This week we are sharing our notes from an S&P webinar on the implications of a transition towards cleaner energy.
Strategic Planning for Energy Transition
- The electric sector accounts for 30% of the US’s carbon emissions, transportation for 35-40%.
- Decarbonizing the electric grid is a priority because it will be the starting point for the implementation and daily use of clean energy by individuals and companies in their habitual power consumption.
- Once you decarbonize the electric grid and expand recharging stations, EVs transportation will play an important role.
- Clean energy technology is becoming more efficient, leading to an important cost decline close or equal to current fossil fuel energy costs.
- Nuclear energy will play an especially important role in getting to zero carbon (today nuclear is 20% of the clean energy, wind and solar 10% to 15%).
- “Net zero” strategies where business models do not change fundamentally can achieve a carbon reduction of 80% at best.
Financing Net-Zero: Sustainable Investment Strategies
- Investors, as BlackRock, are moving towards climate-aware investment strategies. The commitments to divest carbon holdings seem now more focused on stewardship and helping fossil fuel companies carry out their transition, hoping to keep investing in those that do so quickly and successfully.
- A true transition can only be accomplished with both public and private sectors working in unison.
- Transition bonds support the way in which company strategies evolve, enabling their shift towards low-carbon investments that will help a company transition with greater ease.
- Transition bonds are designed to change the core issue of a company’s business model. They do not intend to make the current model “less bad”, but to develop different and better solutions with long-term impact.
- External verifications will be necessary for companies to prove whether they are really complying with carbon regulations and goals.
- Net-Zero indices will gain importance over the coming years. Companies want to participate in them because there is high demand for index components.
The Path to Net-Zero: How Energy Markets Can Move the Dial on Climate Change
- Where is the energy market going? It will not just be about what companies are doing, but also customer choices as sustainable options grow.
- There are new potential business lines for fossil fuel companies: electricity generators, EV recharging, sale green electricity on the power grid, biofuel markets for aviation, hydrogen power, and carbon capture and storage services.
- We still need to balance remaining fossil fuel emissions with carbon capture initiatives that, although useful, are still not a permanent offset.
- Nature-based solutions: reducing or ending deforestation, large scale reforestation.
The development of clean energy transition markets will only accelerate in coming years. As investors seek more transparency from corporates on their climate-related strategies (ideally aligned with TCFD’s framework), we think it will be important for participants in most industries to increase their knowledge on these topics.
I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.
CEO, Miranda ESG
Contacts at Miranda Partners