In 2019, renewables represented just 7.2% of German energy use, with electricity generated from biomass another 7.6%. Oil, gas, coal and lignite dominated power production. In the UK 75% of primary energy is fossil fuels. In the US in 2018 the proportion was 84% and in China 85%. It shows just how much opportunity there is as these countries embark on their green revolutions. It reminds us just how much oil, coal and gas investment will have to be written off and abandoned if the target of zero carbon is to be met. The first area to develop low CO2 fuels is electricity generation. The transport and home heating revolutions that will also be needed are taking longer.
One of the difficulties in assessing the pace and likely success of the green revolution is consumer resistance to change. Practically everyone accepts the scientific view that carbon dioxide is a greenhouse gas alongside water vapour and methane that will warm the planet if its volumes increase. Most people accept that manmade carbon dioxide is increasing, and this of itself will warm the planet if all else stays the same. These beliefs do not, however, make most people rush out to replace their diesel or petrol car with an electric one, or order an electric-based heating system to replace their gas central heating. We need to understand why this is.
Part of it comes from people who do not accept that there will be dangerous global warming. They may think offsetting factors to manmade CO2 will intervene. Perhaps, they tell themselves, natural carbon dioxide may fall, the sun's activity may become less intense, wind and cloud patterns may offset the obvious consequences of more manmade CO2. Some come from people arguing that all the time the two largest countries in the world, China, and India, rush ahead with energy-intensive development including big increases in coal and other fossil fuels, any actions they took themselves are insignificant.
Cost a factor
Some of the reluctance strangely comes from the majority of people who accept the full green argument that manmade CO2 will harm us and that we each need to take action. They are not yet persuaded themselves to buy an electric car because they think they are too expensive and not resilient enough, with insufficient range. Nor do they yet spend on new heating systems, implying they do not see global warming as an immediate crisis affecting them even though they say they agree with the scientists.
In 2018, just 0.9% of all cars in use in China were plug-ins, in the US, 0.45%, and in Germany 0.1%. There are now fast rates of growth in electric car sales, with 2019 figures showing 3% of new German cars, 2.9% of UK cars, and 2.1% of US cars sold were some kind of electric plug-in vehicle. It is a reminder of just how huge a market transition is required to get to the point where a majority of new cars sold are electric, and then an even bigger transition to get to a majority of all the cars in use.
The US shows the way on home heating and cooling. More US homes have air blown systems, with more than a quarter of US homes using electricity for heating, whilst most cooling systems are electric. In the UK, 85% of home heating is gas-fired, 6% oil-fired and just 6% electric. In Germany, electricity is around 11% with gas and oil accounting for three quarters. Again this shows the huge market scope for change, and the magnitude of the task to write off all that investment in gas supply and use and replace it with electric technology.
So, what are the investment conclusions?
The potential increase in demand for electric vehicles and heating systems is large. Growth rates are currently high as the base is so small. Governments are very supportive, looking to use subsidies, taxes and regulations to persuade or to require people to make these switches.
For a variety of reasons, most people are still very reluctant to go this path, hoping for more subsidy and greater economies of scale from the suppliers. Bulls will look at the huge market opportunities and invest more in the suppliers of the revolution. Bears will worry more about the impact on all the jobs and investments in gas and oil heating and in petrol and diesel vehicles – and await the arrival of more popular and attractively-priced electric vehicles and heating systems that fly off the shelves to many more people. With Joe Biden ahead in the polls, investors are thinking of the boost he would provide to the green revolution if he manages to win the Presidency.
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Investing in the green revolution
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