Investing in emissions reduction: A 2050 view

Meeting emissions mitigation targets will require $110trn of investment between 2016 and 2050

Jamie Gordon

a large plume of smoke in the sky

While clean energy ETF performance has been a key talking point in recent months, investors should not minimise the breadth and long-term potential of emission reduction technology.

The National Centers for Environmental Information (NCEI) has projected global warming could reach 4.1 degrees Celsius above preindustrial levels by 2100 which will incur a 10% reduction in economic output due to ecological damage.  

Furthermore, 30% of the global population currently experience ‘lethal heat’ for at least 20 days per year and by 2100 this could rise to 74% if the 4.1-degree rise is realised. Also, at its 2020 low, Arctic ice coverage was 40% below the 1981-2020 average putting 800 million coastal residents at risk.  

The underlying message of these forecasts is not new information. Noting 75% of global warming comes from heightened atmospheric carbon dioxide, and that humans are responsible for 47% of such emissions since the beginning of the industrial revolution, many companies and governments have made significant first steps in decarbonising over the past decade.  

Reflecting this, renewable energy made up 26.6% of electricity production in 2019, up from 19% in 2010. Andrew Little, cleantech and renewables themes research analyst at Global X, said at ETF Stream’s recent Big Call: Thematic ETFs event much of this shift has been driven by the reduced cost of implementing clean utilities hardware, with the cost of wind turbines falling by 55% and solar PVs falling by 80% over the last decade. 

Despite this, Little argued there is still much to be done, with electricity accounting for just 30% of total global emissions, and renewables making up just 11% of the global energy mix. 

The future of decarbonisation 

Little said meeting emissions mitigation targets will require $110trn of investment between 2016 and 2050, including $26trn on renewables, $37trn on energy efficiency, and $20trn on electrification and infrastructure. 

Between now and 2050, the globe could see investment in wind and solar capacity hit $1trn per year in order to effectively scale renewable electricity. 

However, Little said any meaningful effort to reduce emissions must go beyond investment in renewable power producing utilities, and must take into account the entire cleantech value chain, spanning across subsectors such as electrification, smart grid, storage, emissions reduction, and carbon capture. 

On the smart grid model, Little noted investment across the value chain as a whole had in fact fallen from $305bn in 2016 to $271bn in 2019. It now requires a more holistic focus, with an appreciation of the role of utility-scale generation, microgeneration, smart meters, microgrids, and stationary storage. 

An area with more bullish uptake has been electric vehicles (EVs) which Little said he expects will benefit from being 90% efficient versus internal combustion engines boasting 20-40% efficiency. Looking ahead, it is expected 1.1 billion electric vehicles will be required to achieve adequate decarbonisation by 2050. 

Likewise, the capacity of the world’s battery mega factories stood at 57 GWh in a year in 2015, versus a projected 3,153 GWh of output in 2030 – enough for 50m EVs or around 50% of current car sale volumes. 

In the longer term, Little is optimistic about the prospects of green hydrogen, with fuel cell EVs having the potential to play a role in land transport, while stationary fuel cells could contribute to home heating, green ammonia can be used in shipping, and hydrogen and synthetic fuels could play a role in aviation.  

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“Hydrogen is a longer-term play because of what it will take for electrolyser costs to drop and adoption to increase, but the infrastructure is there because of the use of grey hydrogen – so we are positive on hydrogen.” Little said.

Overall, the company are most confident about carbon capture technology, with emissions-intensive industrial companies et to continue investing in this subsector to comply with the ongoing roll of regulatory demand. 

For now, cost remains a prohibiting factor, but with some expecting these to fall by more than 40% in the early 2020s, Global X backs carbon capture, use, and storage (CCUS), and removal (CDR) technology. 

Where emissions reduction is happening 

Many large companies such as Google, Facebook, Apple and Microsoft, have committed to becoming carbon neutral before 2030. 

Lagging private sector targets, governments across different geographies have committed to emissions reduction efforts at different speeds, with Little saying Europe has been a frontrunner.

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“The US and China are responsible for 35% of greenhouse gas emissions, and we are just starting to see positive action from them on reducing these emissions.

“We are starting to see aggressive commitments from China and the US, with Biden rejoining the Paris Agreement and committing to be carbon neutral by 2050, while China has pledged to be carbon neutral by 2060, with peak emissions by 2030.” Little concluded. 

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