Redwood

in Features

03.12.2019

For two weeks, the 197 signatory nations to the UN’s Convention on Climate Change made in Rio in 1992 meet in Madrid to hammer out new details of how they can do more to cut carbon dioxide output.

They need to translate the promises made at the Paris Conference in 2015 into clear programmes and targets. This summit is likely to concentrate on discussing best practice, trying to find a way of increasing the price of carbon-dioxide production and removing subsidy to fossil-fuel activity. It may well fall to the Glasgow summit planned for November next year to agree specific national targets for each country to reduce its carbon dioxide output further.

Ursula’s plan

Yesterday, the new President of the European Commission, Ursula von der Leyen, started her term in office by making a major statement to the Madrid Conference. She has clearly signalled her intention to launch a substantial Green Deal, or a series of policies designed to phase out fossil-fuel-based activity and undertake an electric and green revolution.

Mrs von der Leyen envisages a higher price for the output of carbon, a carbon border tax on goods imported from countries still relying on fossil fuels, along with major investment in new green products and energy production. She wants Europe to be the first carbon-neutral continent, delivering net zero emissions by 2050 at the latest. The EU will be committed to this by a new law. The intermediate target of a 40% reduction in carbon output by 2030 compared to 1990 is in her view too lax. She wants to increase that to 50-55% but is encountering resistance from some member states.

Within the EU, Germany and Poland are still substantial miners and users of coal, whilst the continent as a whole uses a lot of gas. Germany as a leading car producer for the world has much work to do to reorient the model ranges to move towards many more electric vehicles. Mrs Von der Leyen stated that: “The Green deal is Europe’s new growth strategy”.

What is the Green Deal?

New money will be committed to renewable power, electric transport, and different heating and insulation systems in homes. The scale will be substantial but not in itself sufficient to lift the Euro-area growth rate significantly given the monetary and fiscal background and the decline of the traditional car industry.

Coal is widely thought to be the worst power source when it comes to carbon output. China is very reliant on coal to power its industry and light its homes, and is still building substantial new coal power station capacity. This is coming under the spotlight at Madrid. China has around 1000 GW of electricity capacity based on coal. This compares with typical UK electricity output of just 40-45 GW from all energy sources. China has another 121 GW of coal capacity under construction. New coal mines are fuelling the demand.

China and India in focus

It is possible China will also now start closing older dirtier plants, with plans in circulation to do just that. She has a long way to go to get her coal-based power down so the sector starts to cut its carbon output. China has argued that as a developing country with a large population she needs to be allowed to increase her emissions as the economy grows. China has also promised that coal and other fossil fuel fuels will come down as a percentage of energy used as she builds up her growing renewables sector.

The Madrid conference will include sessions for individual countries to share what they are doing to decarbonise and be cross-examined by other states. China is not listed to do this, but will definitely be in mind as they puzzle over the world numbers. The main aims of many delegates will be to end the coal industry completely over a period of years, to switch as much transport as possible to electrically-driven machines fuelled by renewable energy, and to transform the typical building so heating and air conditioning are from renewable sources with high standards of insulation. China and India, as the world’s two largest coal mining nations, will need to play their part in this, though with less pressure and a less demanding timetable than the advanced nations.

The green revolution will mean big changes in many sectors as businesses grapple with the imperatives laid down from Paris and the follow-on conferences. The shift from carbon-based to renewable-based energy will have a continuing influence on relative share valuations.

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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